High Speed 2 Ltd, the Department for Transport, and public accountability
The most recent set of accounts published by High Speed 2 Ltd (HS2 Ltd) make for compelling reading. This is mainly due to the fact that, thanks to a published NAO report, a published internal audit report, and a Public Accounts Committee (PAC) hearing, we know that the accounts were qualified by the auditor due to an unauthorised redundancy scheme instituted by HS2.
The auditor's qualification comes as something as a surprise, given the emphasis within the front half of HS2's accounts on corporate governance, internal controls, and - startlingly - a link to the framework agreement with the Department for Transport (DfT) that is at the heart of the whole problem. So it is a bit like a slow-motion car crash as you wait for the impending disaster to fall with the audit report.
The internal audit report provides the fullest explanation of what happened, which in summary is: HS2 asked permission to pay redundancy monies to staff that were higher than that stipulated in the framework agreement with the DfT; the Department refused to give its permission; and four days later, HS2 went ahead with the scheme anyway.
The crux of the problem appears to have been that the email from the DfT refusing permission for the scheme was neither copied in to anyone, or subsequently forwarded by the recipient (the then Chief Executive). So when the CEO at the time resigned to take up a new post, effectively that knowledge disappeared.
The episode is a good example of the problems of corporate memory in an organisation going through frequent structural change. A look through recent HS2 annual reports shows a different organisation chart almost every year. With the best will in the world, ensuring that everyone has the information they need under such circumstances is going to be tough. It is also a lesson for government departments sponsoring such companies: always copy others into emails.
But in many ways, the story is about accountability, and in particular the value of democratic accountability for the way in which public money is spent. Through audit, then internal audit, and then finally the PAC, ever more details of the story have emerged. And whilst the NAO report spelt out some of the internal control issues, and the internal audit report found much more (and much worse), they show limitations: even these reports only refer to 'a senior official' at the DfT emailing a 'very senior official' at HS2.
The reticence is a bit odd, because for accountability to be properly effective, surely we need to know at least the roles (and also the names?) of the individuals in question. Questioning at the PAC at least supplied one of them: the 'very senior official' was ex-CEO Simon Kirby, who was quoted in the Financial Times as denying doing anything wrong, largely because he had left by the time the scheme was launched.
By strange coincidence, my public sector accounting course was looking at audit and accountability this week, and it was recognised that the very public accountability provided by the PAC is the ultimate, democratic accountability of tax-spenders to tax-payers. And whilst its main job is to hold everyone else to account, it is also noticeable how PAC hearings introduce a new context in which to view issues, one that perhaps officials do not always share. This is perhaps why the official reports do not 'name names', but the PAC wanted to know them. But it goes further than this: when Bernadette Kelly, Permanent Secretary at the DfT, says that no action is planned against Simon Kirby because he is no longer a contracted employee of HS2, the Committee is clearly not impressed, and wants DfT to explore all legal avenues to hold the former CEO to account.
For all the weaknesses in public sector audit - and auditing more generally - HS2 has been held to account. The 'after the event' nature of being held to account means that the unauthorised spending will probably never be recovered. But it is a salutary lesson for other government-owned companies, particularly those like HS2 going through internal change. Official auditors might deliver bad news, but the glare of the PAC is another matter altogether, and if a company can avoid it by getting things right first time, they will be doing themselves a big favour.
HS2 Ltd annual report and accounts:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/637655/hs2_annual_report_and_accounts_2016-17_print.pdf
NAO report on the redundancy scheme:
https://www.nao.org.uk/wp-content/uploads/2017/07/Report-of-the-Comptroller-and-Auditor-General-on-the-2016-17-Accounts-of-High-Speed-Two-Limited.pdf
Internal audit report:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/654854/hs2-ltd-redundancy-schemes-audit-report.pdf
PAC oral evidence:
http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/public-accounts-committee/high-speed-2-annual-report-and-accounts/oral/72377.html
I also referred to two articles in the Financial Times, from 26 October 2017 and 30 October 2017.
