Credit: Kirsty O'Connor/PA Archive/PA Images

The Home Office has commissioned an independent review after it discovered it had breached its parliamentary spending limits by £118m.

Its permanent secretary, Matthew Rycroft, has also ordered a “finance improvement programme” be carried out to ensure the department monitors its finances more effectively in future.

The departmental head revealed that the Home Office had previously considered investing in technology that might have prevented the error, but had decided it was too complicated and expensive.

Rycroft wrote to the Public Accounts Committee this week to report that his department had breached its £14.6bn net cash requirement – the amount it is allowed to spend in excess of its income – by £118m last year.

The perm sec said his department had taken several steps to ensure the breach, which he said arose from a combination of “failures in financial system controls” and human error, would not happen again.

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After the breach was noticed in May, the department commissioned the Government Internal Audit Agency to review why it happened. It has since put measures in place to prevent such breaches happening again.

The Home Office is now working on an action plan to “strengthen the monitoring process of all key financial metrics”, including more rigorous monthly reporting to the management board, according to its annual report and accounts, which were also published this week.

Rycroft’s letter explained that the Home Office has one bank account containing both funds to carry out its core activities, and the money it collects on behalf of the Treasury, such as the immigration skills charge and fines issued to landlords and employers that breach employment law.

“These were not separated and monitored accordingly,” the perm sec told the MPs.

As a result, officials “failed to detect” that the department was using money that should have been paid to the Treasury to fund its activities.

“We were aware of this risk, and had previously considered a technology-led solution, but this had been ruled out on the grounds of complexity and cost,” Rycroft said.

Meanwhile, he added, “Routine ledger account management did not take place during a key period of the financial year as the result of human error.”

The department’s annual report noted that officials only spotted the breach in May “too late to take any action to correct the situation in 2019-20”.

Rycroft said the breach does “not materially impact taxpayers or the overall fiscal position” of the department.

“However, I take any financial control failure very seriously. I have therefore commissioned an independent review into the weaknesses now exposed. Its recommendations will be implemented robustly to ensure that this does not happen again,” he said.

The review’s recommendations will form part of a wider finance improvement programme, which will be overseen by the department’s corporate finance director and director general for capability and resources, he said.

The project will aim to ensure the Home Office’s finance function provides appropriate financial controls and financial reporting to support decision making.

It is an internal project that will not be published. The project is intended to complement a soon-to-be-published Home Office finance business plan.

A Home Office spokesperson said: “We take financial breaches very seriously and we immediately commissioned an independent review into the errors. We accepted the recommendations in full and have already started to implement them."