Session: 2013/2014

Date: 09 April 2014

Reference: NIA 173/11-15

ISBN: Only available online

Mandate Number: 2011/15

Committee: Public Accounts

Account NI Report.pdf (1.31 mb)

Executive Summary

1. Account NI is a financial shared service centre serving all Northern Ireland government departments and 18 other public bodies. The primary purpose of a shared service centre is to generate efficiency savings by reducing duplication, automating and standardising processes, and introducing economies of scale.

2. It costs Account NI £9.73 to process and pay an invoice. The Department of Finance and Personnel (the Department) argued that only £2.05 of this amount is directly related to staff costs and this is broadly in line with other public bodies. This ignores the fact that elements of the remaining overhead figure are extraordinarily high, including the £2.39 per transaction paid to the IT contractor (25% of the total). It is clear to the Committee that the Department is in denial about the extent to which Account NI is a very high cost operation. The Audit Office has estimated that if Account NI could reduce its costs to the level of the average international performer it could save £3.4 million a year. In our view, the factors contributing to the high level of costs must be subject to a detailed analysis, with a focus on identifying potential cost savings.

3. The Committee finds it unacceptable that Account NI has operated for five years without putting in place a basic performance measure which would allow it to monitor the cost of the service it provides. The Committee is also concerned to find Account NI failed to benchmark its performance against other shared service centres.

4. There has been an enormous increase in the estimated cost of developing and operating Account NI since the first substantive estimate of £113.6 million in 2003. The Audit Office calculates that the total project cost, from inception in 2001 to the end of the contract with the IT provider in 2018, will be at least £213 million. Given this huge investment of public funds, the Committee expected to see clear evidence that the project has delivered value for money. Instead, we found that there is considerable uncertainty as to whether the project has achieved either the £43.1 million in savings or the wider non-financial benefits on which the business case for the project was based. It is not acceptable that the public purse is committed to spending millions more on this project without clear evidence that it has delivered, or will in future deliver, value for money.

5. The Committee considers that the picture emerging from its evidence session is not wholly discouraging. There have been achievements, most notably Account NI’s world class performance against the Executive’s 10-day prompt payment target. The introduction of a common accounting system across the departments is a significant advance on the fragmented and outdated financial systems previously in place. But there is much more to be done to ensure that Account NI represents the best and most cost effective option for potential new customers and that it maximises the benefits from the public’s considerable financial investment in the project.

6. The Committee considers that Account NI has prioritised the prompt payment requirement at the expense of working with existing customers to reduce costs and improve financial management. In our view, Account NI must now reconsider and rebalance its priorities, and refocus on delivering efficiency savings and releasing resources to front line services.

Summary of Recommendations

Recommendation 1

The Committee recommends that the Department undertakes a detailed review of Account NI costs, both direct staff costs and overheads, with a view to significantly reducing those costs.

Recommendation 2

The Committee recommends that the Department urgently progresses work on developing cost related performance measures and identifying suitable benchmarking comparators for Account NI. The Committee wants the Department to report back on progress in this area in six months.

Recommendation 3

The Committee recommends that the Department undertakes a review of staffing levels within Account NI. Also, in conjunction with the departments, it should review the level of processing staff retained by departments. The departmental review should identify and eliminate any unnecessary checking or duplication of work performed by Account NI. The outcome of these reviews should be a plan to rationalise staffing and maximise staff efficiencies.

Recommendation 4

The Committee recommends that the number of non-financial benefits linked to a full business case should be restricted to a manageable number of core benefits, directly related to the key objectives of the project. These benefits must be capable of objective measurement and the mechanism by which they are to be measured (i.e. against baselines) should be established at the outset. The Committee also recommends that where non-financial benefits are claimed as achieved, this must be documented and supported by evidence of a standard capable of withstanding independent scrutiny.

Recommendation 5

The Committee recommends that the Department takes the necessary steps to improve customer satisfaction rates and to address the specific needs of finance directors as an important client group. The Committee wants the Department to report back on progress made in these areas in one year.

Recommendation 6

In order to ensure that the lessons learned from this inquiry are also applied to HR Connect and the four other NICS shared services, the Committee recommends that the Department completes an assessment of the extent to which the recommendations in this report are applicable to each shared service. We want to see a copy of the Department’s assessment and of its plans to take the appropriate recommendations forward.

Introduction

1. The Public Accounts Committee (the Committee) met on 22 January 2014 to consider the Comptroller and Auditor General’s report on ‘Account NI: Review of a Public Sector Financial Shared Service Centre’. The witnesses were:

Mr Stephen Peover, Permanent Secretary, Department for Finance and Personnel (the Department or DFP);

Mr Paul Wickens, Chief Executive, Enterprise Shared Services (ESS), Department of Finance and Personnel;

Mr John Crosby, Director of ESS Finance Shared Services (Account NI), Department of Finance and Personnel;

Mr Kieran Donnelly, Comptroller and Auditor General (C&AG); and

Ms Fiona Hamill, Treasury Officer of Accounts, Department of Finance and Personnel.

The Department provided the Committee with further information on 4 March 2014.

2. Shared service centres were developed in the public sector in the wake of the 2004 Gershon Review of Public Sector Efficiency. Their primary purpose is to generate efficiency savings by reducing duplication, automating and standardising processes, and introducing economies of scale.

3. Account NI provides a financial processing shared service for Northern Ireland government departments and 18 other public bodies. It processes more than one million transactions a year worth over £10 billion. The services provided to Account NI customers include: checking and paying supplier invoices; making grant payments; reconciling bank accounts; maintaining accounting records; reimbursing staff travel and expenses claims; and asset management.

4. Account NI is one of six shared services provided by Enterprise Shared Services, part of the Department of Finance and Personnel. Account NI’s 207 staff (191 processing staff and 16 managers) are all civil servants, but the technology supporting its operation is provided under a £54 million, 12 year contract with BT. The original cost estimate for the project was £63 million which, over time, rose to £169 million. However, the Audit Office estimates that the total cost of the Account NI project will be at least £213.1 million (from inception to the end of the contract in 2018).

5. Increasing the number of customers for a shared service centre provides greater potential for economies of scale and for cost reduction. The June 2006 Account NI contract with BT did not allow for expansion beyond NI departments, their agencies and arms length bodies. While the NICS departments were required to use Account NI, this was not the case for non-departmental public bodies (NDPBs). There are currently 30 public bodies using the Account NI Shared Service Centre. However, there are a further 45 NDPBs that could have joined but have chosen not to do so.

6. In his report on “Account NI: Review of a Public Sector Financial Shared Service Centre” the C&AG found that Account NI:

did not formally benchmark its performance against comparable organisations;

had the highest cost per transaction, locally and internationally, in a benchmarking exercise commissioned by the Audit Office. Account NI did, however, perform to a very high standard on the timeliness and quality of invoice processing;

did not fully achieve the planned financial benefit of £43.1 million in staff savings; and

lacked sufficient evidence to support its claim that most of the project’s 21 non-financial benefits had been delivered.

7. In taking evidence, the Committee focused on three main areas:

benchmarking performance;

project costs and the extent to which planned benefits were achieved; and

the future development of Account NI.

Benchmarking performance

Account NI’s prompt payment performance is world class

8. In 2011-12 Account NI paid invoices in an average of 7 days against a 10 day prompt payment target. This performance is significantly ahead of local and international comparators and it enables government to support the Northern Ireland economy by delivering £2·8 billion of public money quickly and directly to suppliers. The Committee commends Account NI for this considerable achievement.

Account NI’s costs are high and there is the potential to make significant savings

9. Account NI has developed a range of Key Performance Indicators (KPIs) which allow it to evaluate its performance on the quality and timeliness of its service. However, Account NI has no KPIs which would allow it to monitor its performance on cost, such as the average cost of processing each invoice. The Committee finds it unacceptable that Account NI has operated for five years without such a basic measure of the cost of the service it provides. The Committee notes the Department’s belated recognition that it should have had proper KPIs on cost, and wants to see it implement the undertaking given to introduce suitable measures very quickly.

10. The Committee was concerned to find that Account NI had failed to benchmark its performance against other shared service centres. The Audit Office commissioned a benchmarking exercise which found that it costs Account NI £9.73 to pay each invoice. This is significantly more than all other financial shared service centres on the international database used in the exercise. The Audit Office estimated that if Account NI could reduce its costs to the level of the average international performer, it could save £3.4 million a year. The Department claimed that only £2.05 of the cost per invoice is directly related to staff costs and this is broadly in line with other public bodies. This ignores the fact that elements of the remaining overhead figure are extraordinarily high, including the £2.39 per transaction paid to the IT contractor (25% of the total). It is clear to the Committee that the Department is in denial about the extent to which Account NI is a very high cost operation. In our view, the factors contributing to the high level of costs must be subject to a detailed analysis, with a focus on identifying potential cost savings.

Recommendation 1

The Committee recommends that the Department undertakes a detailed review of Account NI costs, both direct staff costs and overheads, with a view to significantly reducing those costs.

11. The failure to benchmark performance demonstrates a worrying lack of focus on achieving efficiency savings. We note that, in evidence, the Department showed a long overdue appreciation of the value of benchmarking and it undertook to address this deficiency promptly. However, the Committee is concerned by the Department’s emphasis on obtaining “a directly analogous comparator” against which to benchmark. With only four years left to run on a twelve year contract, our view is that a prolonged search for a non-existent perfect match would be a futile exercise and a pragmatic approach should be taken.

12. The Committee has identified a considerable degree of complacency in the Department’s view of the performance of Account NI. The Department emphasised that its staff are now processing over 11,000 payments a year each – a 47% increase in three years. However, the Audit Office found that staff in the best performing shared service centres are processing over 16,000 payments a year. In this context, it is very clear to the Committee that, as the Accounting Officer admitted, there is considerable scope for Account NI to “up its game”.

13. The Committee cannot accept Departmental assurances that performance is likely to be satisfactory when Account NI can provide no evidence to support that opinion. The Accounting Officer’s admission that “we may be performing very badly; the problem is we do not have the information to draw those sorts of comparisons” should trouble him as much as it does us. It is unacceptable that, eight years into a contract, the Department has no understanding or information on whether Account NI is performing well or badly on cost, and has no means of providing that evidence.

Recommendation 2

The Committee recommends that the Department urgently progresses work on developing cost related performance measures and identifying suitable benchmarking comparators for Account NI. The Committee wants the Department to report back on progress in this area in six months.

The Department questioned the validity of the Audit Office benchmarking exercise

14. The Department told the Committee that it was not aware of the make-up of the benchmarking figures used by the Audit Office and indicated that it could not accept the validity of those figures, despite having agreed the Audit Office report with the C&AG. It seems to the Committee that the Department has missed the point of the Audit Office exercise. What it demonstrates is how far Account NI lies outside the range of possible outcomes derived from thousands of other organisations in the same line of business. For the Committee, the key point is that, in the absence of any benchmarking by Account NI or ESS, the figures provided by the Audit Office provide a constructive starting point.

15. Witnesses also questioned the benchmarking figures provided to the Audit Office by four public bodies in Northern Ireland. These figures had again shown that the Account NI’s costs are significantly higher than any other organisation processing transactions. The Department rejected the validity of this comparison on the basis of additional discussions with the four local bodies which it did not initiate until after it had agreed the findings of the Audit Office report. The Committee should not have to remind witnesses that there is a clear protocol for the submission of additional evidence to the Committee. This requires a written submission to the Committee, in advance of an evidence session, following consultation with the C&AG. It is not acceptable for witnesses to introduce at an evidence session material which it has not previously brought to the attention of the C&AG and which he has not had the opportunity to critically assess.

Project Costs and Benefits

Significant public funds have been invested in developing and operating Account NI

16. The Committee first reported on the Account NI project in January 2009. We found significant delays and escalating costs during the early planning and procurement phases of the project. The Committee accepts that the project has been more successfully managed during the subsequent implementation and operational phases. Account NI became fully operational in July 2009, only eight months later than planned in the 2006 full business case. The Department estimates the total project cost over the 12 year contract period will be £187 million, within 10 per cent of the 2006 estimate.

17. However, the Committee remains concerned by the enormous cost increases since the first substantive estimate of £113.6 million in 2003. The Committee does not accept the Department’s assertion that 2006 was the “real start” of this project, given that the Executive gave its approval to proceed in 2001 and a preferred bidder was appointed in 2004. By starting the clock at 2006, the Department has omitted from its estimate the significant costs incurred in procuring and developing the project. The Audit Office calculates that the total project cost, from inception, will be at least £213 million. Given this huge investment of public funds, the Committee expects to see clear evidence that the project has delivered value for money.

There is considerable uncertainty around the achievement of the financial savings on which the value for money case for the project was based

18. The value for money of any project can be assessed against delivery of the financial and non-financial benefits set out in the approved business case. The Department considers Account NI has delivered value for money because “we are delivering against the business case and the savings that we were tasked to make”. The 2006 full business case was based on the achievement of staff efficiencies of £43.1 million which were to come both from Account NI and the departments.

19. The 2006 full business case was approved on the basis that Account NI would contribute £10.6 million in efficiency savings by reducing its processing staff from 198 to 158. Currently, Account NI has 191 staff involved in processing. Despite this, the Department claims that Account NI has exceeded the planned staff savings, if the figures are adjusted to allow for an increased workload. The Department told us that 18 additional staff were needed to implement the Executive’s 10-day prompt payment target and 41 extra staff are processing payments on behalf of Account NI’s nine new customers. The Committee accepts these may be valid reasons for increasing staff levels. However, we are not convinced that the extra work fully justifies this level of staffing.

20. The case for Account NI was also justified by the planned £32.5 million in staff savings within the departments. Most departmental processing staff transferred to Account NI and only 29 staff were to be retained on a temporary basis. The Audit Office was told by the departments that 113 members of staff are currently involved in processing transactions. The Department claims the figure is closer to 50. Whatever the correct figure, the key point is the Department’s evidence that “there should be no transaction processing staff outside Account NI”. On this basis, the Committee can only conclude that the departmental staff efficiencies, a component of the value for money case for Account NI, have not been achieved. It is not acceptable that the public purse is committed to spending millions more on this project, without clear evidence that it has delivered, or will in future deliver, value for money.

21. A January 2011 review of Account NI’s performance found improvements in staff efficiency had been negated by laborious manual verifying and matching in Account NI (because departments had not followed standardised processes) and by departments re-checking work performed by Account NI. The Department accepts there is work required to rationalise processes and eliminate duplication of effort and outdated working practices, and intends to take this work forward via agreement with departments. The Committee understands the Department’s desire for a collaborative approach, but it should not be afraid to challenge and confront those departments who are holding back efficiency savings in this way.

22. The Committee considers that Account NI has prioritised the prompt payment requirement at the expense of working with existing customers to reduce costs and improve financial management. In our view, Account NI must now reconsider and rebalance its priorities, and refocus on delivering efficiency savings and releasing resources to front line services.

Recommendation 3

The Committee recommends that the Department undertakes a review of staffing levels within Account NI. Also, in conjunction with the departments, it should review the level of processing staff retained by departments. The departmental review should identify and eliminate any unnecessary checking or duplication of work performed by Account NI. The outcome of these reviews should be a plan to rationalise staffing and maximise staff efficiencies.

There is little evidence that the project’s planned non-financial benefits have been achieved

23. The business case for a major public project is often dependant on the achievement of non-financial, as well as financial, benefits. The 2006 full business case for Account NI required delivery of 21 non-financial benefits, including “better staff morale” and “improved decision-making”. The Audit Office found there was insufficient evidence to support Account NI’s claim that most of the planned non-financial benefits had been achieved. The Department has admitted to deficiencies in the design and monitoring of the planned benefits; it has also accepted that the number of planned benefits was excessive and that not all benefits were capable of being measured.

24. There is a degree of complacency in the Department’s assumption that, despite the lack of evidence, the planned benefits have been achieved. As the Committee made clear in its 2009 report on shared services, there simply must be evidence to support such claims. Despite this, the Committee recognises that the introduction of Account NI has resulted in tangible improvements in financial processing. It is unlikely that the 10 day prompt payment target could have been achieved without it. The Committee is also aware that the introduction of a common accounting system across the departments is a significant advance on the fragmented and outdated financial systems previously in place.

Recommendation 4

The Committee recommends that the number of non-financial benefits linked to a full business case should be restricted to a manageable number of core benefits, directly related to the key objectives of the project. These benefits must be capable of objective measurement and the mechanism by which they are to be measured (i.e. against baselines) should be established at the outset. The Committee also recommends that where non-financial benefits are claimed as achieved, this must be documented and supported by evidence of a standard capable of withstanding independent scrutiny.

The Future Development of Account NI

The debate around hard charging for Account NI services must move forward

25. Account NI does not currently charge customers for the services provided. The Committee notes that the Audit Office supports ‘hard charging’ as a means of ensuring customers are fully aware of the cost of services used and that they are motivated to challenge service providers to improve efficiency. The Committee appreciates there may be administrative difficulties associated with such an approach. However, given the potential benefits, the Committee wants to see the debate around hard charging move forward quickly. As a minimum, Account NI has to be much more open and transparent with customers on its costs and performance. Full disclosure of the results of future benchmarking exercises will be an essential first step in this process.

Account NI must improve its service delivery and efficiency if it is to widen its customer base

26. Account NI customer satisfaction surveys show there is much work to be done to fully meet users’ needs. It is a concern to the Committee that, in 2012, only 55% of Account NI’s customers thought it was providing a ‘good’ or ‘very good’ service. There must be action to improve this performance if Account NI is to attract more customers from those public bodies not mandated to use the system.

27. An Audit Office survey of a key group of users – departmental finance directors – highlighted where further work is needed to ensure that the maximum benefit is derived from Account NI. This group asked for better management information and a closer alignment to the budget and estimate setting process. They also wanted to see Account NI supporting wider corporate benefits across NICS, such as collaborative procurement. The Department indicated that some steps have been taken to address finance directors’ concerns on these points; the Committee wants to see significant progress on all these points without further delay.

28. The Department could not expand access to Account NI beyond the NI departments and their Arms Length Bodies (ALBs). However, Account NI has successfully brought onto the system one new department (the Department of Justice) and eight ALBs. A number of these new customers are relatively large organisations with complex requirements and their successful introduction is a significant achievement. There are now 30 organisations using Account NI but there are a further 45 NDPBs that could join Account NI, but have not done so. The Committee was encouraged by the Department’s positive attitude towards building a wider customer base but it needs to take appropriate action to ensure that Account NI represents the best and most cost effective option for potential new customers. The Committee also considers that it will be important that, when the current Account NI contract ends in 2018, the new contract arrangements remove any barriers to public bodies joining Account NI and that the service provided continues to attract new customers.

The Department must take the lead in securing the wider benefits which Account NI has the potential to deliver

29. The Committee appreciates that the DFP Accounting Officer must face some difficulty in answering for the performance of Account NI when, to an extent, its efficient operation depends on each of the departmental customers. All departmental accounting officers have a role to play in delivering improvements in efficiency. Despite this, the Committee’s view is that the Department could have done more to challenge others to improve their performance; not least by establishing reliable cost and performance benchmarks. The Committee considers that the unique status of the DFP Accounting Officer gives him a leadership role in improving efficiency and promoting best practice in financial management. We would encourage him to employ his considerable influence to ensure the full potential of Account NI is realised.

Recommendation 5

The Committee recommends that the Department takes the necessary steps to improve customer satisfaction rates and to address the specific needs of finance directors as an important client group. The Committee wants the Department to report back on progress made in these areas in one year.

30. The Committee considers that the picture emerging from its evidence session is not wholly discouraging. There have been achievements, most notably Account NI’s success in delivering against the 10 day prompt payment target. But there is much more to be done to ensure that the maximum benefit is derived from the public’s considerable financial investment in the project. It is encouraging that the Department appears to recognise this and that it is willing to take the steps needed to drive improved performance, such as introducing benchmarking. What is needed now is action.

31. We are grateful to the Finance and Personnel Committee for providing us with correspondence from the Department in relation to the Northern Ireland Civil Service’s HR shared service, HR Connect. This correspondence strongly suggests that many of the concerns we found in relation to Account NI also apply to HR Connect. There is evidence of:

planned project benefits proving difficult to substantiate, mainly because of limited baseline data against which service improvements could be measured;

mediocre customer satisfaction rates; and

uncertainty as to whether planned reductions in departmental staff numbers have been achieved and whether individual transactions are processed more efficiently than before.

Recommendation 6

In order to ensure that the lessons learned from this inquiry are also applied to HR Connect and the four other NICS shared services, the Committee recommends that the Department completes an assessment of the extent to which the recommendations in this report are applicable to each shared service. We want to see a copy of the Department’s assessment and of its plans to take the appropriate recommendations forward.

Download the full report here

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