A new report by the National Audit provides a timely warning to any public sector unit thinking of contracting out its finance function. The NAO has produced a report on the Public Health Laboratory Service Board Accounts for 1998-99, where financial control broke down after the contract went live in April 1998.The report shows failure, by the contractor CSL Ltd, to perform timely and complete bank reconciliations, inaccurate accounting records for debtors and cash, and poor controls over the making of payments for goods and the creation of creditors on the CSL accounting system. Since then the Board and CSL have taken steps to recover, and earlier this year the Board commissioned an external accounting firm to review all the major financial systems in place at CSL. There is confidence the system is now under control.
Although securing a reduction in contract fees due to CSL as a result of the problems, these have been more than offset by the cost of consultancy support in putting the problems right.
The lesson for other public bodies is that, when letting and managing such a contract, potential risks need to be identified, evaluated, mitigated and managed so that the fundamental responsibilities of the Board and its accounting officer for the proper management of resources can continue to be discharged.