Press Notice No. 25 of Session 2003-04, dated 7 April 2005
TWENTY-FIFTH REPORT: MANAGING RESOURCES TO DELIVER BETTER PUBLIC SERVICES (HC 181)
Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today:
"Resource Accounting and Budgeting must not be a superficial change focusing only on end of year accounts; it must be embedded at the heart of how departments manage their business. Departments now have highly developed mechanisms to help them use their resources more productively. Many departments are not yet using them properly. If they did, they could identify areas of waste of low productivity. Just a small proportion of efficiency gain could save billions of pounds for the taxpayer.
Senior staff must have the skills and expertise needed to make these changes. The Treasury's requirement for finance directors either to be qualified accountants or to have qualified staff at the relevant level is a laudable aim. However, this report reveals that only 39% of departments' finance directors were qualified accountants just over a year ago. This is much lower than for FTSE 100 companies where the proportion was 84%."
Mr Leigh was speaking as the Committee published its 25th Report of last Session which examined new initiatives to help departments make better use of their resources including the introduction of Resource Accounting and Budgeting. The Report examines how the new initiatives are working in practice, the areas where departments need to do more to realise the benefits, and the role of the Treasury in achieving this.
Departments and their agencies spend some £421 billion a year and are responsible for assets and liabilities respectively of £334 billion and £112 billion. Since 1998 a number of HM Treasury-led changes have been implemented to help departments make better use of their resources and, in turn, to improve the quality of services they deliver. The changes include Resource Accounting and Budgeting (preparing budgets and accounts on a commercial style accruals basis), three-year budgets, public service agreements and flexibility to carry forward unspent resources at the end of the year.
Resource accounting and budgeting provides for the first time a sophisticated means for departments to identify on a consistent basis the full costs of their activities, rather than knowing simply what is paid out in cash. If used effectively the new arrangements provide departments with the information to determine the relative efficiency of different activities and to identify areas of waste or low productivity. The report makes a number of recommendations that departments now need to take, if they are to achieve greater efficiency and improved services. These recommendations include:
Departments need to better understand resource accounting and budgeting if they are to manage their resources effectively and get the best out of the financial freedoms granted by Treasury in recent years. While some departments have made good progress, many others still have a significant way to go to change the focus of control from cash to accruals, and to demonstrate the skills and capacity to use accruals-based information to better manage their finances and activities.
Departmental Boards also need to address unproductive activities where these are identified. Resource accounting and budgeting provides the means to assess the efficiency of departments' activities by comparing the full costs of different activities on a consistent basis, allowing for the identification of areas of poor productivity or unnecessary back-office functions and overheads.
Departments should take positive steps, including succession planning, staff transfer or direct recruitment, to meet the Treasury's requirement for their Finance Directors to be qualified accountants, or staff with equivalent skills and a proven track record. In January 2004 only 39% of departments' finance directors were qualified accountants compared to at least 84% of FTSE 100 companies.
Note for Editors
This Report has been held over from Session 2003-04.
to view Report