Issues Surrounding the Review of Financial Management of Operation Rectangle - Ministerial Response - 6 January 2012

1.

To examine the instructions under which  BDO  Alto  Limited  was engaged  to  review  the  financial management  of  Operation Rectangle  and  their  methods  for gathering evidence for this review.

1.1

Under  the  Public  Finances  (Jersey) Law 2005 the Chief Officer of Home Affairs is legally responsible for the expenditure  of  the  States  of  Jersey Police. All concerned now agree that the  decision  to  place  accountability for the States of Jersey Police budget with  the  Home  Affairs  Accounting Officer  was  a  mistake.  This arrangement  made  it  unnecessarily difficult  for  the  Chief  Officer  of Home  Affairs  to  ensure  effective oversight of expenditure on Operation Rectangle  which  was  an  event  of unprecedented complexity.

Agreed.  Arrangements  are  being made  to  enable  the  Police  Chief  to become  an  Accounting  Officer  with effect from January 2012. The draft States  of  Jersey  Police  Force  Law 201- contains a provision which will formalise this arrangement.

1.2

The terms of reference for the review of  financial  management  during Operation Rectangle were drawn too narrowly. They directed BDO Alto to focus  solely  on  the  internal  Police arrangements  and  the  use  of resources.

It is agreed that the wording of the terms of reference could have made it clearer that my intention was always that the review should include looking at the role of the Accounting Officer and  the  Home  Affairs  Department. Nevertheless, section 3 of the Review does deal with this issue. The whole purpose of the BDO Review was to scrutinise  the  amount  and  type  of expenditure  to  examine  whether  it represented the efficient and effective use of resources. The BDO report was commissioned to provide the Minister and the Accounting Officer  with an assurance  that  resources  had  been used efficiently and effectively.

1.3

As a result, the review conducted by BDO Alto promoted a perception that the high levels of expenditure in the investigation were caused by a lack of management control by senior police officers whereas there was in fact a much  broader  failure  by  States systems  to  provide  adequate  and timely  monitoring  of  the  way financial resources were being used, which has not been acknowledged or examined.

This was not merely a perception but a  fact  borne  out  by  the  Wiltshire Police Finance Report (see paragraph

5.2.38 7 of the Particulars' section of the  Wiltshire  Police  Finance  Report (page 97). In my view, the Scrutiny Sub-Panel's report has failed to give sufficient  weight  to  the  Wiltshire Police Finance Report.

1.4

The  examination  of  governance arrangements in section 3 of the BDO Alto report is incomplete as it does not take into account evidence from Mr.  Power,  the  Chief  Officer  of Police at the time.

The Wiltshire Police Finance Report does  take  into  account  Mr.  Power's evidence.  The  examination  of governance arrangements in the BDO Review  needs  to  be  read  alongside paragraphs  1.1  to  1.15  of  the Wiltshire Police Finance Report. The conclusions drawn are consistent.

1.5

An  opportunity  to  include  a  more strategic  examination  of  how  Jersey runs and funds policing and lines of accountability,  both  professionally and politically, was missed.

No.  These  matters  have  been examined  thoroughly  and  new provisions incorporated into the new States  of  Jersey  Police  Force  Law 201- which was lodged in November 2011 for debate by the States in early 2012. The most relevant of these are the Police Authority and Accounting Officer provisions.

1.6

The  appointment  of  a  Finance Manager  seems  to  have  fallen between two stools. BDO Alto review

If  the  Scrutiny  Sub-Panel  had researched  the  relevant  source document –  the Guidance on Major

did not examine why Home Affairs did not appoint a finance manager at an early stage to work closely with the Police.

Incident  Room  Standardised Administrative Procedures (MIRSAP) 2005 – they would have ascertained where  the  responsibility  lies  for appointing a Finance Manager for a major  incident,  namely  with  the Police  force.  The  guidance  is produced on behalf of the Association of  Chief  Police  Officers  by  the National  Centre  for  Policing Excellence  and  provides  the  Police with clear information and guidance on the above procedures.

Section  1.2.1  states  that  the  Senior Investigation  Officer  (SIO)  has responsibility for the investigation of the crime. This includes ensuring, in liaison  with  other  senior  officers  as necessary, that an incident room with appropriate resources is set up.'

Section  1.5  sets  out  the  role  of  the Finance  Manager:  This  role coordinates  all  administration  and financial  issues  regarding  staff, vehicles,  accommodation, refreshments  and  equipment  thereby relieving the SIO and Office Manager of  all  administrative  matters  not connected  with  the  investigation itself.

The guidance goes on to say that the Finance Manager should be appointed immediately and is key in the setting up of a major enquiry.

1.7

The Minister for Home Affairs should have  ensured  that  the  BDO  Alto review  fully  examined  the implications  of  the  flawed  structure for monitoring and challenge.

No.  This  finding  results  from  the failure of the Scrutiny Sub-Panel to properly consider and give due weight to  the  Wiltshire  Police  Finance Report.

1.8

Operation  Rectangle  had  significant unbudgeted  consequences  for  the States of Jersey as a whole. However, it  is  not  clear  whether  the  senior management  in  the  States  had  any established procedures for identifying and  managing  the  risk.  This  aspect was not examined by BDO Alto as it was outside their terms of reference.

The Chief Minister's Department has been consulted on this finding. That Department now maintains a Strategic Risk  Register  which  links  into departmental  risk  registers  with  the object of identifying key risks early. This  includes  an  escalation  process where immediate action is required to treat  or  mitigate  these  risks.  The potential impact of the Pandemic Flu outbreak in 2010 is a clear example of

how  a  major  Strategic  Risk  to  the Island  was  escalated  quickly  to  the Chief  Minister's  department  and  an appropriate senior management team was convened from across the States to  provide  strategic  management  of the risk.

1.9

The  review  of  an  issue  as  highly sensitive  as  the  Police  use  of resources  in  Operation  Rectangle should not have been commissioned and overseen by the States department which  had  responsibility  for  the Police budget.

The  BDO  Review  was  a  review specifically commissioned to provide the  Minister  and  The  Accounting Officer  with  an  assurance  that resources  had  been  used  efficiently and  effectively.  The  primary investigation  into  the  management and supervision of the HCAE by the Chief  Officer  of  Police  was  carried out by the Wiltshire Police and their findings  published  in  their  Finance Report.  The  BDO  Review  was  not unlike  any  similar  audit commissioned by the Department, in consultation  with  the  Chief  Internal Auditor,  into  other  areas  of  its business.

1.10

A  completely  independent  body should  have  commissioned  this review  in  order  to  provide  a  more transparent,  comprehensive  and rigorous  challenge  to  the  financial monitoring  arrangements  in  place between  the  Home  Affairs Department and the States of Jersey Police.

The  comment  at  paragraph  1.4 applies. In my view, the Sub-Panel's review  could  have  benefited  from greater reference back to the Wiltshire Police  Finance  Report  which  was  a report  prepared  by  a  "completely independent body".

1.11

In  the  highly  charged  atmosphere about  the  Historic  Child  Abuse Enquiry and the way it was handled it was  inevitable  that  narrowly  drawn terms  of  reference  and  the  way  the report  focussed  on  specific expenditure  decisions  and  less  on wider  issues  of  governance  and control would be seen by some as less than  objective  and  a  deliberate attempt to discredit the HCAE.

The  suggestion  that  there  was  a deliberate  attempt  to  discredit  the Historical  Child  Abuse  Enquiry  is very strongly denied. Not only is this incorrect but also there is a complete absence of cogent evidence to support this.  At  all  times,  the  HCAE  was treated  very  seriously  by  both  the States of Jersey Police and myself. At no time did any relevant party wish to discredit  the  enquiry.  However,  the Wiltshire  reports  indicate  that  there were very serious failings on the part of the most senior officers.

2.

To  clarify  the  connection  between the  BDO  Alto  review  and  the review separately commissioned by

the Acting Chief Officer of Police

2.1

Mr. Kellett was originally employed by  the  States  of  Jersey  Police  to undertake  an  internal  review, commissioned  by  Mr.  Warcup, relating to the overall conduct of the HCA investigation by the police.

This  was  not  known  by  me  but  is apparent from the evidence.

2.2

Mr. Kellett, however, was not made aware of this intended task and was given  separate  instructions  which required him to work closely with the BDO  Alto  review  on  the  use  of financial  resources.  These  different instructions  were  given  by Mr. Gradwell and had not been seen or authorised by Mr. Warcup.

This  was  not  known  by  me  but  is apparent from the evidence.

2.3

Mr.  Gradwell's  instructions  to Mr. Kellett  caused  confusion  about the  police  consultant's  role. Mr. Warcup  initially  praised Mr. Kellett's  work  but  subsequently decided that it was inappropriate for him to be working on a joint review with BDO Alto on the grounds that it was inappropriate for anyone working for the States of Jersey Police to be investigating  matters  which  were connected to the disciplinary enquiry being  conducted  by  Wiltshire Constabulary.

The  long  delay  in  bringing  the Wiltshire  disciplinary  enquiry  to  a conclusion  had  important consequences  for  the  BDO  Alto review  as  it  led  to  Mr.  Warcup's decision to prevent Mr. Kellett from interviewing Mr. Harper regarding his expenditure  decisions  during  the course of the BDO Alto review.

This  was  not  known  by  me  but  is apparent from the evidence.

2.4

Despite  the  significant  limitation imposed on the BDO Alto review by his  decision,  Mr.  Warcup  did  not convey his concerns to the Minister for Home Affairs. The Minister was therefore  unable  to  resolve  the problem.

Agreed.

2.5

Due to Mr. Gradwell's widely known negative views on the management of Operation  Rectangle  by  his

It  is  relevant  to  record  that Mr. Gradwell's credentials in relation to the management of major incidents

predecessor it was not appropriate for him  to  be  directing  the  police consultant's  work  on  the  financial review.  This  undermined  the independence  of  the  BDO  Alto review.

were impeccable to the extent that he could take an objective view of the management of Operation Rectangle. There was therefore no reason, at the time,  to  anticipate  a  difficulty.  I accept that Mr. Gradwell's subsequent behaviour gives rise to a serious risk that  the  outcome  of  the  BDO  Alto Report may have been influenced by Mr. Gradwell's view.

3.

To  identify  the  reasons  why  the Senior  Investigating  Officer  for Operation  Rectangle  was  not interviewed during the review and was  not  given  the  opportunity  to respond to the report's findings

3.1

It is self evident, and all parties agree, that  BDO  Alto  should  have interviewed  the  key  witness  so  that his evidence could have been included and evaluated in their report. Natural justice requires no less.

Although  BDO  Alto  were  aware  of Mr. Harper's position on a number of issues, it was implicit in the terms of reference that key witnesses should be interviewed.  If  the  difficulties  in relation to this had been brought to my  attention  then  I  would  have ensured that this occurred.

3.2

The  failure  to  provide  Mr.  Harper with the opportunity to respond to the findings of the BDO Alto review was also, in our view, a significant error and  inevitably  undermines  the credibility and fairness of that review.

 I accept that the failure weakens the strength  of  some  conclusions. However,  some  conclusions  were independently  confirmed  by  the Wiltshire Police Finance Report and, in  other  cases,  the  position  of Mr. Harper  was  known  and  it  is unlikely  that  the  response  of Mr. Harper  would  have  led  to  a different conclusion.

3.3

Given that it was surely obvious that not  to  interview  the  Senior Investigating  Officer  in  Operation Rectangle  would  leave  the  review open  to  criticism  of  being fundamentally  flawed,  BDO  Alto should have brought this problem to the attention of the Home Affairs and insisted that some solution be found.

The BDO Review was carried out by professional auditors and based upon documentary  evidence.  The  factual findings in relation to expenditure are accurate. The BDO Review makes it quite  clear  that  the  content  had  not been discussed with the former SIO. I refer back to my comments on 3.1.

3.4

No  one  involved  in  the  review brought  to  the  Minister's  notice  the fact that there were apparent obstacles in  the  way  of  interviewing  Lenny Harper.

Agreed,  and  I  have  already commented on that.

3.5

The  terms  of  engagement  for  BDO Alto should have made clear that their review  would  be  subject  to  public scrutiny.

It was clear to BDO at an early stage that their report would be placed in the public domain.

4.

To  clarify  the  liaison  between  the review  of  financial  management and  the  Wiltshire  Police Investigation,  in  particular  the references in the BDO Alto report to the Senior Investigating Officer's statements to Wiltshire Police

4.1

BDO Alto stated that the references to Mr.  Harper's  statement  to  Wiltshire were included in their report in order to add some support to Mr. Harper's approach to certain financial issues.

Agreed.

4.2

The 3 references briefly made in the BDO  Alto  report  actually  concern contentious issues which  deserved a much  fuller  explanation  of Mr. Harper's position.

See comment to finding 3.3. Where opinions were expressed by the SIO, such as the relevance of Home Office procedures  to  Jersey,  then  an explanation of his view would have been helpful.

4.3

In our view, the justification given for referring to Mr. Harper's statement in fact  supports  the  argument  that  he should  have  been  contacted  to establish his point of view across the whole review of financial resources.

I have already commented on that.

5.

To  investigate  how  details  of  the review  into  the  financial management  of  Operation Rectangle came to be published in a national  newspaper  in  October 2009

5.1

The evidence we have received points to  Mr.  Gradwell  as  the  person responsible  for  leaking  information from draft sections of the work which Mr. Kellett had prepared for the BDO Alto review.  

Agreed.

5.2

Neither  BDO  Alto  nor  Mr.  Kellett were  responsible  for  the  leak  of information to the Mail on Sunday.

The Department was confident from the outset that no leaks had been made by Home Affairs Department staff or those carrying out the BDO Review.

5.3

Mr.  Gradwell's  action  in  releasing prematurely  to  the  media  draft sections  of  an  uncompleted  report

Agreed.

would  have  been  a  serious disciplinary  matter  for  the  Police. However,  no  action  could  be  taken against  him  by  the  States  of  Jersey Police as Mr. Gradwell had completed his secondment and left the Island.

5.5

Mr.  Gradwell's  reasons  for  taking such  an  unprofessional  step  are  not clear to us as he refused to participate in the Scrutiny review.

Agreed. Mr Gradwell did explain his behaviour in a telephone call to me in late 2009 or early 2010, but this was not included in my evidence as I was not asked about this.

6.

Media coverage

6.1

The  emphasis  on  alleged  misuse  of taxpayers'  money  in  instances  of media reporting risks implanting the impression in the public mind that the entire  expenditure  on  Operation Rectangle was badly managed.

When  I  made  a  press  statement  in relation  to  the  Wiltshire  and  BDO Reports regarding the Historical Child Abuse Enquiry, I read out a detailed and  balanced  statement  before answering questions on details. I was not  able  to  control  the  reporting  of this. Some of the reporting was fair and  balanced  but  some  was unbalanced  and  sensational  to  the extent  of  wrongly  giving  the impression that the entire expenditure on  Operation  Rectangle  had  been mismanaged.

6.2

In  our  hearing  with  him  on  25th August  2011,  the  Minister  was sympathetic to our concerns about the way  negative  messages  about Mr. Power and Mr. Harper had been spun in the media and he offered to make a joint statement to this effect with the Sub-Panel. We believe that this would be a positive step.

The Minister has followed through on this offer, e.g.: Radio Jersey interview on the 15th November 2011 with the Minister and the Sub-Panel Chairman. In  addition  to  this,  I  now  offer  the following  further  statement  (see Appendix)

6.3

Our  primary  concern  about  the premature  leaking  of  details  of  the review  of  financial  management relates to issues of fairness in the way these leaks are reported in the media without  an  adequate  opportunity  for an  alternative  perspective  to  be considered.

Agreed.

6.4

It  is  essential  that  the  Chairmen's Committee give serious consideration to establishing a Scrutiny Panel which could undertake a review which will look specifically at the kind of issues we have identified in this report.

This  is  not  within  my  remit  as Minister for Home Affairs.

R.1

The  Council  of  Ministers  should report  to  the  States  on  whether  it believes  that  its  procedures  for  the identification  and  management  of major financial risks are adequate. If they  think  they  are  adequate,  they should  explain  why,  in  the  light  of 2 successive  failures1  when  major unprecedented  risks  were  not  well managed. If they think they are not, how they have made the procedures fit for purpose.

The  Minister  for  Treasury  and Resources has accepted the view that the fact that the Chief of Police was not an  accounting  officer  may  have contributed to difficulties in managing the  financial  aspects  of  Operation Rectangle.  He  will  therefore  appoint the  Chief  of  Police  as  accounting officer  with  effect  from  1st  January 2012. However, he regards this as an isolated and exceptional example of the accounting  officer  arrangement  not working effectively.

When  the  new  Public  Finances  Law came into effect in 2006 the previous General  Reserve  was  no  longer available  to  fund  unforeseen expenditure.  From  2006  such unforeseen and large items have been brought  in  an  open  and  transparent manner  to  the  States'  attention via  a request  for  additional  funding  under Article  11(8)  of  the  Public  Finances (Jersey)  Law  2005.  Any  such expenditure  approved  has  then  been separately  managed  by  the  Treasury with any unspent funds not required for that explicit purpose being returned to the  consolidated  fund  by  ministerial decision.  Recent  examples  of  such returns  happening  include  funding allocated for pandemic flu, Williamson and Social Security costs.

The Council of Ministers regards the 2 examples quoted by the sub-panel as

being particular and not evidence of a systematic  weakness  in  the identification  and  management  of financial  risks.  The  Historic  Child Abuse  Enquiry  was  largely unforeseeable  but  the  Article 11(8) approach outlined above allowed this cost to be managed. The EfW matter had  a  number  of  contributory  causes which have been well documented but this was not an unidentified risk, rather one where the mitigation process was unsatisfactorily  managed.  Aside  from isolated  Article  11(8)  requests  to  the States  all  other  capital  and  revenue expenditure has been contained within States-approved limits and is managed by a combination of accounting officer vigilance  and  regular  reporting  on income and expenditure to the Council of  Ministers,  where  any  corrective action  can  be  discussed  and  agreed. The Council of Ministers therefore has confidence in its assurance framework.

Notwithstanding  the  basic  soundness of  the  processes  described  above  a number  of  improvements  have  been made that include –

• Improved  quarterly  revenue  and capital reporting to the Corporate Management Board and Council of Ministers  –  any  potential difficulties  are  identified  and discussed  on  an  "early  warning" basis.

• Identification  of  major  spending pressures towards year end for the forthcoming year to the Council of Ministers. These are then discussed and funding agreed if appropriate. If  funding  is  not  available departments  will  be  expected  to manage  within  existing  approved expenditure limits.

• The  availability  of  Central Reserves/Contingency to meet any genuinely  unplanned  pressures. These have been approved by the States. An outline of a transparent process  for  managing  this

expenditure  will  be  published  in January 2012.

• Six-monthly  reports  to  the  States showing  all  approvals  made  for changes to States-agreed spending and  income  by  the  Minister  for Treasury and Resources under his Finance  Law  delegations.  This ensures States Members are made aware  of  any  changes  in  use  of funding they have approved.

• A  strengthening  of  the  Audit process and the Audit Committee. This is now more focussed and has more independent members.

R.2

Reviews  of  exceptional  matters  of public  interest  such  as  Operation Rectangle  should  be  commissioned, their  Terms  of  Reference  set,  and supervised in a completely transparent and independent way. The Council of Ministers must report to the States on how this is to be achieved.

The  Home  Affairs  Department's objective was to commission an audit into the efficient and effective use of resources.  The  Council  of  Ministers believes  that  it  is  possible  for  a Department to set Terms of Reference and  supervise  in  a  transparent  and independent way. However, in future, it commits to considering such matters as part of its regular review of financial performance  and,  either  jointly  or through the Minister for Treasury and Resources,  commissioning  internal  or external  reviews  where  it  feels  this would  be  appropriate.  It  does  not consider  that  a  report  to  the  States would be of any benefit as each case must be treated on its own merit

For  any  other  exceptional  and  large occurrences which are likely to result in  significant  additional  expenditure the  Council  of  Ministers  commits  to considering  financial  arrangements early in such a process. At the same time  the  Council  of  Ministers  is concerned  that  the  accounting officer concept is not weakened and that legal responsibilities  cannot  be  avoided  by the  Council  of  Ministers  or  Minister for Treasury and Resources taking over such  responsibilities.  The  accounting officer  for  a  department  committing expenditure  remains  legally accountable for that expenditure.

R.3

The  Chairman's  Committee  should establish broadly-based Scrutiny Panel to  undertake  a  review  to  examine issues relating to the media coverage which we have raised in our report.

This  is  a  matter  for  the  Chairman's Committee.