Grade orders investigation into BBC's finances

New chairman calls in outside auditors to carry out crucial review

Michael Grade, the chairman of the BBC, revealed yesterday he was calling in independent accountant to carry out an urgent investigation into the corporation's finances.

Mr Grade suggested it was essential to upgrade the way the organisation handles its £3bn annual revenue to stave off critics who want it opened to more commercial pressures.

In his first interview since taking over as chairman of the BBC - after the resignation of Gavyn Davies following Lord Hutton's devastating report - Mr Grade told The Independent the BBC governors were determined to respond to criticisms about financial controls.

He is determined to do everything possible to make sure the public's licence fee is not wasted - before the renegotiation of the BBC's Royal Charter, which runs out at the end of 2006.

The Government is expected to publish a Green Paper, or legislative proposals, early next year, well ahead of any possible general election date.

In the interview, Mr Grade played down fears about the organisation's journalism, or worries about government pressure, intense in the aftermath of Andrew Gilligan's infamous report that the Government had "sexed up" the case for the Iraq war.

Mr Grade instead said: "If you are going to ask me what keeps me awake at night, it's not a journalistic horror - it's not a Hitler's diary - because those things happen and editors make mistakes. I am more concerned about the stewardship of the public's money than some political row about a programme investigating the Olympic Committee or whatever.''

Announcing the audit, he said: "I have, this week, commissioned Ernst & Young to come in from outside and have a look at our financial control systems generally. I want some outside comfort that our systems are fit for their purpose. I've heard criticism."

He declined to be specific about why Ernst & Young had been hired, other than to say there had been some general and specific criticisms. The criticisms did not relate to any individual. The BBC's auditors are KPMG but it is normal practice to appoint an "outside" company when a review of financial controls has been ordered. The review is likely to be wide-ranging although Mr Grade said yesterday that he was drawing up the terms of reference. Mr Grade has been entrusted with restoring leadership to the BBC in the aftermath of the Gilligan affair. Lord Hutton's report into Dr David Kelly's suicide in July last year condemned the BBC when it was published seven months ago, and sent confidence into freefall.

While Mark Thompson, the director general, concentrates on restoring journalists' and programme makers' sense of purpose, Mr Grade, in emphasising the finances, appears - at least initially - to be adopting a no-nonsense approach.

Mr Grade said: "It's not about efficiency. It's about financial controls. It only needs one rogue in any organisation to bring the place into disrepute.''

Since arriving at the BBC less than three months ago, the former chief executive of Channel 4 has had a lot of reassessing to do about reputations of former director generals.

Mr Grade has had a long feud with his former London Weekend Television colleague, Lord Birt. Many in the industry believe Lord Birt, who has an office in 10 Downing Street and advises the Prime Minister on long-term projects, tried to block Mr Grade's appointment.

Yesterday Mr Grade came close to apologising for his part in the row. "I'll take the rap here. The one thing I regret about the Birt feud is I did make it personal and I did promote it as a personal feud. I was a bit immature," says Mr Grade, who admits he rather enjoyed the row.

The change of heart may be partly about building bridges with Downing Street but it is also about a growing realisation of Lord Birt's achievements at the BBC. There may have been an unnecessarily high cost in staff morale and a number of other "minuses" but Mr Grade conceded yesterday that Lord Birt modernised the corporation "quite dramatically".

"John did a lot of good things here that I am beginning to appreciate now," said Mr Grade, who adds that Lord Birt was "a visionary" in taking the BBC into digital when he did.

Mr Grade also criticised ITV for seeing "the provision of news as a cost centre" rather than an important contribution and use of the airwaves.

"My heart bleeds for ITN to be honest and I don't think that's healthy. I will send Charles Allen [the ITV chief executive] a bottle of champagne if they beef up ITN's budget".

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