opied from Ian Liddell-Grainger's website in June 2009)10 Mar 2009
Audit Commission
1.29 pm
Mr. Ian Liddell-Grainger (Bridgwater) (Con): I am grateful to be discussing the Audit Commission, and I should like to offer a brief history lesson. In 1846—the Minister may remember it well—the first sewing machine was developed in America, the Irish potato famine began and, believe it or not, official audits were introduced in English local government. We should have come a long way in the intervening 163 years, but progress does not always follow an upward path—certainly not when it comes to auditing local councils.
In 1983, the then Conservative Government established the independent Audit Commission. It seemed like a good idea at the time, but unfortunately the work load has snowballed. The commission was given more councils, authorities and trusts to keep a watchful eye on, and today it is responsible for checking the books of 11,000 complex public bodies that spend £200 billion of our money, including everything from town halls to health trusts, fire authorities and the police, which is a pig of a lot of paperwork to handle in anyone’s book.
However, delightfully, the commission is not exactly overstaffed. It employs 2,500 people, which is slim government. I have no problem with that, but it works out at one harassed human being for every four public authorities. In other words, the work is a superhuman challenge. I have not come here to decry what the commission tries to do—I have absolutely no doubt that those people give it their best shot given their resources—but I am seriously worried about some of its operations.
I shall go into detail about the local authority that I have the terrible misfortune to know best: Somerset county council. We are all painfully familiar with the tales of mismanagement and greed from the world of banking and it is widely acknowledged even by senior Cabinet Ministers that light-touch regulation was a dangerous error. There are growing calls for the Financial Services Authority to be beefed up or got rid of so that we can tackle tomorrow’s Fred the Shreds. I am concerned that the bad practice that almost wrecked the reputation of British banking is now creeping into the public sector.
The Minister will be delighted that we have our own Fred the Shred in Somerset. His name is Alan Jones, the chief executive of the county council. He was taken on in 2003 for £90,000 a year, which makes MPs look cheap, and now takes home £160,000, which is more than the Prime Minister. That scale of inflation is enough to make any grown man groan. Actually, Jones the Groan is in charge of a so-called four-star authority. Listening to him, one could be mistaken for thinking that every element under the county’s control is pure heaven, but that is highly deceptive, to say the least.
The star awards are a denigrated currency. So many councils have collected them that the commission is scrapping the prizes. Like green shield stamps, the awards have become tacky and worthless. Star ratings do not even register at my favourite Somerset local, “The Dog and Duck”. People care only about the quality of service and how much it costs, not about stars. Unfortunately, the commission’s stars have also bred a greedy race for high salaries. Today, we see the ludicrous spectacle of many chief executives earning far more than the Prime Minister. That cannot be right.
The executives behave like premier league football managers, shifting from council to council on still richer packages, simply because they are on some silly star rating system. Research by the commission recently found that council chief executives’ pay has risen by more than a third in the past four years. We are envious of that. It is a shameful legacy of the commission that it has created a market for local government fat cats and bloated egos, few of whom have larger egos than Jones the Groan.
Jones the Groan had a big, expensive business idea. Like all great schemes, it was destined to be paid for by the likes of us. I was deeply suspicious from the word go and brought it to the Government’s attention. Last year, I secured a debate in the Chamber about the formation of a new joint venture company, which is now called Southwest One. A joint venture implies partnership, but that partnership is far from equal. Three public bodies, which are all meant to be answerable to the commission, are involved: Somerset county council, Taunton Deane borough council, and the Avon and Somerset police. They did a deal with IBM, a multi-billion pound company, and took over hundreds of staff, mostly in information technology. Together, they intended to trade throughout Britain as Southwest One.
Before the company even started, it was heralded as a great success story that was guaranteed to save £200 million for the hard-pressed taxpayers of Somerset. The Government will not be surprised that so far it has not saved a brass farthing. Unfortunately, IBM continues to own 75 per cent. of the company, which means that every time it provides a service to its joint venture clients, three quarters of the returns go into IBM’s pockets. IBM did not get where it is today through charity. Last year, it turned over $98 billion and made $10 billion profit.
The Somerset deal means that IBM always gets its rake-off and other partners cannot be encouraged to join. Jones the Groan and his team have not persuaded any other council to get involved. Through the commission, Devon and Cornwall looked at the arrangements. Because they did not join, Jones the Groan called them “institutional chauvinists”—it seems we do not do charm in Somerset. The initial contract was signed in September 2007 with the commission’s knowledge and was amended in March last year when Avon and Somerset police joined. The contract, which runs to 3,000 pages, is still secret. I asked the commission to look at it, but that is not in its remit. Councillors are allowed to inspect the paperwork only if they sign a gagging order to stop them revealing anything about any aspect of the deal. That is bizarre and, I suspect, highly undemocratic. The odour of rotting fish is quite normal in county hall these days.
I shall go through some of the history. Alan Jones, the chief executive, hired a special brain to take the project through—a lady called Sue Barnes. She got the job and a lucrative contract with no interview. Mrs. Barnes uses her maiden name. Her married name is Mrs. Port, and she is the wife of the chief constable of Avon and Somerset police. That may be a coincidence, but Mr. Port’s force is now a member of Southwest One, and he has put himself on the company’s board. Board directors of Southwest One have a direct responsibility to protect not only the commercial interests of the company, but also Somerset’s taxpayers. Inevitably, that produces conflict with his role as head of the Avon and Somerset police.
Did anyone in the Home Office, the Association of Chief Police Officers or the commission raise a murmur about that? No, they did not. Silence is golden. Anyone who did anything about it, including the BBC, got a letter from Carter-Ruck, with whom many of us will be familiar. It cost us £90,000 to defend Mr. Port. Again, the commission did nothing. What is the matter with the commission? On every occasion that I have asked about the arrangements, I have been told that they are outside the commission’s remit and that it cannot look at them. The commission was set up to uphold the best principles, and should be working to do so, but in practice its powers are at best severely limited and in some cases negligible.
Last year, I received an anonymous brown envelope containing a load of documents—no doubt I will be arrested for that after the debate—the transcript of an interview with a very senior officer at the county council, the corporate director of resources, Mr. Roger Kershaw. It showed how Mr. Kershaw’s original evidence to the Standards Board had been altered. Large sections were deleted, probably by Mr. Kershaw himself or Jones the Groan, his boss. The bits that went missing implicated Mrs. Barnes, the chief constable’s wife, for holding a secret meeting with IBM at a crucial stage in the bidding process. It even described how Mrs. Barnes had been, in effect, dismissed straight afterwards, but mysteriously was still around when the contract for Southwest One was signed. At the time, that looked like a deliberate attempt to suppress evidence concerning a contract that involved £400 million of taxpayers’ money.
Last year, in the House, I called that corruption. I hope the Minister understands that I do not use the word lightly. I was advised in writing by the Secretary of State for Communities and Local Government to take my concerns to the district auditor, and I did so. The district auditor even came to see me, but I was not encouraged by his response, which was that such things were outside his remit. I wrote to him and got the same reply, so I ask the Minister: whose remit is it? When such evidence comes to light, we want to know, in a democratic nation, where it has come from.
The district auditor was equally dismissive when I told him about Roger Kershaw’s professional conflict of interest. Mr. Kershaw just happens to be Somerset county council’s line manager for Southwest One. He is also the section 151 officer, whose duty is to ensure that everything is done by the book. He runs with the fox and the hounds, but guess what? According to the district auditor, that is not within his remit either.
Do not get me wrong. I do not think that it is the Audit Commission’s fault; it is the system’s. We—I say that collectively—have failed to provide enough legal muscle, people and money to do the job. We may, unfortunately, trust too much in the process of democratic accountability. We ought to give far greater support and training to local councillors who must scrutinise complex—in this case, bad—deals such as Southwest One. In Somerset, the public are forced to rely on a “Dad’s Army” Captain Mainwaring-style figure of fun, a one-time small-town banker—there is an old cockney rhyme for that—called Mr. Crabb. That individual, God help us, is Somerset’s equivalent of the Chancellor of the Exchequer, without the eyebrows. He is a part-time councillor who runs a French property business and spends most of his time in Edinburgh. He has been shown to be at best incompetent and at worst stupid. His political opposite number is a well-meaning councillor who sells golf balls.
Those councillors are well-meaning people who want to do the best that they can, but they are totally out of their depth. There are two other potential defenders of the public interest on the board of Southwest One, but they too are woefully inexperienced elected members. To put it crudely, IBM can afford the best financial and legal brains on the market. We cannot compete, either as councillors or as Members. The councillors are forced to take advice from a small group of highly paid officers whose careers are entwined in the matter. They are treated like mushrooms—I am sure that the Minister can guess what is coming; they are kept in the dark, and every now and again the door opens and in comes the manure.
The crude fact is that there is no effective accountability. That should change. I believe strongly—as I know the Minister does, because of where he comes from—that electors deserve councillors who are properly taught to do their job and know where to get impartial advice. I hope that he will side with me. That is the only way for tyrannical chief executives to be challenged before they do lasting harm to this country’s democratic process. I am totally with the Government in seeking more openness and honesty in council chiefs. I applaud the Minister’s pledge to force chief executives to come clean about their salaries, bonuses and pension perks. We have to do that, so why should they not do it too? They get a lot more than we do. I do not want my county run by unelected fat cats, and I do not want Jones the Groan rewarded for his obvious and utter failures.
The current politicians are not exercising control, and nor is the Audit Commission. The commission lacks the time, people and power to get to the bottom of any problem. I note that it is trying to recruit a new principal auditor for the south-west. The pay scale is £33,000 a year. By contrast, Roger Kershaw, the equivalent in Somerset county council, takes home £110,000, not counting all the other bits. Money talks. How can the commission hire the best staff if it cannot compete on pay?
When the auditors turn up to inspect a local authority, how do they work? They are not like a murder squad. They cannot turn over a council, searching every nook and cranny. A finance man from a big county described the Audit Commission’s task to me:
“They listen to what councils say. They look at internal audit work and things they raised last year. They do some sampling to see if there is anything that challenges what they have been told. They listen to objections raised by interested parties. But unless they are pointed in the right direction, it is sometimes like lookingfor a needle in a haystack. And their first priority is to reassure themselves that the accounts present the transactions in the year in a fair and transparent way.”
Imagine taking in a car for an MOT and being cross-examined, “Is it running well? How are the tyres? Any other problems? Oh well, we’ll sign you off, great.”
Auditors who lean so heavily on client input can hardly be described as independent, let alone thorough, and there are not enough of them. Last year, there was so much adverse publicity about the formation of Southwest One that the Audit Commission finally took a look at the matter. I suspect that ministerial push was behind it. That particular exercise cost £8,900. The district auditor charged £345 an hour. He skimmed through one of the most detailed and complex contracts in recent history, which was probably three and half days’ work. It was not a proper audit; it was a snapshot. It was light-touch regulation all over again.
A complete council audit is far from cheap. A lot of councils have complained about Audit Commission charges. Somerset had to cough up £257,300 last year. That raises another important issue of doubt. How can the independent Audit Commission’s word be trusted when the client pays all the bills? Will the Minister consider reducing grants to local government by the amount required to create a central audit fund? That way auditors could be fully independent and free from the accusation that whoever pays the piper calls the tune.
Have the Government considered a merger between the National Audit Office, the Audit Commission, the government consultants 4ps and the Office of Government Commerce? On large, risky ventures such as Southwest One, local government auditors should be able to call on additional resources to ensure that the highest standards are applied in the public interest. On another point, key milestones called gateway reviews are mandatory in large national projects. Why are they not also mandatory for large local government projects such as ISiS and Southwest One? I ask in a spirit of constructive debate, because I do not know the answer.
I consulted many experts before this debate—I have been going on about the issue for two years—and have reached the sorry conclusion that the Audit Commission is no longer fit for task. This year, to everyone’s derision, Somerset county council received from the auditors the highest value for money rating possible. They might as well have given an Oscar to a tub of lard for all the good that has done. Somerset borrowed £35 million to buy an unproven computer system from IBM that is already drastically late. That is not value for money. The council also ignored all professional advice and invested £25 million in Icelandic banks. That is not value for money either, but what would the Audit Commission know? Some £10 million of its reserves also went to Iceland. We have all been caught up.
We pay for such costly mistakes. We deserve better: better audits, better scrutiny, and a much tighter rein on the likes of Jones the Groan and all the useless people around him. If we do not get that, we will all end up paying in the long run.
Audit Commission
1.29 pm
Mr. Ian Liddell-Grainger (Bridgwater) (Con): I am grateful to be discussing the Audit Commission, and I should like to offer a brief history lesson. In 1846—the Minister may remember it well—the first sewing machine was developed in America, the Irish potato famine began and, believe it or not, official audits were introduced in English local government. We should have come a long way in the intervening 163 years, but progress does not always follow an upward path—certainly not when it comes to auditing local councils.
In 1983, the then Conservative Government established the independent Audit Commission. It seemed like a good idea at the time, but unfortunately the work load has snowballed. The commission was given more councils, authorities and trusts to keep a watchful eye on, and today it is responsible for checking the books of 11,000 complex public bodies that spend £200 billion of our money, including everything from town halls to health trusts, fire authorities and the police, which is a pig of a lot of paperwork to handle in anyone’s book.
However, delightfully, the commission is not exactly overstaffed. It employs 2,500 people, which is slim government. I have no problem with that, but it works out at one harassed human being for every four public authorities. In other words, the work is a superhuman challenge. I have not come here to decry what the commission tries to do—I have absolutely no doubt that those people give it their best shot given their resources—but I am seriously worried about some of its operations.
I shall go into detail about the local authority that I have the terrible misfortune to know best: Somerset county council. We are all painfully familiar with the tales of mismanagement and greed from the world of banking and it is widely acknowledged even by senior Cabinet Ministers that light-touch regulation was a dangerous error. There are growing calls for the Financial Services Authority to be beefed up or got rid of so that we can tackle tomorrow’s Fred the Shreds. I am concerned that the bad practice that almost wrecked the reputation of British banking is now creeping into the public sector.
The Minister will be delighted that we have our own Fred the Shred in Somerset. His name is Alan Jones, the chief executive of the county council. He was taken on in 2003 for £90,000 a year, which makes MPs look cheap, and now takes home £160,000, which is more than the Prime Minister. That scale of inflation is enough to make any grown man groan. Actually, Jones the Groan is in charge of a so-called four-star authority. Listening to him, one could be mistaken for thinking that every element under the county’s control is pure heaven, but that is highly deceptive, to say the least.
The star awards are a denigrated currency. So many councils have collected them that the commission is scrapping the prizes. Like green shield stamps, the awards have become tacky and worthless. Star ratings do not even register at my favourite Somerset local, “The Dog and Duck”. People care only about the quality of service and how much it costs, not about stars. Unfortunately, the commission’s stars have also bred a greedy race for high salaries. Today, we see the ludicrous spectacle of many chief executives earning far more than the Prime Minister. That cannot be right.
The executives behave like premier league football managers, shifting from council to council on still richer packages, simply because they are on some silly star rating system. Research by the commission recently found that council chief executives’ pay has risen by more than a third in the past four years. We are envious of that. It is a shameful legacy of the commission that it has created a market for local government fat cats and bloated egos, few of whom have larger egos than Jones the Groan.
Jones the Groan had a big, expensive business idea. Like all great schemes, it was destined to be paid for by the likes of us. I was deeply suspicious from the word go and brought it to the Government’s attention. Last year, I secured a debate in the Chamber about the formation of a new joint venture company, which is now called Southwest One. A joint venture implies partnership, but that partnership is far from equal. Three public bodies, which are all meant to be answerable to the commission, are involved: Somerset county council, Taunton Deane borough council, and the Avon and Somerset police. They did a deal with IBM, a multi-billion pound company, and took over hundreds of staff, mostly in information technology. Together, they intended to trade throughout Britain as Southwest One.
Before the company even started, it was heralded as a great success story that was guaranteed to save £200 million for the hard-pressed taxpayers of Somerset. The Government will not be surprised that so far it has not saved a brass farthing. Unfortunately, IBM continues to own 75 per cent. of the company, which means that every time it provides a service to its joint venture clients, three quarters of the returns go into IBM’s pockets. IBM did not get where it is today through charity. Last year, it turned over $98 billion and made $10 billion profit.
The Somerset deal means that IBM always gets its rake-off and other partners cannot be encouraged to join. Jones the Groan and his team have not persuaded any other council to get involved. Through the commission, Devon and Cornwall looked at the arrangements. Because they did not join, Jones the Groan called them “institutional chauvinists”—it seems we do not do charm in Somerset. The initial contract was signed in September 2007 with the commission’s knowledge and was amended in March last year when Avon and Somerset police joined. The contract, which runs to 3,000 pages, is still secret. I asked the commission to look at it, but that is not in its remit. Councillors are allowed to inspect the paperwork only if they sign a gagging order to stop them revealing anything about any aspect of the deal. That is bizarre and, I suspect, highly undemocratic. The odour of rotting fish is quite normal in county hall these days.
I shall go through some of the history. Alan Jones, the chief executive, hired a special brain to take the project through—a lady called Sue Barnes. She got the job and a lucrative contract with no interview. Mrs. Barnes uses her maiden name. Her married name is Mrs. Port, and she is the wife of the chief constable of Avon and Somerset police. That may be a coincidence, but Mr. Port’s force is now a member of Southwest One, and he has put himself on the company’s board. Board directors of Southwest One have a direct responsibility to protect not only the commercial interests of the company, but also Somerset’s taxpayers. Inevitably, that produces conflict with his role as head of the Avon and Somerset police.
Did anyone in the Home Office, the Association of Chief Police Officers or the commission raise a murmur about that? No, they did not. Silence is golden. Anyone who did anything about it, including the BBC, got a letter from Carter-Ruck, with whom many of us will be familiar. It cost us £90,000 to defend Mr. Port. Again, the commission did nothing. What is the matter with the commission? On every occasion that I have asked about the arrangements, I have been told that they are outside the commission’s remit and that it cannot look at them. The commission was set up to uphold the best principles, and should be working to do so, but in practice its powers are at best severely limited and in some cases negligible.
Last year, I received an anonymous brown envelope containing a load of documents—no doubt I will be arrested for that after the debate—the transcript of an interview with a very senior officer at the county council, the corporate director of resources, Mr. Roger Kershaw. It showed how Mr. Kershaw’s original evidence to the Standards Board had been altered. Large sections were deleted, probably by Mr. Kershaw himself or Jones the Groan, his boss. The bits that went missing implicated Mrs. Barnes, the chief constable’s wife, for holding a secret meeting with IBM at a crucial stage in the bidding process. It even described how Mrs. Barnes had been, in effect, dismissed straight afterwards, but mysteriously was still around when the contract for Southwest One was signed. At the time, that looked like a deliberate attempt to suppress evidence concerning a contract that involved £400 million of taxpayers’ money.
Last year, in the House, I called that corruption. I hope the Minister understands that I do not use the word lightly. I was advised in writing by the Secretary of State for Communities and Local Government to take my concerns to the district auditor, and I did so. The district auditor even came to see me, but I was not encouraged by his response, which was that such things were outside his remit. I wrote to him and got the same reply, so I ask the Minister: whose remit is it? When such evidence comes to light, we want to know, in a democratic nation, where it has come from.
The district auditor was equally dismissive when I told him about Roger Kershaw’s professional conflict of interest. Mr. Kershaw just happens to be Somerset county council’s line manager for Southwest One. He is also the section 151 officer, whose duty is to ensure that everything is done by the book. He runs with the fox and the hounds, but guess what? According to the district auditor, that is not within his remit either.
Do not get me wrong. I do not think that it is the Audit Commission’s fault; it is the system’s. We—I say that collectively—have failed to provide enough legal muscle, people and money to do the job. We may, unfortunately, trust too much in the process of democratic accountability. We ought to give far greater support and training to local councillors who must scrutinise complex—in this case, bad—deals such as Southwest One. In Somerset, the public are forced to rely on a “Dad’s Army” Captain Mainwaring-style figure of fun, a one-time small-town banker—there is an old cockney rhyme for that—called Mr. Crabb. That individual, God help us, is Somerset’s equivalent of the Chancellor of the Exchequer, without the eyebrows. He is a part-time councillor who runs a French property business and spends most of his time in Edinburgh. He has been shown to be at best incompetent and at worst stupid. His political opposite number is a well-meaning councillor who sells golf balls.
Those councillors are well-meaning people who want to do the best that they can, but they are totally out of their depth. There are two other potential defenders of the public interest on the board of Southwest One, but they too are woefully inexperienced elected members. To put it crudely, IBM can afford the best financial and legal brains on the market. We cannot compete, either as councillors or as Members. The councillors are forced to take advice from a small group of highly paid officers whose careers are entwined in the matter. They are treated like mushrooms—I am sure that the Minister can guess what is coming; they are kept in the dark, and every now and again the door opens and in comes the manure.
The crude fact is that there is no effective accountability. That should change. I believe strongly—as I know the Minister does, because of where he comes from—that electors deserve councillors who are properly taught to do their job and know where to get impartial advice. I hope that he will side with me. That is the only way for tyrannical chief executives to be challenged before they do lasting harm to this country’s democratic process. I am totally with the Government in seeking more openness and honesty in council chiefs. I applaud the Minister’s pledge to force chief executives to come clean about their salaries, bonuses and pension perks. We have to do that, so why should they not do it too? They get a lot more than we do. I do not want my county run by unelected fat cats, and I do not want Jones the Groan rewarded for his obvious and utter failures.
The current politicians are not exercising control, and nor is the Audit Commission. The commission lacks the time, people and power to get to the bottom of any problem. I note that it is trying to recruit a new principal auditor for the south-west. The pay scale is £33,000 a year. By contrast, Roger Kershaw, the equivalent in Somerset county council, takes home £110,000, not counting all the other bits. Money talks. How can the commission hire the best staff if it cannot compete on pay?
When the auditors turn up to inspect a local authority, how do they work? They are not like a murder squad. They cannot turn over a council, searching every nook and cranny. A finance man from a big county described the Audit Commission’s task to me:
“They listen to what councils say. They look at internal audit work and things they raised last year. They do some sampling to see if there is anything that challenges what they have been told. They listen to objections raised by interested parties. But unless they are pointed in the right direction, it is sometimes like lookingfor a needle in a haystack. And their first priority is to reassure themselves that the accounts present the transactions in the year in a fair and transparent way.”
Imagine taking in a car for an MOT and being cross-examined, “Is it running well? How are the tyres? Any other problems? Oh well, we’ll sign you off, great.”
Auditors who lean so heavily on client input can hardly be described as independent, let alone thorough, and there are not enough of them. Last year, there was so much adverse publicity about the formation of Southwest One that the Audit Commission finally took a look at the matter. I suspect that ministerial push was behind it. That particular exercise cost £8,900. The district auditor charged £345 an hour. He skimmed through one of the most detailed and complex contracts in recent history, which was probably three and half days’ work. It was not a proper audit; it was a snapshot. It was light-touch regulation all over again.
A complete council audit is far from cheap. A lot of councils have complained about Audit Commission charges. Somerset had to cough up £257,300 last year. That raises another important issue of doubt. How can the independent Audit Commission’s word be trusted when the client pays all the bills? Will the Minister consider reducing grants to local government by the amount required to create a central audit fund? That way auditors could be fully independent and free from the accusation that whoever pays the piper calls the tune.
Have the Government considered a merger between the National Audit Office, the Audit Commission, the government consultants 4ps and the Office of Government Commerce? On large, risky ventures such as Southwest One, local government auditors should be able to call on additional resources to ensure that the highest standards are applied in the public interest. On another point, key milestones called gateway reviews are mandatory in large national projects. Why are they not also mandatory for large local government projects such as ISiS and Southwest One? I ask in a spirit of constructive debate, because I do not know the answer.
I consulted many experts before this debate—I have been going on about the issue for two years—and have reached the sorry conclusion that the Audit Commission is no longer fit for task. This year, to everyone’s derision, Somerset county council received from the auditors the highest value for money rating possible. They might as well have given an Oscar to a tub of lard for all the good that has done. Somerset borrowed £35 million to buy an unproven computer system from IBM that is already drastically late. That is not value for money. The council also ignored all professional advice and invested £25 million in Icelandic banks. That is not value for money either, but what would the Audit Commission know? Some £10 million of its reserves also went to Iceland. We have all been caught up.
We pay for such costly mistakes. We deserve better: better audits, better scrutiny, and a much tighter rein on the likes of Jones the Groan and all the useless people around him. If we do not get that, we will all end up paying in the long run.
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