DFP disapprove after £1.7m Guildhall Square spending breach

It can also be revealed that a “significant breakdown in project management” resulted in the £1.7m overspend although at one point it looked as though this could be as high as £3.3m and consideration was even given to scrapping the scheme entirely.

The Northern Ireland Audit Office (NIAO) has rapped DSD for breaching spending controls in exceeding the amount approved by DFP on the city centre regeneration project.

The landmark public realm scheme was originally supposed to cost £7.2m but went well over budget due in part to “extremely difficult underground conditions” encountered during construction. It has now emerged the entire £8.9m final cost has been deemed “irregular expenditure ” by DFP and the public auditors.

In a new report on the public finances Northern Ireland Auditor General Kieran Donnelly cited the project as one of four reasons for qualifying the DSD accounts.

Mr Donnelly states: “The Department exceeded the amount approved by DFP for it to spend on a city regeneration project by £1.7m. DFP was not prepared to grant retrospective approval for this and therefore the final £0.3m paid on the project during 2010/11 was deemed to be irregular.”

The report also reveals that DFP wrote to DSD during the summer to say the NI public paymaster no longer approved of the entire project expenditure.

“On June 27, 2011, DFP wrote to the Department outlining that because of the extent of the overspend, project approval was rescinded and therefore the total project spend of £8.9m should be recorded as irregular expenditure,” the report states.

“As only £0.3m of the total spend was incurred in 2010/11, this is the amount on which I have qualified my opinion on this year’s accounts.”

Plans for the multi-million pound scheme to create a “modern, contemporary and confident” city were unveiled to the public in 2008 but had been in the planning for years previous.

The scheme ran overtime and over budget due to “extremely difficult underground conditions” but was eventually completed in 2010.

Now NIAO reveals that DSD submitted an economic appraisal to DFP in December 2006 for the project and obtained approval to spend £7.2m.

But the difficult ground conditions uncovered during pre-construction ratcheted the cost up to £10.5m - an estimated increase of £3.3m.

Mr Donnelly and his team found that: “As part of the approved planning permission for the project, the Department was required to deliver the project in two phases and a contractor was appointed in January 2009 at an agreed price of £7.6m, which did not include the additional ground conditions work. The contractor commenced work on the project in March 2009.”

At this stage DSD contacted DFP to advise of the two phase nature of the project and were told that the £7.2m project approved in 2006 had not been presented as a phased project. DFP told the Department to give further consideration on how best to take the project forward.

Subsequently, “the Department decided not to submit a formal request for approval to re-phase the project to DFP,” the NIAO report reveals.

Mr Donnelly states: “I asked the Department why approval for the second phase was not obtained before proceeding with phase one and the Department told me they believed that the project could be scaled back to within 10 per cent of the original approved amount whilst still delivering against the original business case objectives and that this position was discussed with DFP.” It could not.

Mr Donnelly explains: “This was not possible and approval amount was exceeded by £1.7m, when the project was finally completed. Consideration was also given to stopping the project but following consultation with the Central Procurement Directorate (CPD) it was determined that to stop work after the contractor was appointed would expose the Department to significant compensatory costs together with costs incurred for all preparatory works completed.”

Whilst the plug was not pulled and the impressive new regeneration of Waterloo Place went ahead it eventually resulted in DFP’s letter of June 27 rescinding approval and also in the Auditor General’s qualification of DSD’s accounts.

Mr Donnelly states: “I asked the Department what lessons have been learned to avoid such difficulties in future and the Department told me that it had completed a detailed review of the circumstances which led to the overspend on the project, identified lessons learned and has taken steps to prevent any recurrence.

“The lessons learnt will be disseminated across the Department and to other areas of the Northern Ireland public sector as appropriate.”

The NIAO report notes that there was a “significant breakdown in project management.”

It concludes: “The Department recognises that the failure to obtain the necessary approvals is a significant breakdown in project management and resulted in the original approval being exceeded.

“Of this exceeded amount, £0.3m was incurred during 2010/11 and as the expenditure has been incurred without conforming to the authorities which govern it, I have qualified my audit opinion on regularity.”

After publishing the report on the general public finances last week Mr Donnelly said that “the standard of financial reporting across central government remains high. However, last year a higher number of accounts than usual received qualifications.

“This pattern has continued in 2010-11”. His report notes that six out of the nineteen departmental resource accounts received qualified audit opinions. Mr Donnelly highlighted breaches of spending controls and unapproved payments as reasons why he qualified his audit opinions.