By Richard Johnstone | 28 June 2013
The National Audit Office has qualified the accounts of the Department for Communities and Local Government after finding the ministry breached two spending limits in 2012/13.
Auditors said the DCLG had exceeded both its cash and local government capital spending limits in what Public Accounts Committee chair Margaret Hodge described as ‘two separate instances of poor financial management’.
Hodge said she was ‘staggered’ that the department had been unable to stay within its budgets. ‘If local authorities, for whom the department is responsible, acted in this way, the department would be down on them like a ton of bricks,’ she added.
Whitehall departmental spending is authorised by an Act of Parliament, which sets an annual limit on net expenditure that cannot be exceeded and a total on how much cash an individual department can use. When these limits are breached, the auditor general must qualify his opinion on financial statements.
The authorisation from Parliament gave the DCLG a net cash requirement estimate of £28.9bn for 2012/13, but the department actually spent £29.0bn.
Auditors said the breach occurred because the DCLG failed to account for movements in working capital throughout the year, leading to current liabilities exceeding current assets.
The Treasury had to advise the department in February that it was close to the net cash limit, but it was then too late to correct. As a result, the department had to meet some liabilities towards the end of the financial year with an unauthorised £217m overdraft, which led to the Treasury imposing penalty interest charges of £20,000.
In addition, the ministry breached its Local Government Capital Departmental Expenditure Limit by more than £1.1m after two arm’s-length bodies overspent their delegated funds. Both the Valuation Tribunal Service and the Commission of Local Administration in England spent extra on IT systems, the report found.
Following these two overspends, the department has commissioned an immediate review by its cross departmental internal audit service. This will examine the DCLG's management of cash and of the Local Government Capital Departmental Expenditure Limit.
Responding to the report, a DCLG spokeswoman said that it had stayed ‘well within the Treasury's overall spending limits’ in 2012/13.
She added: ‘The auditor general determined there were two breaches: one concerned the Net Cash Requirement, and the other was caused by capital expenditure by two arm’s-length bodies.
‘The department has taken immediate action to address the issues raised. Internal audit reports were commissioned and the findings are now being implemented before the next supplementary estimate. This will avoid any recurrence.’
