Select Committee on Public Accounts Thirty-Sixth Report


THIRTY-SIXTH REPORT


The Committee of Public Accounts has agreed to the following Report:

PROGRESS ON RESOURCE ACCOUNTING

INTRODUCTION AND LIST OF CONCLUSIONS AND RECOMMENDATIONS

1. In its 29th Report of Session 1999-2000 the Committee agreed with the Government that sufficient progress had been made on resource accounting and budgeting to proceed with implementing the Government Resources and Accounts Act 2000. Under changes made possible by the Act, the wholly cash-based system by which Parliament approves government expenditure (Supply) will be replaced from 2001-02 with one in which Parliament votes expenditure in accruals terms (reflecting expenditure when a liability accrues rather than when cash is spent) as well as cash.[1] At the same time, accruals-based resource accounts would replace appropriation accounts as the means of accounting to Parliament for Supply. The reliability of resource accounts is therefore crucial to Parliamentary control and accountability.

2. The Government has taken a staged approach to the implementation of these changes. In the period 1998-2001 there were three years of 'parallel running', with departments producing resource accounts in addition to their cash-based appropriation accounts. From 2001-02 the Government Resources and Accounts Act 2000 has taken effect. Appropriation accounts have been discontinued and all departments are required to prepare resource accounts as the basis for accounting to Parliament for Supply.

3. The Committee recognised that there remained significant risks to the successful implementation of the project. It looked to the Treasury to ensure that safeguards proposed to address these risks were applied rigorously and that the risks were managed so as to ensure that full accountability to Parliament was maintained under the new system from 2001-02.[2] The Committee called on the Treasury to:

  • ensure that departments had action plans that fully identified, as appropriate, the staffing, training and systems problems facing them, and the steps necessary to resolve those problems before 2001-02;

  • provide the Committee with a summary and analysis of each of these action plans by Autumn 2000; and

  • monitor departments' progress and provide further reports to the Committee on the quality of their resource accounts for 1999-2000 as soon as possible after 31 January 2001 - the statutory deadline for laying those accounts.[3]

4. The Treasury subsequently provided the Committee with three memoranda on these matters.[4] The Comptroller and Auditor General provided an analysis of the information provided by the Treasury, and gave his own assessment in the light of his audit of departments' resource accounts for 1999-2000.[5] On the basis of that information we have taken further evidence from the Treasury.

5. Our main conclusions and recommendations are as follows:

  • Progress on the implementation of resource accounting and budgeting continues to be made. The fall in the number of resource accounts attracting a qualified audit opinion, from 30 for the 1998-99 dry run accounts to 12 for the first formally audited accounts for 1999-2000, represents a clear and significant improvement. Nevertheless there remained significant problems for some departments. These included systems that provided inadequate audit evidence, failure to apply required accounting policies and a lack of proper review. The Treasury needs to ensure that residual problems are resolved in time for 2001-02 accounts, to ensure full accountability to Parliament under the new system of Supply.

  • Many departments still had a long way to go in making full use of resource-based financial management information as part of the day-to-day decision making process. Their systems and procedures need to enable decision making, planning and monitoring to reflect resource consumption, as well as cash flow.

  • The Treasury told us that they wished to speed up the process of presenting audited accounts to Parliament. Until Departments generally are achieving timely, complete and accurate submissions of resource accounts to the Comptroller and Auditor General, earlier deadlines could mean significantly more qualified accounts, of less value to Parliament. So while we would welcome earlier presentation of accounts, we will wish to be satisfied that departments are consistently meeting the current timetable before a more demanding one is set.

6. Our more specific conclusions and recommendations are set out below:

  (i)  Although the overall picture improved substantially, important issues remained with about a third of the 12 departments whose accounts for 1999-2000 were qualified. Two of the departments—the Home Office and the Ministry of Agriculture, Fisheries and Food (now superseded by the Department for Environment, Food and Rural Affairs)—gave particular cause for concern because they appeared to have made little improvement (paragraph 20).

  (ii)  27 departments failed to meet the statutory deadline for rendering their accounts for audit (eight months after the end of the financial year). After five years preparation for resource accounting, it is unacceptable for departments not to have the systems and skills to enable them to comply with the law in this respect. The Treasury said they were considering whether to require departments that failed to meet this deadline to report to this Committee, and we await more detailed proposals that are to follow consultation with the National Audit Office and departments (paragraph 21).

  (iii)  Availability of sufficient staff with the necessary skills continued to be a problem for some departments, as the Treasury acknowledged. Departments need to implement action plans for dealing with these problems and the Treasury needs to monitor implementation regularly (paragraph 22).

  (iv)  The Treasury have prepared a training guide for departments, which also offers advice on the evaluation of training. In view of the skills problems some departments are facing, the Treasury should consider what further direct actions it might take, such as preparing or running courses, to ensure that appropriate training is available (paragraph 23).

  (v)  The delays by departments in preparing their accounts cast significant doubt on whether departments actually have and are able to use resource-based financial management information in the course of the year. Only once departments are routinely preparing and using accruals-based resource information in their planning and decision taking will the transition to resource accounting be truly achieved (paragraph 24).

  (vi)  The Treasury should provide a further memorandum to this Committee setting out the results of the audited resource accounts for 2000-01, showing the extent to which the objectives of the resource accounting project have been achieved and the further progress that is still required (paragraph 25).

DEPARTMENTAL PROGRSS ON RESOURCE ACCOUNTING

7. The Treasury, in their April 2001 memorandum to the Committee, noted that the Comptroller and Auditor General had qualified his audit opinion on the resource accounts of 12 departments for 1999-2000, in contrast with 30 for the 1998-99 dry run.[6] The Comptroller and Auditor General, in his note to the Committee, acknowledged that this represented significant progress. He also observed that the 12 included seven departments highlighted to the Committee in June 2000 which, because of their size and the nature of the qualifications and the problems underlying them, were of particular significance in terms of the Treasury's ability to deliver reliable resource-based Supply estimates and accounts for 2001-02. He considered that all but two of these, the Ministry of Agriculture, Fisheries and Food (now superseded by the Department for Environment, Food and Rural Affairs), and the Home Office, had made significant progress over their performance in 1998-99.[7]

8. The Treasury told the Committee that in the context of the previous dry run year in which 30 accounts were qualified, 12 represented a substantial improvement in performance. It was also within the range of between 9 and 15 that the Treasury had previously indicated to the Committee they had expected would be qualified, and they hoped that departments were still on track to achieve the further progress they were looking for.[8] This was the second of three years of parallel running and the Treasury expected a further improvement in the third year. They were looking to a level of qualification around the range previously experienced with appropriation accounts, notwithstanding that resource accounts were more complicated.[9]

9. The Treasury considered that both the Department for Environment, Food and Rural Affairs and the Home Office had substantial backlogs of issues to deal with and were the ones about which they felt the most concern.[10] The Department for Environment, Food and Rural Affairs did not expect an unqualified opinion until 2002-03.[11] There was a lack of audit evidence on the value of information technology assets, the amounts reported as Supply drawn from the Consolidated Fund, the balances on certain property-related suspense accounts and the completeness of amounts capitalised as fixed assets. The Home Office's account had contained among other things an unsupported 'correcting' item, errors and omissions in balances brought forward from the previous year and the double counting of certain expenditure.[12] They had however indicated to the Treasury that they expected to achieve an unqualified audit opinion for 2001-02.[13]

10. The accounts of the Forestry Commission, the Lord Chancellor's Department, the Department of the Environment, Transport and the Regions (now superseded by the Department for Transport, Local Government and the Regions) and the Cabinet Office had also revealed deficiencies in some areas. The Treasury recognised that a number of issues remained outstanding. Departments were still on a learning curve and, on the whole, they had done a 'good job with flaws' rather than an incompetent job.[14]

11. Of the 12 departments that had received a qualified audit opinion on their accounts for 1999-2000, the Treasury hoped that only six would remain qualified for 2000-01. The accounts of the Cabinet Office, the Treasury, the Treasury Solicitor's Department, the Forestry Commission and the Department of Health were not expected to receive a qualification for 2000-01. Nor should the Department for Transport, Local Government and the Regions, although there was an issue to be resolved.[15] The Treasury felt—although it was difficult to be certain—that the remaining problems associated with the introduction and implementation of resource accounting and budgeting would be resolved by 2002-03. In any one year a problem could however arise with a department and they recalled that in June 2000 they had indicated that accounts would continue to be qualified in subsequent years.[16]

12. 27 departments, including the Treasury, failed to meet the statutory timetable for rendering their accounts for audit. The Treasury said that this was a long-standing problem and was unsatisfactory. Part of the problem was the double running of resource and appropriation accounts, which was putting a strain on departments. As far as appropriation accounts were concerned there had been no improvement on the previous year, although resource accounts had appeared to be coming forward rather faster. Departments would get better as they got more experience with their resource accounts, and timeliness and quality would improve.[17]

13. Among the 27 departments were 10 whose accounts for 1999-2000 were prepared under a Treasury dispensation giving them an additional two months, until 31 March, to present their accounts to Parliament. The Treasury replied that they were not going to give departments dispensations this year. They could not guarantee that departments would meet the deadline, but they knew that there was determination to do so at the highest levels in departments.[18]

14. The Treasury said that they were discussing with the National Audit Office and departments a more radical proposal to reduce the timetable for the presentation of accounts, from the present 10 months after the financial year end to 3 months. Their ultimate intention was to present accounts by the end of June, rather than the end of the following January, though the change would no doubt have to be implemented in stages. Departments were not yet ready for the change, and they first needed to try to get the present system right. Nevertheless, they felt it was a matter of when rather than whether to bring down the timescale. They would of course consult the National Audit Office.[19]

15. The Treasury said that there were limits to what they could do by way of sanctions against departments which failed to deliver adequate accounts.[20] The Government Resources and Accounts Act 2000 did not allow for the imposition of any sanctions for the failure to meet any of the statutory deadlines. The Act did nevertheless place a responsibility on the department's Accounting Officer for preparing the accounts and sending them to the C&AG. Failure to meet the statutory deadline for sending accounts to the C&AG could amount to a contempt of Parliament and the Committee could require an Accounting Officer to explain why the accounts had been submitted late. The Treasury could remind Accounting Officers of the continuing importance of keeping to the deadlines, and that it would be appropriate in the event of a department failing to meet the deadline to ask the Principal Accounting Officer to report formally to the C&AG or to the Committee setting out the reasons. The Treasury proposed to discuss these proposals with the NAO and departments in order to establish the form and content of such a report.[21]

16. The Comptroller and Auditor General had expressed concerns about departments having enough skilled staff; whether their systems were robust enough; and whether there was effective senior management review of financial information.[22] On staffing, the Treasury said that they were at one with the National Audit Office in being concerned over the question of skilled staffing in departments. They noted that in his memorandum the Comptroller and Auditor General had mentioned five departments for which there were specific staffing concerns. Three of the departments had given assurances that they felt they had enough qualified staff and two had plans to get the relevant staff. The Treasury were concerned that there should be a staffing regime that left departments less vulnerable to staff changes, which was not yet the case in some areas in Whitehall. Departments had become more aware of the issue as problems had arisen in the preparation of the accounts. The Treasury were monitoring staffing, and in many cases were helping the departments to recruit and then train the qualified staff that they had.[23] One of the benefits of the resource accounting project had been to focus on the need for better financial management and better financial training throughout Whitehall.[24]

17. On the effectiveness of senior management review of financial information, there was no history in departments of using commercial-style accounting information as part of the way they managed on a day-to-day basis. There had been fewer incentives in the past to integrate accounting information into departmental business management than under resource accounting. One of the benefits of the new system was that there would be much greater awareness of financial matters, especially by senior management. Senior managers had not had this kind of awareness, and the Treasury was doing what it could to try to remedy that.[25] The Treasury were meeting with personnel directors to consult with them on how best to reach senior management in departments with specifically targeted training programmes.[26] They had produced a 'skills' booklet which included suggestions on how departments could evaluate their training.[27]

18. The Comptroller and Auditor General had noted that the use of accrual information to support decision making in departments was not well developed and departments were only just beginning to appreciate the full potential of the information systems now available to them. The perceptions of some consultants working on the implementation of resource accounting and budgeting had been that it was not being used as management information.

19. The Treasury told us that only when resource budgeting was fully in place would it begin to affect departments on a wider scale, rather than simply a few people preparing the accounts. Only when resource accounts were the basis on which departments were made accountable to Parliament would it begin to be most effective at the highest reaches of departments.[28] The turning point would come once there was full resource budgeting from 1 April 2003 as a result of the 2002 Spending Review. Departmental budgets and the control of those budgets would then be on a resource basis. The change would not happen overnight but the incentives then would be quite different from now.[29] Asked whether efficiency targets should be set as part of the drive towards improving management, the Treasury said that a well developed system of targets in the form of Public Service Agreements had been set as part of the Spending Review.[30]

CONCLUSIONS AND RECOMMENDATIONS

20. Although the overall picture improved substantially, important issues remained with about a third of the 12 departments whose accounts for 1999-2000 were qualified. Two of the departments—the Home Office and the Ministry of Agriculture, Fisheries and Food (now superseded by the Department for Environment, Food and Rural Affairs)—gave particular cause for concern because they appeared to have made little improvement.

21. 27 departments failed to meet the statutory deadline for rendering their accounts for audit (eight months after the end of the financial year). After five years preparation for resource accounting, it is unacceptable for departments not to have the systems and skills to enable them to comply with the law in this respect. The Treasury said they were considering whether to require departments that failed to meet this deadline to report to this Committee, and we await more detailed proposals that are to follow consultation with the National Audit Office and departments.

22. Availability of sufficient staff with the necessary skills continued to be a problem for some departments, as the Treasury acknowledged. Departments need to implement action plans for dealing with these problems and the Treasury needs to monitor implementation regularly.

23. The Treasury have prepared a training guide for departments, which also offers advice on the evaluation of training. In view of the skills problems some departments are facing, the Treasury should consider what further direct actions it might take, such as preparing or running courses, to ensure that appropriate training is available.

24. The delays by departments in preparing their accounts cast significant doubt on whether departments actually have and are able to use resource-based financial management information in the course of the year. Only once departments are routinely preparing and using accruals-based resource information in their planning and decision taking will the transition to resource accounting be truly achieved.

25. The Treasury should provide a further memorandum to this Committee setting out the results of the audited resource accounts for 2000-01, showing the extent to which the objectives of the resource accounting project have been achieved and the further progress that is still required.


1   29th Report of the Committee of Public Accounts, Progress on Resource Accounting and the Adoption of Resource-Based Supply, (HC 556, Session 1999-2000 ), para 6 Back

2   ibid Back

3   ibid, para 7 (viii) Back

4   Ev 35-63, Appendix 3; Ev 63-96, Appendix 4; Ev 96 -111, Appendix 5 Back

5   Ev 18-35, Appendix 2 Back

6   Ev 96-97, Appendix 5 Back

7   Ev 23, Appendix 2, para 28 Back

8   Q2  Back

9   Q3  Back

10   Q29 Back

11   Q6 Back

12   Ev 22, Appendix 2, para 21 Back

13   Q6 Back

14   Qs 78-79 Back

15   Q5 Back

16   Qs 17-18 Back

17   Qs 7, 55 Back

18   Q11 Back

19   Q8  Back

20   Q52 Back

21   Ev 15-16, Appendix 1, paras 5-8 Back

22   Q21  Back

23   Q21 Back

24   Q93 Back

25   Q24 Back

26   Qs 26-27  Back

27   Qs 15, 85-88 Back

28   Q32 Back

29   Qs 105-106 Back

30   Q94 Back


 
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