Date: 26 February 2014
Reference: NIA 162/11-15
Mandate Number: Mandate 2011/15 Ninteenth Report
Committee: Public Accounts
AFBI-report.pdf (18.51 mb)
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1. The Agri-Food and Biosciences Institute (AFBI) was established as a non-departmental public body (NDPB) in April 2006. It is the Department of Agriculture and Rural Development’s (the Department’s) largest arm’s length body (ALB), and carries out analytical and diagnostic testing for DARD and other public and commercial bodies to satisfy local, national and EU statutory requirements. AFBI also carries out research and development (R&D) for DARD, and other clients.
2. In the 6-year period from 2006-07 and 2011-12, AFBI spent £316 million and received total income of £321 million; £253 million (79%) of this income was grant-in-aid from DARD.
3. AFBI’s work is important in a number of respects. It facilitates diagnosis and control of animal and plant disease outbreaks, detects changing disease patterns and the emergence of new diseases, provides assurance on food product safety and helps to maintain healthy fish stocks. However, as a large and relatively newly created organisation, AFBI carried a high degree of risk. Also, in May 1995, a Westminster Public Accounts Committee (PAC) report assessed DARD’s R&D activities which were then delivered by Science Service, and was critical of the appraisal, oversight and management of this function.
4. In taking evidence, the Committee examined AFBI’s performance since its establishment in the following areas:
- financial management;
- performance management;
- management of the DARD-funded R&D programme; and
- corporate governance within AFBI, and oversight of the Institute by DARD.
5. The creation of a new ALB (particularly one as large as AFBI), requires careful planning and oversight to ensure that these are suitably structured, resourced and governed to operate effectively. In the case of AFBI, there was a significant onus on the Department to ensure that these standards were observed. However, overall, the Committee concludes that until recently, the Department abdicated its responsibility for proper oversight of the Institute.
AFBI financial management
6. The Committee is deeply disappointed that proper costing systems were not introduced within AFBI until almost seven years after its establishment, and believes this delay was characterised by a lack of foresight and inaction. The absence of these basic systems meant that AFBI did not have any proper tools for assessing its operational efficiency.
7. AFBI’s corporate costs between 2006-07 and 2010-11 amounted to almost £96 million, £51 million of which was spent on maintaining and operating the Institute’s estate. Elements of the estate, particularly the Newforge and Stormont sites, are either superfluous to AFBI’s needs, or in very poor condition. The Committee considers that implementation of more efficient accommodation solutions have been unacceptably delayed.
8. Until 2011, AFBI’s overheads were calculated using a historical rate, which dated back to at least 2003. DARD acknowledges that, up to 2011, AFBI had been charging “too low a rate” for work. The Committee believe that this was due to poor management within AFBI, and is dismayed and frustrated that up to £3.5 million income was lost as a result.
Efficiency and effectiveness of scientific testing
9. Scientific testing for DARD is AFBI’s most significant operational activity. The Committee is disappointed that there has been limited unit costing and benchmarking of costs for this testing, and cannot therefore understand how DARD can have any idea whether its significant investment in this area is delivering value for money. AFBI has also maintained an emergency response capability to help counter major outbreaks of animal and plant disease. This function is expensive, and there is a lack of hard information on the specific costs of retaining this capability. The Committee considers that DARD must assure itself that excessive costs are not being incurred.
10. The Committee welcomes AFBI’s success in substantially increasing its level of non-DARD income. This has been significantly assisted by royalties from patents filed following scientific discoveries by the former Science Service. However, the Committee was extremely concerned to learn that 7 employees (or former employees) have received very significant shares of these royalties. The principal of remunerated public sector employees receiving further substantial reward simply for discharging their duties does not sit well with the Committee. The Committee demands all public sector bodies to exercise utmost scrutiny over employee claims for shares in intellectual property, and to obtain the best deal possible for the public purse.
Management of the DARD funded R&D Programme
11. Overall, the Committee considers that management of the DARD-funded programme of Research and Development (R&D) has been very poor. It is disappointing that recent shortcomings identified by the C&AG mirror those highlighted in 1995 by the Westminster PAC. Whilst new arrangements introduced by DARD have significantly strengthened control over the R&D programme, it is too early to measure the effectiveness of these, and the Committee considers that the Department abdicated its responsibility in this area for too long before making improvements.
12. AFBI has acknowledged that the 125 R&D projects examined by the C&AG did not have budgets “as such”, and that it did not subject 39 projects to the required full appraisal. The Committee views this as symptomatic of inadequate project management. The Committee also considers the extent of overspends and time overruns on these projects to have been alarming. Total overspends amounted to at least £12.7 million. Projects lasted 5 years, compared with estimates of 1.5 to 3.5 years.
13. The significant cost and time overruns are unsurprising, given that the Committee does not believe that anything approaching an acceptable standard of project management was in place. For example, AFBI was unable to generate information on ongoing project costs for review, and specific dates for the expected start and end of projects had not been established. Furthermore, AFBI’s annual review to determine whether projects should continue took no consideration of project costs.
14. The Committee notes that post-project evaluations (PPEs) are well advanced for completed DARD-funded R&D projects. However, the measurement of outcomes achieved could be significantly strengthened through assessment of direct benefits delivered to the agri-food industry, and the extent to which the industry implements AFBI research findings.
15. In 1995, the Westminster PAC expressed concerns over the poor market success of a seed potato breeding project which commenced in 1957. This project remains ongoing, and at least £7.2 million has been spent on it since 1982. This expenditure needs to be justified. Positively, the project has led to the development of a number of new varieties, but the level of market success has continued to deteriorate. The Committee welcomes new arrangements introduced by AFBI, including the appointment of a commercial partner, and an objective to recover full project costs. However, these steps are belated, and the Committee considers that DARD should have put the programme on a sounder market led footing much earlier.
Corporate governance within AFBI and oversight of the Institute by DARD
16. A range of enhanced governance and oversight arrangements for AFBI were implemented during and after the C&AG’s investigation, and AFBI also plans to unit cost and benchmark its scientific testing function. The Committee considers that the Department and AFBI have been too slow to implement these improvements. It is also vital that the new procedures are underpinned by strong and pro-active scrutiny by the Department if improved outcomes are to be achieved in practice.
17. Until 2011-12, the commissioning of DARD-funded R&D projects was led by AFBI. The Committee considers that it took far too long for the Department to assume responsibility for this. Before March 2012, the decision on whether R&D projects should continue was also taken by AFBI. When DARD finally conducted an overarching review of ongoing work, two-thirds of projects were immediately terminated. The Committee considers that an effective DARD-led annual review process would have weeded out a significant number of low priority projects much sooner. Instead, projects with a total cost of £18.2 million, were allowed to drift for too long.
18. Overall, the Committee acknowledges recent improvements in financial control and governance within AFBI, and enhanced oversight of the Institute by DARD. However, the Committee believes that significantly better value for money would have been achieved had improvements been made much sooner. The Committee is not yet assured that these improvements will work effectively in practice or be sustained, particularly given the failure of the Department to implement the recommendations of the 1995 Westminster PAC report. Consequently, the Committee will monitor the performance of AFBI and DARD’s oversight of the Institute, and examine progress against our recommendations in 12 months time.
Summary of Recommendations
Now that AFBI has developed appropriate costing systems, the Committee recommends that a clear focus is applied on identifying and implementing efficiency savings. As well as addressing the high costs of its estate, AFBI should review and benchmark its other corporate costs to identify further potential efficiencies.
The Committee recommends that AFBI annually review its fee setting procedures to ensure compliance with the principles of full cost recovery. AFBI should also provide an annual assurance statement on fee setting to the AFBI Board and the Department.
A structured and formalised framework of unit costing for scientific testing must be implemented within AFBI without further delay. Once unit costs have been established, AFBI must annually benchmark these with other service providers. As a customer, DARD must stringently review AFBI’s unit costs and benchmarking outcomes to ensure it is receiving value for money, and also annually confirm that all testing undertaken is necessary to help meet departmental objectives and statutory requirements.
The Committee recommends that formal and robust budgets be prepared for all DARD-funded R&D projects. Given AFBI’s totally inadequate performance in this area to date, the Department must carefully review initial budgets, and ensure that projects are re-appraised, or subject to change control where costs exceed estimates. The Committee also recommends that DARD undertake regular compliance reviews of the enhanced oversight measures for R&D to ensure these are functioning effectively in practice. In particular, the viability of projects which fail to meet key milestones must be decisively reviewed and, where necessary, closed.
The recently introduced improvements in governance must operate effectively in practice if desired outcomes are to be achieved and the client / customer relationship is to operate as intended. The Committee recommends that DARD undertake an annual assurance review of key areas including costing and charging, efficiency measurement and R&D project management, and report back to us on initial progress after the next 12 months.
The Committee believes that its inquiry into AFBI has highlighted important lessons for all departments faced with the challenge of establishing new arm’s length bodies. Careful and targeted planning is required to ensure that risks are identified at an early stage, and well managed thereafter. The appropriate systems, skills and resources must also be put in place from the outset to ensure that new bodies function effectively, and are properly governed.