Memorandum by the Comptroller and Auditor General
1. The Treasury's memorandum to the Committee
of Public Accounts of 31 October 1997 reports the results of a
review of the framework of controls which the Treasury exercises
over departmental spending decisions and proposes a number of
changes. Some of these changes require the formal approval of
the Committee of Public Accounts while others can be implemented
by the Treasury without reference to Parliament. The purpose of
this memorandum is to provide advice to the Committee on the changes
to procedures and the proposed changes to the system of Treasury
minutes.
BACKGROUND TO
THE REVIEW
2. As the Treasury's Memorandum notes the Treasury's
approval is required in principle, for all spending decisions
by departments. It has however, been a long standing practice
for the Treasury to delegate to departments the authority to spend
money within defined limits and subject to various conditions
and controls. The Treasury's Memorandum sets out the objectives
of their approach to the control of public expenditure and highlights
the key features. In particular, the Treasury places on the Accounting
Officer in each department a personal responsibility for ensuring
that the public finances, for which they are responsible, are
well and properly managed and that they follow the guidance published
by the Treasury on good financial management (paragraphs 9 and
10 of Treasury's Memorandum).
3. The Treasury intend to approach public expenditure
control in a more strategic manner. The objective of the review
was to identify those controls and mechanisms which were necessary
for achieving Treasury's objectives, while eliminating those controls
where the Treasury could add little or no value. This also supports
their associated aim of improving accountability and decision
making by delegating responsibility for spending decisions to
departments except in cases where a clear case can be made for
retaining control by the Treasury. The Treasury's detailed rationale
for the changes they propose is at paragraphs 11 and 12 of their
Memorandum.
4. In practical terms the review focused on
the detailed controls over public expenditure set out in Government
Accounting which is the Treasury's handbook on financial control.
RESULTS OF
THE REVIEW
5. The Treasury decided that the retention of
many controls was important to the achievement of their objectives.
Treasury approval will therefore be retained for proposals which:
— could increase pressure on Estimates
provision;
— set a potentially expensive precedent;
— cause repercussions for others;
— exceed the current delegation threshold
for major capital projects.
6. More generally the Treasury has decided to
retain the right to introduce, or re-introduce, detailed controls
on particular departments or in respect of certain types of transaction
if and when they have serious cause for concern (Treasury Memorandum
paragraphs 13-15).
7. Nevertheless the review identified a number
of detailed controls which were not consistent with the more strategic
approach envisaged by the Treasury, nor did they promote good
financial management and control and as a result could be simplified
or dropped. The proposals incorporate changes to various reporting
thresholds, the value above which certain types of financial transactions
need to be reported separately by departments to Parliament. In
some cases the value of the reporting threshold has not been increased
for some years with the result that the number of cases reported
to Parliament has increased over time.
PROPOSED CHANGES
TO CONTROLS
8. Some of the proposed changes do not require
the approval of the Committee, nevertheless, the Treasury are
notifying the Committee of the nature of the changes on staff
benefits, single tendering, financial memoranda for smaller NDPBs
and the de minimis threshold for new services. (Annex 1,
part III of the Treasury Memorandum). The attached annex provides
a commentary on these proposed changes. There are, however, a
number of changes where the Treasury are seeking the Committee's
approval. These concern gifts, losses and special payments, contingent
liabilities, and fees and charges and are set out below.
Changes Requiring the Committee's approval
— Current arrangements provide that
any gift of an unusual nature or where the value exceeds £100,000
must be approved by Treasury. Once approval is given the department
must notify Parliament 14 days in advance of making the gift.
There were only four gifts over the current approval and reporting
threshold of £100,000 in the three years to 1995-96 with
the largest being for £1.4 million.[1] The Treasury
estimate that they see about a dozen cases a year, which are usually
submitted for Treasury approval because of their unusual nature.
The proposal to remove the requirement for Treasury approval would
place full responsibility for the propriety of such transactions
on the Departmental Accounting Officer. In practice, as there
are very few gifts which exceed the current reporting threshold,
the increase in the threshold to £1 million will have little
impact on their visibility to Parliament and will still concentrate
Parliament's attention on the largest gifts. Departments will
still be required to note in their departmental appropriation
accounts any unusual gifts or gifts above the threshold either
inadvertently or in aggregate.
(ii) Losses and Special Payments
— Treasury approval is currently required
for certain categories of losses and special payments and all
individual and aggregated losses and special payments above £100,000
must be noted in departmental appropriation accounts. The Treasury
are now proposing to remove the requirement for Treasury approval
and to increase the threshold for reporting to Parliament to £2
million. Applying this threshold to the 1995-96 appropriation
accounts would have reduced the number of cases separately reported
by some 74 per cent but the value of cases reported would fall
by only 18 per cent. The proposed increase in the reporting threshold
will not significantly reduce the visibility of losses and special
payments and will have no impact on our examination of such transactions.
The removal of the requirement for Treasury approval will transfer
full responsibility for taking decisions on losses and special
payments to the departmental Accounting Officer concerned, a move
which will align accountability and responsibility.
(iii) Contingent Liabilities
— The Treasury notes that contingent
liabilities are fundamentally different from other types of expenditure
in that they are uncertain and for reasons of strategic control
do not propose to pass full discretion in this area to departments.
But the Treasury are proposing to increase from £100,000
to £2 million the threshold above which Treasury approval
is required before departments may take on a new non-statutory
contingent liability. They also propose to increase the threshold
for reporting to Parliament from £100,000 to £2 million,
which, based on 1995-96 figures, would result in a 23 per cent
decrease in the number of cases reported but only a 0.09 per cent
decrease in the value reported. Contingent liabilities will also
be disclosed in departmental resource accounts when they become
available from financial year 1999-2000. The Treasury's proposals
bring the reporting threshold in line with other types of transactions.
— The Treasury currently provides the
Committee of Public Accounts with a statement once a year on the
financial outturn on services where departments are responsible
for setting the fees and charges and there is an accidental deficit
and/or deliberate subsidy of £1 million or more. The Treasury
are now proposing to increase the reporting threshold to £2
million. This will allow more attention to be focused on those
services with significant shortfalls while the objectives of achieving
full cost recovery and of reporting to Parliament about the performance
of services would be maintained. Based on the shortfalls reported
in the fees and charges report of December 1996 the Treasury expect
that this change will significantly reduce the number of shortfalls
that will be reportable but with only a small impact on the value
of shortfalls reported. Once again this proposal bring the reporting
threshold is in line with the changes proposed for other reporting
thresholds.
CONCLUSION OF
THE REVIEW
9. Overall the Treasury believe that the proposed
changes will lead to improved accountability from eliminating
unnecessary Treasury second-guessing and better decision making
by departments by aligning more closely responsibility for decision-making
with accountability to Parliament. The Treasury also expect the
proposals to lead to better use of resources within the Treasury
and better relations between the Treasury and departments as Treasury
involvement will be targeted more to those areas where Treasury
involvement clearly adds value (Treasury Memorandum paragraphs
16 and 17).
CHANGES TO
SYSTEM OF
TREASURY MINUTES
10. In addition to the above changes in procedures
the Treasury are proposing change to the system of Treasury Minutes
which would need the agreement of the Committee. Treasury Minutes
are published and provide the Government's response to the Committee's
reports. Whilst strictly speaking not a Treasury control, Departmental
replies to the Committee's reports require Treasury approval and
are presented as Treasury Minutes by the Financial Secretary who
has a special position as a member of the Committee. The Treasury
proposal is that departments should be explicitly responsible
for the Minutes presented to Parliament and that departmental
responses would be signed off by the departmental minister concerned.
In 1996 there were 48 responses to PAC reports which were grouped
in nine Treasury Minutes. If the Treasury's proposal was implemented
could have resulted in 48 separate departmental minutes.
11. Under the proposed change it would remain
clear that the departmental Minute was the Government's response.
The Treasury argue that the proposed change would sharpen the
accountability of individual departments to Parliament by aligning
accountability with responsibility. Whilst there may be some benefits
in this, they may be outweighed by the loss of clear Treasury
oversight. The Treasury and the Committee share common objectives
in seeking to make the best use of resources. The Treasury's central
role ensures that the Government's responses to the Committee's
reports are consistent, and that a high proportion of the Committee's
recommendations are accepted. It also has the advantage of administrative
convenience. On balance the Government's response to the work
of the Committee is likely to be more positive if the Treasury
retains a co-ordinating role.
12. The Committee have also asked us to consider
ways in which they could take a more active role in monitoring
the implementation of the Committee's recommendations as set out
in Treasury minutes. We are therefore providing the Committee
with a separate note on the options for the Committee taking such
a role.
CONCLUSION
13. The changes proposed in the Treasury's Memorandum
are consistent with the Treasury's objective of adopting a more
strategic approach to the control of public expenditure and as
such are an acceptable rationalisation of the framework of Treasury
control. If the Committee accept the Treasury's objective, we
recommend that the Committee accept the Treasury proposals with
one exception.
14. The exception is the proposal to transfer
responsibility for the presentation of Treasury Minutes in response
to the Committee's reports from the Treasury to departments. The
lack of Treasury oversight could result in the loss of consistency
and a reduction in the acceptance of a high proportion of the
Committee's recommendations. It would also be administratively
inconvenient compared to the current arrangements. The Committee
may therefore wish to raise their concerns about the change and
its implications with the Treasury and say that they would prefer
the present arrangements to continue.
1 Two gifts involving the Ministry of Defence, one
for £264,000 in respect of the permanent loan of vintage
aircraft to the RAF Museum and another of £401,000 for a
gift of stores and equipment to the Government of Belize. Two
gifts from the Ministry of Agriculture, Fisheries and Food to
UK Aid Organisations of surplus stocks of emergency biscuits,
valued at £1.4 million and £400,000. Back
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