The auditor general and Saudi arms deals

Christopher Hope and Peter Oborne examine the career of Sir John Bourn, and ask why the National Audit Office's inquiries into the Al Yamamah deal was never published To date there have been no indications of ministerial disquiet with Sir John Bourn, Britain's comptroller and auditor general. Ministers speak of him in glowing terms, insisting that he is the embodiment of rectitude. Conservative front-bench spokesmen take the same favourable view.

This is very striking in view of the stream of revelations concerning this guardian of our public finances. Embarrassing details emerged last week, courtesy of the Freedom of Information Act, concerning Sir John's personal extravagance. To put it mildly, they showed that he does not manifest the same hair-shirt attitude to taxpayers' money that his National Audit Office demands of other public bodies.

It is not so much the £27,000 racked up over three years on meals, many at London's best restaurants, that is a cause for concern. Indeed, a bill of £500 for four at Wiltons in Jermyn Street argues a certain restraint. It is not even the size of Sir John Bourn's spending on firstclass flights, often accompanied by his wife. His total travel bill since 2004 comes to £365,000.

The main problem concerns Sir John's hospitality from companies he is supposed to monitor. For instance, he attended a polo match on 29 July funded by the computer company EDS, a controversial business which is partly dependent on government contracts, some of which have gone wrong.

A National Audit Office report, for example, brought to light the EDS role in Gordon Brown's tax credits fiasco. The computer firm was also heavily embroiled in the Child Support Agency disaster. It is disconcerting to discover that the auditor general has been accepting corporate hospitality from a company over which he is called to sit in judgment.

Most fascinating of all was a small entry detailing hospitality enjoyed by Sir John at the British Grand Prix on 8 July this year. 'Attendance at British Grand Prix with other guests', it said simply. The host? BAE Systems, Britain's biggest defence company, which was under criminal investigation until last spring's dramatic announcement from the attorney general that the Serious Fraud Office had been taken off the case.

Sir John must know more about BAE Systems — and in particular its Al Yamamah weapons deal with Saudi Arabia which so much interested the SFO — than virtually anyone else in Britain. Sir John was senior defence procurement official at the Ministry of Defence when the contract — immediately labelled the arms sale of the century — was signed by Michael Heseltine and HRH Prince Sultan Aziz Al Saud in 1986. His job between 1985 and 1988 — deputy undersecretary of state (defence procurement) — gave him a ringside seat, and therefore he must also have known about rumours of large commission payments handed to Saudi defence officials and others.

On 1 January 1988 Sir John replaced Sir Gordon Downey — who later became parliamentary commissioner for standards — as head of the NAO. Fifteen months later, in April 1989, Sir John announced an NAO enquiry into the Al Yamamah deal.

This was highly sensitive. The Saudis hate any exposure, and the NAO investigation was to see whether the reports of the alleged payments to middlemen were true. To the government, the prospect of a warts and all NAO report would have been very worrying.

The NAO's report was drawn up between 1989 and 1991 and then presented to the chairman of the Public Accounts Committee, Lord (Bob) Sheldon. Yet the final report— 'National Audit Office Memorandum — Saudi Arabian Air Force Project (Al Yamamah)', dated 29 January 1992 — was never to see the light of day. It remains the only NAO report which has never been published.

Lord Sheldon said that its publication would endanger the deal — and thousands of British defence jobs. He said: 'I did an investigation and I find no evidence that the [MoD] made improper payments. I found no evidence of fraud or corruption. The deal complied with Treasury approval and the rules of government accounting.' The report's suppression led to speculation, however, that it contains sensitive material about payments allegedly made by British defence companies to middlemen.

Some £12 million of commission payments from the deal was later reported to have been handed to Lady Thatcher's son Sir Mark. Sir Mark has denied the claim.

With the Al Yamamah report under lock and key at the NAO, Ministry of Defence officials detailed in a secret memorandum, in summer 1992, highly unusual arrangements for Al Yamamah which would keep the deal off the MoD's books. They wrote: 'In particular MoD has introduced special accounting arrangements for Al Yamamah. . . to ensure that Saudi confidentiality is preserved. If the normal rules had been followed, Saudi transactions would appear in the department's published appropriation accounts, laid before Parliament; and we need to avoid this.'

The NAO press office this week stressed that it was MPs — not Sir John — who decided not to publish the report. Yet Freedom of Information Act requests have also revealed that the NAO commissioned a second secret report into Al Yamamah, in 1997.

This second report was never disclosed to parliament. This was confirmed by Nick Wright, the then Public Accounts Committee's clerk, who said last year: 'I am not aware of any such memo nor of one presented to the committee at the time. We did not receive a report like that in 1997 and 1998.'

The NAO told The Spectator this week that this second Al Yamamah report was drawn up after issues arose during the audit of MoD accounts between 1995 and 1996. A spokesman said: 'These were not to do with impropriety, fraud or corruption and were settled directly with the Department. There was then no need to report on them to the PAC chairman. The document detailing the issues remained a draft which did not lead to the issue of a report.'

The 1992 Al Yamamah report was judged important enough for the Serious Fraud Office to consider getting hold of a copy as part of its probe into allegations — always denied — that BAE Systems operated a Saudi slush fund. SFO investigators even considered a dawn raid of the NAO's offices on Buckingham Palace Road, months before Prime Minister Tony Blair pulled the plug on the probe last December.

And so to July's British Grand Prix. Sir John has of course done nothing wrong by sipping BAE Systems's champagne. Yet it is curious that Sir John accepted the invitation at all.

It is instructive to compare the treatment of Elizabeth Filkin, the former parliamentary commissioner for standards, and the auditor general Filkin set about her task scrupulously, and maintained a fastidious distance from those she examined. Her reward was to be drummed out of office, the victim of a smear campaign that was set in motion by ministers.

Sir John is much chummier than Mrs Filkin His reports, while critical, stop short of pointing the finger at ministers. Some of them — such as the NAO verdict on the disastrous NHS IT system — are overgenerous. Some critics feel that he has hopelessly failed to cast a critical eye over new methods of government such as the Private Finance Initiative. No wonder ministers speak of him in such glowing terms.