Financial controls over central finance services contracted out by the Public Health Laboratory Service broke down in 1998-99, the National Audit Office has found.

Contractors CSL 'kept inaccurate accounting records for debtors and cash, failed to perform timely bank reconciliations and had poor control over the making of payments for goods and the creation of creditors', a report on the PHLS's annual accounts says.

But NAO head Sir John Bourn found that the accounts did not contain any 'material mismanagement', thanks to extra work by the PHLS board, CSL and the NAO.

Because of the failures, contract fees to CSL were cut by£116,623 for 1998-99 and£88,728 in 1999-2000.

But extra consultancy costs as a result of delayed implementation cost the PHLS between£280,000 and£340,000.

Dr Diana Walford, director of the PHLS, said it 'fully concurred' with Sir John's comments and it had conducted a full risk assessment.

Public Health Laboratory Service Board Accounts 19981999.

www.nao.gov.uk