Committee Reports > List of Committees > Dáil > 1994 > Committee of Public Accounts > Interim Report No. 02 - Appropriation Accounts 1993

APPENDIX 2

7 December 1994

Ms. Una Connolly

Clerk to the Committee of Public Accounts

Leinster House

Dublin 2

Dear Ms. Connolly,

I am directed by the Comptroller and Auditor General to refer to the meeting of the Committee of Public Accounts on 27 October 1994 and to the request made to the Comptroller and Auditor General to undertake an inspection of the accounts of the Department of Foreign Affairs and to report back to the Committee.

I now enclose the Report on the effectiveness of measures taken by the Department of Foreign Affairs to improve its accounting controls.

Yours sincerely,

Thomas Nelson

Deputy Director of Audit

REPORT ON THE EFFECTIVENESS OF MEASURES TAKEN BY THE DEPARTMENT OF FOREIGN AFFAIRS TO IMPROVE ITS ACCOUNTING CONTROLS

1. Introduction

Paragraphs 66 and 67 of the 1993 Report of the Comptroller and Auditor General dealt with the Department of Foreign Affairs failure to submit the Appropriation Accounts for Vote 38, Foreign Affairs and Vote 39, International Co-operation by the statutory deadline, material errors in the accounts and in the case of Vote 39 an excess of £1.8 m.

The Accounting Officer was examined by the Committee on 27 October, 1994 and in the course of his evidence he indicated that improvements had been made and were currently being made in the internal controls operated by the Department, both in the Accounts Branch and in the Development Aid Division.

The Chairman of the Committee required an assurance from the Accounting Officer that the system was being changed in a way that would prevent similar occurrences in the future. He also requested the Comptroller and Auditor General to undertake an immediate inspection of the accounts of the Department of Foreign Affairs to see if they had been brought up to date in the manner suggested by the Accounting Officer, if they were now in an acceptable condition and to report back to the Committee.

2. Accounts Branch

2.1 Original Control Weaknesses

The specific internal control weaknesses disclosed in Paragraph 66 were:

• failure to reconcile the accounting entries with the cash transactions (Paymaster General Account Reconciliations)

• unsubstantiated adjustments to trial balance figures to bring them into line with the final account figures (lack of audit trail)

• failure to provide an analysis of the miscellaneous suspense account which was effectively being used to balance the final account.

2.2 Paymaster General

For all practical purposes the Paymaster General’s Office (PMG) acts as the bank of Government Departments. Payments by Government Departments are usually made by means of Payable Orders drawn on the PMG and at the end of each month the PMG supplies Departments with separate listings of all payable orders encashed and outstanding. Timely reconciliation of the monthly PMG listings with a Department’s accounting records is a key element in the internal control system.

The current examination confirmed that a system is now in place to properly reconcile the accounting records to the PMG listings and that reconciliations have been carried out for all periods up to and including October 1994 for both Votes. Furthermore, revised procedures provide that these reconciliations will be completed within three working days of the receipt of the relevant returns from the PMG.

The reconciliations carried out for the period January to September 1994 were test checked for both Votes and the results of the examination indicated that all proper steps had been taken in balancing the transactions for each month.

2.3 Trial Balances

As a corollary to the balancing of the PMG’s account, the necessary adjustments were properly journalised to the monthly trial balances. The necessary documentation was available to support each of the journal entries. Therefore a proper audit trail from the transactions to the monthly accounts and vice versa was present.

2.4 Suspense Accounts

A suspense account is an account to which items are temporarily posted pending a decision as to the proper heading to which a payment is to be charged or a receipt is to be credited or where an item is due to be recovered from or paid to another party.

It is accepted that under departmental accounting procedures suspense accounts are necessary in certain instances but that their use, which should be kept to a minimum, should be subject to periodic review. Accordingly it is essential that suspense account balances should be promptly cleared so that the charge to the Vote for any year is as accurate as possible. The problem of updating and reconciling long standing suspense accounts in the Department of Foreign Affairs has been a cause for concern for some years.

Due to time constraints our examination was restricted to a small of sample of suspense accounts. However, it was established that considerable progress had been made in reducing the value of suspense account balances for Government Departments for the period 1986 to 1993. Other categories of older suspense accounts also showed a reduction in value. Extra staff resources had already been allocated by the Department in early 1994 and further additional staff have now been allocated with the objective of clearing all arrears by April 1995.

The examination also confirmed that current suspense accounts are being maintained in a reasonable manner.

2.5 Other Measures

Training and Manual

The Department has taken the necessary action to provide relevant staff with further training in accounting procedures. Staff from Accounts Branch and Development Aid Division attended courses in Government Accounting provided in October by the Civil Service Training Centre. An induction course was held in Development Aid Division for newly appointed staff and in addition the Internal Auditor is working closely with staff to ensure that they have a proper understanding of the accounting functions of the Division.

Internally, on-the-job training is being provided on an ongoing basis on the operation of the Financial Management System (FMS).

In addition, a comprehensive manual covering all operational aspects of the FMS has been completed for the benefit of users and revised accounting instructions have been drawn up in parallel covering every area of the Accounts Branch. The Department has indicated that the manual and accounting instructions will be updated on an ongoing basis.

3. Development Aid Division

3.1 Original Control Weaknesses

In his evidence, the Accounting Officer explained how procedures were not watertight in ensuring that an excess would not occur. Firstly, a running total should have been kept in the Co-ordination Section within the Development Aid Division but with changes in staff, not everybody kept the Co-ordination Section fully informed.

Secondly, the Accounts Branch could have warned that the limit was in danger of being breached towards the end of December but they were preoccupied at that time with the introduction of the Financial Management System and failed to carry out the necessary check.

The Accounting Officer indicated that new procedures had been introduced and an internal auditor recruited in July 1994 to study all accounting procedures and make recommendations.

3.2 New Procedures

Interim arrangements have been put in place:-

• all instructions for payment to Accounts Branch must be processed through the Co-ordination Section which will maintain a cumulative total of expenditure

• an instruction for payment must have two signatures

• new levels of payment authorisation have been introduced

• comprehensive instructions have been issued to all staff concerned.

The new computer system in Accounts Branch enables an immediate up to date running total of development aid expenditure to be produced.

An examination of all payments for the month of September 1994 was carried out and the results confirmed the existence of the new control procedures which were evaluated and found to be satisfactory.

In particular, control totals of cumulative expenditure are independently maintained in both the Co-ordination Section and the Accounts Branch and these are reconciled on a monthly basis. In addition, Accounts Branch has requested the software supplier to introduce a procedure into the Financial Management System which will signal a warning when expenditure is approaching its Voted limit.

3.3 Internal Audit

The new Internal Auditor’s terms of reference include an examination of the overall effectiveness of overseas projects’ accounting systems every third year and ensuring that there is full integration into and reconciliation with the accounts in the Development Aid Division and the Accounts Branch.

A work schedule has been drawn up for the Internal Audit function and progress is being monitored on an ongoing basis by the Development Aid Division. We will evaluate the effectiveness of the Internal Audit function in due course.

John Purcell

Comptroller And Auditor General

7 December 1994