Select Committee on Public Accounts Appendices to the Minutes of Evidence



Letter to the Clerk of the Committee from HM Treasury

  At the Committee's hearing on 24 January the Chairman raised the question of whether there was a need to amend the Accounting Officer memorandum to take account of risk management issues.

  The memorandum requires an Accounting Officer to seek a written instruction from the Minister if required to implement a proposal which the Accounting Officer does not consider to be value for money. The memorandum does not explicitly refer to risk issues in the consideration of what constitutes value for money. However, our view is that risk is an integral part of the value for money decision which the Accounting Officer should take into account.

  In considering value for money issues, we would expect departments to follow the Treasury's guidance on investment appraisal (the "Green Book") which recommends considering costs and outcomes weighted by probabilities, thus bringing risk issues into the equation.

  At the hearing the Chairman referred to the possibility of a Minister requiring that a proposal should be implemented in a very short timescale and whether that should trigger a letter of direction (because of the risk that the short timescale would jeopardise cost-effective implementation). The issues here may depend on the circumstances of the case, particularly on the policy context. Options need to be ones which deliver Ministers' policy objectives, albeit these objectives too may at some stage have been the subject of an option appraisal. In principle, however, if there were options with different timescales and different likelihoods of success in achieving an objective, an Accounting Officer would be entitled to evaluate the options in accordance with the guidance in the Green Book referred to above and take this into account in considering the value for money of the options. This could lead to the need for a direction if the Minister wished to proceed with an option that the Accounting Officer did not consider offered value for money.

Brian Glicksman
Treasury Officer of Accounts

9 February 2001

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