APPENDIX 4
Supplementary Memorandum submitted by
HM Treasury
ACTION FOLLOWING A CASH LIMIT BREACH PAC
97-98/265
When a cash limit, or other control limit such
as the Ministry of Defence's operating costs limit, is breached
the standard procedure is as follows. The causes of the breach
are investigated by the department and a detailed report made
to the responsible Minister. This is done at the earliest possible
opportunity, so that measures can be put in hand to prevent a
further breach. The appropriate Treasury spending team then reports
to the Chief Secretary on the causes of the breach and on the
measures the department is taking to avoid a recurrence. (On this
occasion the Secretary of State for Defence himself sent a report
to the Chief Secretary.) Recommendations are also made on whether
the department should be fined and at what level. The presumption
is that in the year following the breach the relevant limit should
be reduced by an amount equivalent to the breach. However, the
decision on whether to levy a fine and on the level of the fine
will also take into consideration the circumstances of the breach
and the department's financial position in the year of the fine.
2. Following the overspend of £246.1 million
on the block defence cash limit in 1996-97 the Ministry of Defence
was fined £168 million in 1997-98. This reduction took into
account receipts achieved by the department which were in excess
of their Vote provision for 1996-97 and thus required to be surrendered
to the Consolidated Fund, and also a number of technical adjustments
to the department's PES provision for 1997-98.
END-YEAR
FLEXIBILITY
3. There are two End-Year Flexibility (EYF)
schemes applicable to underspend by the Ministry of Defence. The
first is the operating costs scheme, which is specific to MoD
but analogous to the scheme for running costs expenditure applying
to other departments. This allows unlimited carryforward of operating
costs underspends. The second EYF scheme is the general capital
scheme which allows carryforward of underspend of up to 5 per
cent of eligible provision. Both EYF schemes allow carryforward
not taken up in one year to be rolled forward for take-up in a
subsequent year. Any addition to a department's voted provision
through EYF is, of course, subject to Parliamentary approval through
Supplementary Estimates.
HM Treasury
21 April 1998
| 
