Public Audit Committee

Meeting date: Wednesday, December 14, 2011

Official Report 399KB pdf

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Section 22 Reports

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“The 2010/11 audit of Registers of Scotland”

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“The 2010/11 audit of the Crown Office and Procurator Fiscal Service”

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“The 2010/11 audit of Disclosure Scotland”

We move on to item 3, on section 22 reports. I note that Bob Leishman is joining Mr Black. I invite the Auditor General to introduce this item.

I would like to draw the Parliament’s attention to three reports. You might ask why I want to do that. Each report relates to circumstances surrounding the development of information technology projects that have had an impact on the value of the IT systems reflected in the accounts of each body. My reports arise from the annual audit of the bodies concerned—I am reporting the result of issues of concern that came through the audit reports. In other words, we have not done the equivalent of a performance audit and looked in detail at each of the bodies; we are simply reporting the impact on the accounts. I may come back to what we might do subsequently.

There are reports on the Registers of Scotland, the Crown Office and Procurator Fiscal Service and Disclosure Scotland. In each case the systems involved have been subject to development projects that have been cancelled or delayed to some extent. The problems experienced by each of those bodies are reflected in different ways and therefore referred to in the accounts in different ways.

The Registers of Scotland accounts include an impairment charge—a write-down in the value—of £3.1 million. In this case, the write-down recognises that the value of the developments introduced as the result of a ten-year contract with British Telecom has been reduced because two important elements of the development work had to be abandoned.

There is a similar impairment charge of about £2.3 million in the accounts of the Crown Office and Procurator Fiscal Service that reflects the decision taken by the COPFS management to cancel a project to update its case management system software. That was done partly because the complexities of the update were greater than expected and partly because the capital budget through which the developments were funded was being reduced. In other words, there was an affordability issue.

The Disclosure Scotland case is slightly different. In that case, the accounts reflect the value of an IT system covering new legislation for the protection of vulnerable groups. The system, initially owned by the Scottish Government, was transferred from the Scottish Government to Disclosure Scotland and the value reflects the costs that were incurred. The system has not worked as well as was expected, which raises doubts about its value. Because the outside provider, BT, is taking action to address the situation, no impairment charge has been applied to the accounts at this stage, but the auditor has drawn attention to potential uncertainties over the value of the system if matters are not resolved.

Those three cases, because of their similarities, together raise questions about how well public bodies are positioned to get best value from IT services they are commissioning from outside providers. From those examples, it appears that difficulties can arise when circumstances change or when the product that is delivered does not meet the expected standards. As a result, I felt, on receiving the reports, that we should take a wider look at how outside providers are identified and appointed, how the product to be delivered is defined, the contracts involved and how well public sector managers monitor progress. Audit Scotland had already identified in its forward work programme the possibility of carrying out work in this area and I have now asked Audit Scotland’s performance audit team to bring forward proposals and include an audit of outsourced IT contracts in the 2012-13 work programme.

Coming back to where I started, I stress that my reports are based on the audited accounts and that we have not carried out any detailed analysis. That said, Bob Leishman and I will do our best to answer members’ questions.

Thank you. I will ask a few questions for clarification. You said that all three cases involve projects delivered in conjunction with outside providers. Did you say that the Disclosure Scotland project has not been cancelled but that there are doubts about its future value?

Yes.

And in the other two cases the whole project or important elements of it have been cancelled.

That is correct. The circumstances vary according to the individual body.

You have indicated that the Registers of Scotland has incurred a £3.1 million impairment charge and COPFS a £2.3 million charge. How much has been invested in those two projects?

The Registers of Scotland project is part of a long-standing partnership agreement between the organisation and BT that is expected to be worth £132 million over a 10-year period.

And how much was this particular element of that total? Presumably the £132 million project has not been cancelled.

No.

As we say in the report, the initial contract cost of the project and services was originally estimated at £66 million back in December 2004.

That is for the Registers of Scotland project.

Yes.

Right.

By April 2011, the Registers of Scotland had incurred costs of £102 million and the total estimated cost to the end of the partnership had risen to £132 million.

Are we saying, then, that the estimated cost of this cancelled project will be £132 million?

No. The cost of the whole partnership is £132 million.

Yes, but how much of the £132 million does the cancelled project represent?

The £3.1 million figure.

Only that?

Yes.

And in the case of COPFS the £2.3 million figure is associated with the cancelled part.

Yes.

So £5.5 million has been written off on those two projects—and that is before we come to Disclosure Scotland. We do not know yet what the impairment or write-down will be for that project.

That is right.

This is not the first time that we have heard from the Auditor General and Audit Scotland about significant public projects having cost overruns or having to be abandoned because of an inability to manage them properly. What we have seen today is a small but shocking glimpse of an appalling situation in many of the public agencies. There appears to be a widespread waste of hard-earned taxpayers’ money at senior level. Frankly, given the regularity with which we hear about such problems, it seems that there is a bunch of incompetents or amateurs managing many of these projects. How else can you describe such consistent failure? Some people seem to be out of their depth in the scoping, procurement or management stages; clearly, problems are happening somewhere along the line. Not for the first time—this goes back over many years—we are faced with institutionalised incompetence at the senior level. I know what you said in your report, and I hope that what you say about the future is true. Despite that, given that we have heard this type of story before, can we be confident that this will not be repeated in future?

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That question would be best addressed to the Scottish Government. However, in view of the concerns that you have expressed, I am reinforced in my wish that Audit Scotland should look at proposals for examining the outsourcing of contracts and how well they are performing.

I should also say that section 22 reports are what we call exception reports that are made when things have gone wrong. There is a huge amount of complex activity going on across the public sector that I have not reported on, but that does not necessarily pass any judgment on whether that activity is being done well or indifferently or badly. I encourage the committee to recognise that these are three limited reports on specific issues. The only way in which I could report to and advise the committee more widely would be on the basis of a much fuller programme of work, and I have suggested that Audit Scotland might undertake such a programme in 2012-13.

The convener has powerfully highlighted the concerns that the committee would have about the management of some of these projects, particularly in relation to the Crown Office and Procurator Fiscal Service. Part of the reason for the cancellation of that project was a reduction in the budget, which meant that the project ceased to be affordable. Should we take that example as a warning of things that might happen in public bodies more generally in the future? Are you aware of any particular IT or other procurement contracts that might form the basis for further reporting?

That question has two parts, if I may say so. The first is whether there are any further risks out there. Certainly with the significant reduction in capital resources into the future, there might well be risks that will require people to revisit their commitments to IT systems. That also has implications for the delivery of efficient government. Last February, when we talked about my report on the management of capital projects, we touched on some of those risks, as we did in the report on Scotland’s public finances a few months ago.

I am not sure that we can help you with the second part of your question because we do not have the required breadth and depth of audit information available.

The Auditor General is giving us quite a concerning message and I fully support his comments about conducting an audit of outsourced IT projects in the public sector at some time in future.

I note from the Registers of Scotland paper that agreement was reached with BT in December 2004, so some of the problems might emanate from the distant past. Nevertheless, convener, as you said yourself, for the past four years the Public Audit Committee has been hearing the message that some sections of the public sector suffer from a lack of project planning at the early stages, whether the project is to procure IT services or something else. The question is whether some public sector organisations have the skills and abilities that allow them to embrace such project planning.

When the Auditor General is carrying out that analysis, I would be keen to find out whether the three organisations that have been mentioned today have any management systems in place to assist them with such processes. The tools do exist. Quality management systems have been around for a long time and provide the kind of assurance that this committee and others are seeking to ensure that project planning is done at an early stage. When people are buying software, they want to be sure that it does what it says on the tin before they commit huge amounts of public money to buying it. There is a lesson for us all, particularly those three organisations, that we should embrace that kind of assurance strategy at an early stage in planning.

It seems that Disclosure Scotland is working through its issues. There are differences between the reports and I would like to look at the Registers of Scotland. It is quite shocking that, by 30 April, the total estimated cost at the end of the partnership had risen to £132 million.

Paragraph 7 of paper PA/S4/11/9/4 talks about how Registers of Scotland “decided not to proceed” with the system because

“tests showed that it did not achieve the required level of delivery and accuracy.”

Surely if someone is looking at a contract that is worth more than £100 million, they sit down with the contractor to decide on their and the contractor’s obligations. If what the contractor is delivering is not fit for purpose or does not meet the requirement of the taxpayer and the public purse, why are the losses from the public purse? If the contractor fails to fulfil a contract to a

“required level of delivery and accuracy”

why is the contractor not paying? Why is the cost falling on the public purse?

That is an entirely fair question to ask. The problem that we have in answering it is that we do not understand the full detail and background to the contracts. To present it in context, as I am sure you will have noted from our report, it is addressing the impairment that relates to two particular projects in the programme, and the whole programme will deliver far more services and benefits than the two projects would have.

Questions like that would be best addressed to Registers of Scotland.

There are no further questions. We will consider at a later stage what we need to do with the reports. Thank you for drawing them to our attention.