House of Commons - Defence - Written Evidence

Select Committee on Defence Written Evidence

Letter from MOD on Resource Accounting and Budgeting

In your letter of 17 December 1998, you requested a number of documents relating to Resource Accounting and Budgeting. I am sorry that it has taken some time to assemble the documents. You will find enclosed:

The RAPM is an evolving document and as such, is under constant review. The next formal update is due in June 1999. But the current version remains a live document that informs the Department's accounting process. Copies of the Treasury's RAPM can be purchased from the Stationary Office. I understand telephone orders can be made on 0171 873 9090, or for general enquiries, call 0171 873 0011.

The MOD Programme Plan sets out the projected plans for each element concerned with the introduction of RAB and includes the Trigger Point milestones.

The New Zealand Defence Force Half-Yearly Reort illustrates how another Government is presenting output costed information. Unfortunately we do not have the reports from other countries introducing RAB such as Australia. Additional information about the range of countries introducing RAB or producing RAB style reports, is contained in the Treasury publication "Whole of Government Accounts, July 1998", a copy of which is, I understand, in the House Library.

When it comes to other documents which you request, I am unable to provide them. I am sure you will understand that documents such as Colin Balmer's letter to the Treasury and the NAO input, constitute internal and inter-departmental discussion documents, and as such are not normally made available to Select Committees. Nothwithstanding this, I appreciate that it would be useful to you and the Committee to have some information on the Trigger Point Strategy and Stage 1 Approval. Consequently, I have also enclosed a memorandum from the Department that covers this area.

13 April 1999

IMPLEMENTATION OF RESOURCE ACCOUNTING AND BUDGETING—TRIGGER POINT 1

INTRODUCTION

1. In response to concerns expressed by the Committee of Public Accounts (PAC) about departments' Resource Accounting and Budgeting (RAB) implementation progress, the Treasury introduced a formal review process which requires departments to achieve agreed criteria at specified "Trigger Points" during the transitional period leading up to 2001-02.

2. Four Trigger Points (TP) have been agreed:

— TP 1—involving departmental PFOs and the National Audit Office (NAO) providing assurances about departments' accounting policies and systems by December 1998;

— TP 2—an assessment of departments' data for the 1999—2000 Opening Balance Sheet by June 1999;

— TP 3—requiring the NAO to provide an audit report on departments' dry-run 1998-99 resource accounts during autumn 1999;

— TP 4—requiring departments to produce "shadow" resource-based Estimates for 2000-01 by May 2000.

3. It is the Treasury's intention to report progress against the Trigger Points regularly to Parliament. The last such update was provided in a Treasury Memorandum on RAB to the PAC, the Procedure Committee and the Treasury Committee on 12 January 1999.

TRIGGER POINT 1

4. There were five criteria that each department had to achieve for TP 1:

— An illustrative Departmental Resource Account (DRAc);

— A Departmental Resource Accounting Policy Manual;

— A Project Plan;

— A preliminary view from the NAO;

— A letter from the PFO confirming readiness of systems and processes.

5. All Government departments secured Trigger Point 1 approval by the end of December 1998. The following paragraphs provide a summary of MOD's progress against each of the TP 1 criteria and significant points identified by the NAO and the Treasury.

ILLUSTRATIVE 1998-99 RESOURCE ACCOUNTS

6. The Treasury and the NAO were generally content with the format of the accounts, having been closely involved in developments during the course of 1998. Illustrative figures were included to facilitate understanding of the account.

7. Both the Treasury and the NAO did express concerns about the department's ability to produce the final resource account schedule, "Schedule 5—Statement of Departmental Outputs". However, as the PFO explained in his letter:

"We have recognised for some time that we would not have fully integrated output costing systems in the early years [of RAB] as the priority has been the introduction of basic accounting systems. To address this, an interim system has been developed to allow basic apportionment of resource consumed by Departmental output. A more sophisticated system will be introduced when the full cost communication is operational."

8. Other NAO comments on the resource account centred on the ability of the department to populate some of the supporting notes to the account. The NAO also observed that the Department was dependent on the Treasury for further advice on accounting policy issues.

DEPARTMENTAL RESOURCE ACCOUNTING MANUAL (DRAM)

9. The NAO are broadly content with the manual noting that it provided very good coverage of most areas of accounting policy and practice likely to be faced by the Department. Both the Treasury and NAO acknowledged however, the manual will need to be updated as outstanding policy issues are agreed with the NAO.

THE PROJECT PLAN

10. A high level plan for MOD's implementation project was passed to both the NAO and the Treasury, a copy is enclosed.[6] This included plans to address issues emerging from dry-running the accounting systems and processes in 1998-99 as well as the work planned to cover areas of concern highlighted by the NAO. These work programmes aim to ensure that major issues are resolved in time to meet the criteria for Trigger Point 2 at the end of June 1999.

11. The NAO commented that the strength of the planning process, and monitoring of progress against plan, has been a major factor in the Department securing the level of overall progress that has already been achieved.

SUPPLY/FEEDER SYSTEMS

12. The most serious concerns expressed by the NAO are reserved for the supply systems. In the main these systems predate the RAB initiative. The NAO believe however, that the systems problems are capable of being solved and that, in time, they should adequately support the preparation of resource accounts.

13. The PFO recognises that supply systems provide a major area of concern, but added in his TP1 letter, "significant work is in hand both to ensure data can be passed efficiently to user TLBs and to improve the quality of the numbers."

NAO PRELIMINARY VIEW

14. In summary, the NAO noted there would be risks for both the dry-run resource accounts for 1998-99 and the live accounts for 1999-2000. But, given the good progress the Department continues to make and the fact that areas of concern are being addressed, the NAO were content for MOD to proceed to Trigger Point 2.

TREASURY'S LETTER OF CONFIRMATION

15. The Treasury considered that the Department had a good understanding of outstanding issues and was on track to clear them in time to enable the criteria for Trigger Point 2 to be met at the end of June 1999.

16. Finally, Andrew Likierman, HM Treasury Head of the Government Accountancy Service, in a separate letter to Colin Balmer commented that, "the immense effort and determination to achieve results, not only in changing hugely complex systems but also in spreading knowledge has been truly impressive." He added that TP1 agreement should not merely be noted but clearly marked.

13 April 1999

3 Not printed. Back

4 Not printed. Back

5 Not printed. Back

6 Not published. Back



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