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Oral evidence Taken before the Committee of Public Accounts on Wednesday 19 March 2008

Read in full in the Report (40) of the Public Accounts Committee September 2008

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Q28 Mr Davidson: Mention is made here of the aims of the Renew Defra Change programme. One of the strands is defining the Defra way of doing things. Can I be clear about the Defra way of doing things in the past? As I understand it, because they were unable to spend their money, there was a tradition of under-spending, and so to compensate for that you over-allocated, and then, as you got better at avoiding the under-spend, you were heading for an over-spend and had to make cuts in the middle of the year. Was anybody sacked as a result of that?

Mrs Ghosh: As you know and as the Report points out, I made significant changes to the finance team and that was marked by Stephen’s arrival.

Q29 Mr Davidson: Was anybody sacked?

Mrs Ghosh: Let me just go back. I think the question of over-allocation was as much a cultural matter, and indeed we would take responsibility for this, as an issue about the organisation at the highest level, at the management board level, understanding that the world had changed and making allowance for the challenges that, as the Chairman said at the beginning, were likely to crop up mid-year. There were significant changes made to the finance team.

Q30 Mr Davidson: Was anybody sacked?

Mrs Ghosh: No, nobody formally was sacked because I did not think it was appropriate. I did not think it was a disciplinary matter.

Q31 Mr Davidson: Were they all promoted?

Mrs Ghosh: No, they were not promoted. They left the Civil Service.

Q32 Mr Davidson: They left with full pensions, no stain on their character?

Mrs Ghosh: Under the normal terms of early departures from the Civil Service.

Q33 Mr Davidson: Mouths stuffed with gold?

Mrs Ghosh: Just to go back, as I said in my introduction, although it was extremely bad financial management to have to withdraw what was in fact a small proportion of our overall budget -

Q34 Mr Davidson: How much was it altogether?

Mrs Ghosh: £ 170 million out of a total budget of £ 3 billion.

Q35 Mr Davidson: That is a fair whack of money, is it not?

Mrs Ghosh: The fact that our delivery bodies had to re-allocate their spend was a challenging time; we could have told them n months earlier but it would not have made any difference to the outcome. In those circumstances it was not, in my view, the kind of failure in financial management by the professional team involved that would have justified that kind of disciplinary action. That was my judgment as Accounting Officer.

Q36 Mr Davidson: I accept that it was no theft and it was not misjudgement of that sort, but describing it as a cultural issue is a way of smoothing away the fact that essentially these people were asleep at the wheel, were they not? You did indicate that times had moved on. For these people in that Department at that time, it was essentially Sleepy Hollow. The world had changed round about them and they had not changed with it. What you did was to stuff their mouths with gold and then they left. I can understand why that was done but would that happen in the private sector, do you think?

Mrs Ghosh: I look to Members of the Committee who have worked in the private sector, but one does see things like that happen in the private sector, yes. What I was doing was operating under the terms of the compensation arrangements in the Civil Service to which I have to adhere. As I say, my judgment as Accounting Officer was that this was a broader issue. It was an issue for the management board; it was an issue for us to work with ministers. We recovered the position. We ended up in the year spending across resource on budget and therefore it seemed to me that was the appropriate action. That is my judgment.

Q37 Mr Davidson: I understand the point of the action but it was a question for the management board. Were the management board asleep at the wheel?

Mrs Ghosh: As I said, and I said this to the EFRA Select Committee -

Q38 Mr Davidson: A simple yes or no would be sufficient.

Mrs Ghosh: We were not sufficiently aware of the difference in the financial context in which we were operating. We were also, at the time, dealing with a wide range of other issues; for example, the issues at the Rural Payments Agency and -

Q39 Mr Davidson: That is what you are paid for. When I ask: "were they asleep at the wheel?" and you tell me they were not sufficiently aware, that is a "yes", is it not, really? These people were asleep at the wheel because they were not sufficiently aware that the world had changed. I understand that other things were going on. Other things go on all the time. Can I just turn on to these other things that were going on? When the Chairman asked about contingencies and the like, what I am not clear about, to use Donald Rumsfeld’s phrasing, is how many of these things were unknown knowns, as it were, and how many of them were unknown unknowns? How many of these things could not have been anticipated by any reasonable person who was not asleep at the wheel and how many of them ought to have been anticipated and a contingency arrangement made for them?

Mrs Ghosh: The biggest unknown unknown - I am trying to remember Mr Rumsfeld’s terminology - was of course the impact of the problems at the Rural Payments Agency, which only came to light towards the end of March. As the Chairman was saying, in some senses in a department like ours, one should have some provision - an unallocated provision - for the kind of emergencies we deal with, which is why we have put £50 million in the budget for next year. I come back to the point: had we done that at the start of the year, we would simply have taken £ 170 million out of the budget at the beginning of the year; the delivery bodies from whom we took the money would not have had more money to spend; they would just have not had it at the beginning of the year. There was not a world in which we could have dealt with those unknown knowns and given them all that money, because we would have to have fitted it within our budget for that year. It is a zero sum game.

Q40 Mr Davidson: So everything was fine then?

Mrs Ghosh: No, it was absolutely not fine.

Q41 Mr Davidson: I have some difficulty. Every time I raise something that causes me concern, you seem to be able to talk it away. I think that simply an admission that things were really pretty terrible and you have sorted it out now would be very helpful, rather than just simply a flat denial that anything was wrong.

Mrs Ghosh: I am not for a moment flatly denying that anything was wrong. As I said here and I have said in other parts of this House, I very much regret that we had to withdraw £ 170 million from these delivery bodies. It had the impact that the Report describes. That was clearly an example of poor financial management. That is what has incentivised me to drive through personally, with Stephen and my management board, this Financial Management Improvement Plan.

Q42 Mr Davidson: Several times you have touched on the question of cultural issues inside the Department. Those of us who have had any experience of the way in which you deal with farmers are aware of a number of cultural issues where you are frequently taken to the cleaners by farmers. Have those sorts of cultural issues been resolved as well as the cultural issues of it being just sloppy on expenditure? Will we expect to see a high speed, up to date department from now on that does not give room for these sorts of errors?

Mrs Ghosh: In terms of financial management, you will see improvement - the programme to deliver that is set out in the Report. In terms of managing our portfolio of activity, which is the basis on which we are moving forward into CSR 07, you will indeed see a much tougher both financial and outcome monitoring system by the management board - we would be happy to share with the Committee examples of how we will be doing that - and also very intensive business case development for new projects, which means that we will be much more certain before we approve an activity what it is going to do for us, how much it will cost, what the risks are, what the impact on customers is. Across the piece, we will be implementing a much more rigorous approach to what we do in order to provide better value for money for taxpayers.

Q43 Mr Davidson: If we have another outbreak of mad cow disease or something similar, do I take it then that your financial processes will be sufficiently robust to avoid us being fleeced by farmers and contractors and so on in future?

Mrs Ghosh: As you know, we learnt a great many lessons from the 2001 outbreak. We have done a lot of things in terms of the rules around compensation to avoid some of the problems we had in 2001. We are very active, as you know, with the farming industry on the responsibility and cost-sharing agenda. We will be taking out of the CSR budget around £ 120 million by the end of the period in animal health costs that will be met by the industry rather than government, but it is very much a question of working in partnership with the industry and at all times thinking about the risks and incentives that will be built into the system.

Q44 Mr Davidson: The partnership we had with the industry before was that they had their hands in your pockets, which is not necessarily the sort of partnership that we want to see. Are you quite satisfied that we will not have that again?

Mrs Ghosh: I am satisfied that in terms of policy in financial systems that is the case and things, for example, like tabular compensation rates rather than individual compensation rates for animals, except in exceptional cases, is one instance where that is the case.

Q45 Mr Davidson: I remember a long time ago reading Management and Machiavelli by Anthony Jay, and I see that you did a degree in mediaeval Italian history -

Mrs Ghosh: As I said to the Chairman at my last appearance, it was sixth century Italy I did.

Q46 Mr Davidson: I see! That is before the Machiavellian period?

Mrs Ghosh: No, that was the Ostrogoths.

Q47 Mr Davidson: I am not familiar with that. Possibly there are some of their descendants in my constituency but I amnot aware of that directly! One of the issues I remember from my Management and Machiavelli was the extent to which having so many powerful barons could cause substantial difficulties. I wondered about the extent to which it is possible for a department such as yours, with so many as it were powerful barons, to keep genuine supervision of them while, at the same time, allowing them a degree of discretion, flexibility and decentralisation.
I wondered if you could give us your view on whether or not the balance that we have at the moment is right, that tension between being held accountable for everything we do, while on the other hand wanting to give them a degree of discretion to manage their own affairs.

Mrs Ghosh: That is particularly in relation to the NDPBs, the Environment Agency?

Q48 Mr Davidson: Yes.

Mrs Ghosh: Yes, I do think at all times it is a balance. The decision by ministers, by Parliament, to set up non-departmental public bodies (NDPBs) is precisely because you want them to have a level of independence. If you did not want them to have a level of independence, even though sometimes it is politically uncomfortable, you would not set them up as NDPBs. I think what you have to have is a management reporting system that is consistent with the organisation, clearly understood, and a very clear understanding about what their freedom of manoeuvre is - when can they stand up and criticise the government, when would we expect them not to, when are they our statutory advisers - and then build extremely good relationships. I have come from the Department where Sir Martin Doughty and Helen Phillips, the Chairman and Chief Executive of Natural England respectively, were having one of their regular series of meetings with Hilary Benn, ministers and the management board just to talk in a very informal way about our joint challenges where Natural England can help across our broader agenda and have that very open discussion. I think it is a combination of those three things.

Q49 Chairman: Mr Davidson has a point. I think that you do have a tradition of being a rather bureaucratic and top heavy department. Do you really need in the Rural Payments Agency the best part of 5,000 civil servants to manage payments, subsidies, given to just over 100,000 farmers? I know we have had this conversation before but I just cannot resist asking you again.

Mrs Ghosh: As we have discussed it in front of the Committee before, over time, the plan is that we will significantly reduce that number of people. One of the reasons we have exceeded our headcount reduction target for the SR04 period is that Tony Cooper has been able to identify I think more than 200 additional staff that he can now lose because of the improvement programme there. Again, the NAO Report made clear that by the end of the CSR 07 period, it is expecting to have lost at least another 1,000 staff, operating on SPS (Single Payments Scheme).

Read in full in the Report (40) of the Public Accounts Committee September 2008