Auditor General Kieran Donnelly interview: focusing on outcomes
The Comptroller and Auditor General for Northern Ireland, Kieran Donnelly, talks to Owen McQuade about the remit of the Northern Ireland Audit Office (NIAO) and ensuring good financial governance in the public sector.
Kieran Donnelly is an officer of the Assembly and independent of ministers and the Executive. The NIAO undertakes the statutory audit of accounts of some 200 public bodies and carries out value for money investigations, with 11 major enquiries per year across the public sector.
“We work within the grain of the Programme for Government and when challenges emerge, we have to respond to them. For example, with the squeeze on current expenditure we have more of a focus on the efficiency agenda, working on issues such as collaborative procurement, value for money from the public service estate and measuring efficiency savings across the public sector,” explains the Auditor General.
Donnelly says that the reasons for financial governance are self-evident. In 2011-2012 the public sector in Northern Ireland spent almost £15 billon: “With the spending squeeze, it is important that this money is spent wisely and that taxpayers get the best value.”
Good governance
In explaining what good governance is, he refers to the six core principles set out by the Independent Commission on Good Governance: “This is my particular bible and I use it to benchmark governance across the public sector. What I particularly like about the core principles is the focus on outcomes. There is a perception sometimes that governance is about bureaucracy and process but the very first principle is about outcomes, getting value for money for the taxpayer and delivering high quality public services.”
Donnelly says that there are a couple of principles worth highlighting.
Good governance means performing effectively in clearly defined roles. He says that often the root cause of failures in governance is lack of clarity in relationships or lack of definition of roles and responsibilities for example between non-executive directors and executives or between public bodies and their parent department.
Another is decision-making. He sees good governance as about making informed and transparent decisions and managing risk. “At present there is a lot of debate in the public sector about evidence-based policy making. Too often decisions are made ‘on the hoof’ without good quality information,” he observes.
Relative strengths
Although it is usually the failures in governance that make the headlines, there are some areas of relative strength in financial management in the public sector.
“We now have a very professional finance function. The Civil Service has moved enormously over the past 10 years in professionalising the finance function. We have more qualified accountants across the public sector than ever before. Accounts are now of a commercial style and tend to be, in the round, of a good quality. We have seen a trend in improvement in timeliness and quality of accounts over the past five years. However, the focus of the finance function needs to move away from historical stewardship accounting to accounting for supporting decision-making,” he says.
Donnelly sees internal audit as another area of strength. Every single public sector body in Northern Ireland, no matter how small, is required to have an internal audit presence, even if it is outsourced. “I think the challenge is to get more out of the internal audit function. There are also some issues around critical mass and access to specialist skills in fraud investigation and IT auditing.”
Another area that has “come on leaps and bounds” in the last five years is risk management. “In the early days there was tendency to be a box-ticking ritual with pages and pages of colour-coded graphics. The process has matured. NIAO staff attend all the audit committees of every public body and risk management has matured with good input from non-executive directors and front line staff.”
He continues: “The management of risk has improved but sometimes there is a tendency to look at last year’s risks rather than what risks are going to emerge in the future. For example, with some of the recent high-profile procurement problems there has been a response right across the public sector. Most public bodies are now very hot on compliance with procurement rules. Next year’s risk will probably be somewhere totally different. There is a danger of getting behind the curve on risk assessment.” However, it is encouraging that an increasing number of public bodies are now using formal horizon planning techniques.
The Auditor General believes that there are a number of areas where constant vigilance is always needed, including fraud: “We don’t have a particularly corrupt society in Northern Ireland but there is a high volume of low value fraud and the occasional case of serious fraud,” he comments. “There is a requirement on all public bodies to notify me of all cases of suspected or proven fraud. The fraud returns of the last quarter showed 133 cases were reported during that quarter. 51 of these were theft and only three were procurement or contractor fraud, although this type of fraud can be difficult to detect with audits and it is often uncovered by whistle blowers. There were 29 whistle blower cases, always an important source of intelligence.”
“On dealing with whistle blowers, sometimes public bodies dismiss whistle blowers prematurely before giving them a hearing. Often they will have a grievance or a HR issue but it doesn’t mean the points they are raising are not valid. I have learnt from experience to listen very carefully to what whistle blowers are saying.”
The NIAO also runs a national fraud initiative which involves data matching across the public sector. Last year the exercise identified £24 million in fraud and error, including £13 million in rates evasion, £5 million fraud and error in housing benefit and £2 million in pension fraud: “So fraud is out there and it’s important to be vigilant for it.”
Another area is procurement and contract management. Since the “Northern Ireland Water saga” a couple of years ago, compliance with procurement rules across the public sector has improved. “There are a couple of areas where there can still be problems. Sometimes single-tender action contracts are applied where there should be competition. Sometimes we find significant expenditure on contracts which have expired. This can happen under the radar when basic information on when contracts are due to be renewed does not make its way up to the board.
“It is important in dealing with procurement not to become completely obsessed with compliance issues, important as they are. As with all governance it is about good outcomes and when we look at procurement, it is important that we get good deals. Something that does worry me is that there has been enormous energy put into compliance, and that’s important, but it’s also important to get good deals and to get value for money.”
NIAO recently published a report on collaborative procurement. “There are enormous opportunities in Northern Ireland to get better deals though collaboration across the public sector,” he says. This is an area in which public sector bodies can make genuine efficiencies without comprising front-line services.
On compliance with ethical standards, he touches on conflicts of interest: “During the course of my work each year there are always issues around conflicts of interest. Sometimes there is the perception that as long as conflicts of interest are disclosed and put in a register that is the end of the story. Registers are important but not the be all and end all. Occasionally we come across instances where there is an attempt to manage a conflict when it should have been avoided altogether.”
Learning from failure
Lessons have been learnt from some high profile governance failures and many of these failures have common threads. Where there is a problem, it is often not within the structures of governance. “Usually the architecture is fine but the organisation has a closed culture and there is a tendency if there is bad news somewhere in the company, then it is covered up. This goes against the principle of transparency. Sometimes it is not just the filtering of information up the organisation, it is the sharing of information with other stakeholders, including parent departments.”
Donnelly adds: “Often where there are problems in an organisation there is poor information flow. People at the middle and front line know of problems but this does not work its way up the governance structures. The difficulty is if you are a governor and a non-executive, often working in a voluntary capacity, how do you ensure you are getting the right information?”
In order to address this problem, Donnelly suggests: “It is important for chairs of boards and committees to set their own agendas. Too often we see the agenda being set by officials, from the bottom up. Boards and non-executives need to test [whether] the information they are getting is reliable. Perhaps some exposure to the front line of the organisation. But I accept this is a difficult area.”
Clarity in roles and responsibilities has been another common problem with many governance failures. Lack of clarity between non-executives and executives and between the role of accounting officers and the boards is often the cause.
Skills gaps, not just in financial skills but project management, IT and HR, is another area of governance failures. “It is often round pegs in square holes.”
Donnelly explains: “Often basic things are overlooked. Basic supervision, such as with maintenance contracts with no-one checking that work that has been paid for has actually been done. Sometimes these basics can be far removed from what is going on at the top of the organisation and there is a remoteness of the board to what is actually going on.”
Governance and devolution
When asked how as financial governance evolved over the years in Northern Ireland, Donnelly makes two observations.
The first refers to the changing nature of NIAO work: “Many of our investigations are now at the interfaces, or joins, in public services with much more of our work becoming cross-cutting.”
He also says that devolution has had a huge impact on the quality of financial governance: “I’ve been long enough in public audit through the days of direct rule when often recommendations were not acted on. There has been an absolute sea change in Northern Ireland since devolution with a very positive link between scrutiny and performance to the extent that when we embark on any investigation public bodies are quick to take remedial action during the course of the investigation, so that when they come before the Public Accounts Committee they can say they have dealt with many of the issues.”
Donnelly adds: “There is a school of thought that too much scrutiny leads to risk aversion and lack of innovation in the public sector. I don’t subscribe to that theory. Of course there is risk aversion in the public sector but I do see many examples of well managed risk-taking. I also see many examples of risk ignorance, particularly in complex projects where the public sector really doesn’t understand the risks it is taking on. I would say that NIAO and PAC are fully supportive of innovation and trying new things in public services. With that in mind, last year we produced a good management guide on risk management which shows some examples where projects in industrial investment have not been successful but we were not critical because risks were identified at the outset and appropriately managed.”
Six core principles of good governance
- Good governance means focusing on the organisation’s purpose and on outcomes for citizens and service users.
- Good governance means performing effectively in clearly defined functions and roles.
- Good governance means promoting values for the whole organisation and demonstrating the values of good governance through behaviour.
- Good governance means taking informed, transparent decisions and managing risk.
- Good governance means developing the capacity and capability of the governing body to be effective.
- Good governance means engaging stakeholders and making accountability real.
Source: Independent Commission on Good Governance in Public Services (2005)
