Highways Agency

Statement on the system of internal financial control

As Accounting Officer, I acknowledge my responsibility for ensuring that an effective system of internal financial control is maintained and operated by the Highways Agency.

The system can provide only reasonable and not absolute assurance that assets are safeguarded, transactions authorised and properly recorded, and that material errors or irregularities are either prevented or would be detected within a timely period.

The system of internal financial control is based on a framework of regular management information, administrative procedures including the segregation of duties, and a system of delegation and accountability. In particular, it includes:  

Comprehensive budgeting systems with an annual budget which is reviewed and agreed by the Board

The Agency assembles an annual budget consistent with the allocations resulting from the Comprehensive Spending Review agreed with DETR and HM Treasury. In preparing budgets staff use two manuals, Budget User Guide and Bidding Pack, and standardised budget templates. The Agency's organisational structure enables these guides and templates to be distributed by the corporate business management function to local business management teams and to be cascaded through Directorate operational teams. The Board reviews and approves the annual budget.  

Regular reviews by the Board of periodic and annual financial reports, which indicate financial performance against the forecasts

The Finance and Business Management Action Group (FBMAG), a sub-group of the Board, reviews financial reports on a monthly basis, following which a report is made to the Board. The FBMAG rigorously monitors, at business level, performance against objectives on a quarterly basis. I attend the quarterly business reviews personally. FBMAG also discusses and addresses any specific financial issues that arise in the Agency.

The basis of the reviews is the monthly management reports. These provide forecasts, budgets and variance analysis prepared by the Directorates and allow the Board to monitor the key business activities and risks and the progress towards meeting the financial objectives set for the year.  

Setting targets to measure financial and other performance

Key targets are set as part of the Agency's business planning process. The process is initiated internally by the Agency proposing a costed programme aimed at discharging the Secretary of State's obligation for maintaining, operating and improving the trunk road network in support of the Government's integrated transport and land use planning policies. The programme, including a resource allocation, is agreed following discussions and negotiations between the Agency, DETR, and Ministers. The agreed programme is further developed by the Agency producing a business plan and an internal Agency management plan including key annual targets and performance measures. The business plan is agreed initially with DETR and the Highways Agency Advisory Board and subsequently ratified by Ministers.

The key targets are cascaded to Directorates and Divisions via an Agency management plan that provides clear responsibility for the delivery of the targets. More specific targets and objectives are transmitted in individual Directorate and Divisional management plans. Objectives are cascaded to individuals through their job descriptions and personal development plans. The Agency controls, and monitors achievement of the targets by regular reviews of performance, by the Board.  

Clearly defined capital investment control guidelines

The Agency uses a number of structured systems and techniques to appraise investment in projects including value-adding techniques such as value management and value engineering. A Capital Investment Committee operates within the Agency with the objective of improving the added value of the Agency's spending.

Decisions on investments in the trunk road infrastructure of £5m or below are made by the Agency. Further approval must be sought from DETR for decisions on investments above £5m.  

Formal project management disciplines

The Agency's Managing Agency Project (MAP) II projects aims to build on well-established formal project delivery disciplines within the Agency. It seeks to establish a new Agency `ethos' for project delivery in the Agency with a view to improving the delivery of all activities in terms of requirement, time and resource. The project will include the implementation of a new framework for the delivery of projects and the introduction of consistent IT support systems to support and reinforce both the ethos and the framework. The project, currently in the implementation stage, is forecast to be completed by the end of December 2000.  

A system of financial delegation and accountability

Financial authority is cascaded from myself as Agency Accounting Officer through Board members to Agency staff. The current delegations framework is under review and a new framework is expected to be implemented during the forthcoming financial year.

The Highways Agency has an internal audit unit, which operates to standards defined in the Government Internal Audit Manual. The work of the internal audit unit is informed by analysis of the risk to which the Agency is exposed, and annual internal plans are based on this analysis. The analysis of risk and the internal audit plans are endorsed by the Agency's Audit Committee, which I chair. Annually, the Head of Internal Audit (HIA) provides me with a report that summarises internal audit activity in the Agency. The report includes the HIA's independent opinion on the adequacy and effectiveness of the Agency's system of internal financial control. During the course of the year the HIA also provides interim reports to the Audit Committee on emerging findings relating to the framework of internal control.

My review of the effectiveness of the system of internal financial control is informed by the work of the internal auditors, the Audit Committee which oversees the work of the internal auditor, the executive managers within the Agency who have responsibility for the development and maintenance of the financial control framework, and comments made by the external auditors in their management letter and other reports.

Notwithstanding the above control framework, I acknowledge that further work has to be done in respect of the Agency's lands liabilities.

At the balance sheet date the Agency had approximately 4,000 individual land acquisition, blight and compensation liabilities, details of which were previously held on individual case files extending over several years. In preparing for the accounts the Agency sought to transfer these records from a paper to an electronic medium. Errors arising out of the transfer of the data were identified.

The Agency has a programme of work in hand to identify and correct any outstanding errors in the liability as well as introducing new controls over the updating and maintenance of the new electronic system.

The Agency is also considering further the appropriateness of the current accounting treatment and recognition within the accounts of seven Design, Build, Finance and Operate (DBFO) road schemes. The new build element of these schemes, valued at £984m, is not recognised in the Agency's balance sheet other than as an intangible asset, valued at £195m, representing the reversionary interest in the new build element at the end of the DBFO contract period.

The correct accounting treatment is based on analysis and conclusions drawn from work carried out to date by the Agency. I recognise that this analysis is not necessarily conclusive and further work is being undertaken to confirm, or correct, the treatment.

As Accounting Officer, I am aware of the recommendations of the Turnbull Committee and am taking reasonable steps to comply with the Treasury's requirement for a statement of internal control to be prepared for the year ended 31 March 2002, in accordance with guidance to be issued by the Treasury.

Tim Matthews
Accounting Officer

22 December 2000