13. The Territories share the challenge of running a system of government in a small community, where the legislature is made up of a few individuals, and direct personal or family relationships often exist between officials and citizens. There are added difficulties in promoting good governance in such communities, which can result in a weakened ability for the UK to identify potential risks.[28] Not all Territories have a Committee of Public Accounts, for example, and some that do exist only meet in private. The rare instances of using ex-officio members in Committees to provide expertise, and the NAO's recommendation that Territories pool their expertise on public accounts, are examples of how more can be done to improve public scrutiny.[29]

14. The former Chief Auditor of the Turks and Caicos Islands approached the UK's Comptroller and Auditor General about the lack of qualified audit staff and visibility of audit reports, rather than addressing these issues through local channels.[30] The reports of the Auditor General of Bermuda also noted that, while the accounts of Bermuda's central government were up to date, other public bodies were five or six years in arrears. And there were delays to the public pension and insurance fund which controls assets of approximately $1billion.[31] These standards would not be acceptable in UK Local Authorities. The Department is taking some action, for example, by organising a link between the National School of Government and the Turks and Caicos Islands public service, but it also emphasised that Territories should also be putting in place measures themselves.[32]

15. DFID has a good system for monitoring expenditure by those Territories in receipt of budgetary aid. This includes a financial risk assessment every two years, an annual statement of progress, and regular visits by DFID staff.[33] Both DFID and the Department also use an adapted version of the Public Expenditure and Financial Accountancy framework, which was developed by the World Bank. But they do not apply the framework so that they can benchmark Territories against standards elsewhere.[34] The Department operates further control through its borrowing guidelines. These aim to protect the UK from Territories taking on too high a debt, which they may be unable to service. Borrowing controls can be evaded, however, by late accounts or subsequent adjustments, causing the UK to make borrowing decisions which might not have been agreed to if accurate accounts had been available.[35]

16. Since 2000, the Department has spent in excess of £2.1 million on legal cases contesting the right of the Chagos Islanders to return to their homeland in the British Indian Ocean Territories.[36] The Department is now appealing to the House of Lords on three issues: firstly that any lasting settlement of the islands would be precarious and expensive for the UK; secondly that the resettlement of the Islands would pose a security risk to the United States defence base at Diego Garcia; and thirdly whether Orders in Council made by the UK for the administration of the Overseas Territories can be challenged in the UK courts.[37] The Department feels that the costs incurred to pursue this case are justified, and noted that the Chagos Islanders had already accepted compensation for their displacement.[38]

17. The UK maintains responsibility for the external defence of its Territories and their international relations. Since 2003, Argentina has withheld permission for UK charter flights to the Falkland Islands to pass through its air space. This restriction makes the direct military air service provided by the Ministry of Defence via Ascension Island vital for the development of the Falklands. The Falklands Government has raised concerns about the lack of a regular air service and the need for more certain booking arrangements for a business class service.[39] A new contract between the Ministry of Defence and the operator, Omniair, began in October 2007. This service guarantees up to 29 seats southbound and 39 seats northbound for the Falklands Islands Government, and 20 commercial seats each way between the UK and Ascension Island. In addition there will be up to 10 premium economy seats available on each flight. The Department is liaising with the Ministry of Defence and the Governments of the Falkland Islands and Ascension Island on negotiations for the future service, including seat costs, advance payment and booking mechanisms.[40] The Department plans to continue its diplomatic activities to address the air access issue with the new Argentinian President and Government.[41]

18. The development and diversification of income streams is important to the development of the Territories. This is demonstrated by the positive impact achieved by the annual £26 million fishing licence income generated for the Falkland Islands government.[42] After the 1982 conflict, the British Government and the Falklands Islands Government were concerned over the threat to fishing stocks in the waters around the Falklands. After unsuccessful attempts by the UK Government to promote a multilateral fisheries management regime in the South West Atlantic, the UK decided that it had no option but to take unilateral action and announced the introduction of the Falkland Islands Interim Conservation and Management Zone. There is currently no treaty governing fishing on the high seas in the South West Atlantic. The Department is in ongoing negotiations with the World Wildlife Fund, the European Commission and relevant coastal states about a possible resolution.[43]

29   Q11; C&AG's Report, Recommendation 9 Back

30   Q 9 Back

31   Q 88; C&AG's Report, para 2.17, p 31 Back

32   Qq 90, 93 Back

33   Qq 93-95 Back

34   C&AG's Report, endnote 7, p 66 Back

35   Qq 97-98; C&AG's Report, Figures 4, 14 Back

36   Q 17 Back

37   Ev 16 Back

38   Qq 17-29, 123-132 Back

39   C&AG's Report, Appendix 3.5, p 50 Back

40   Ev 16 Back

41   Q 115 Back

42   Q 114 Back

43   Ev 16 Back