APPENDIX 3
Supplementary memorandum submitted by
HM Treasury
REPORT ON PROGRESS ON RESOURCE ACCOUNTING:
MANAGEMENT INFORMATION SYSTEMS
During Treasury officials' oral evidence session
with the PAC on Resource Accounting and Budgeting (RAB) in June,
the Committee asked the Treasury to provide a note on departments'
management information systems in place, their coverage and the
use made and benefits of the information drawn from them. This
request was reiterated in the PAC's 29th Report, Progress on
Resource Accounting and the Adoption of Resource-Based Supply
(HC 556, Session 1999-2000).
The Treasury's response to the PAC Report[26]
confirmed that we were in the process of undertaking the detailed
analysis requested by the Committee, and would report the results
as soon as the relevant information was available from departments.
We have now received from departments the information
requested by the Committee, which is set out in the attached Memorandum.
As the introduction to the Memorandum points out, this is inevitably
summarised information, particularly for the more complex departments.
If there are specific aspects of individual departments' systems
which the Committee would like to pursue further, the departments
concerned would be happy to supply further explanatory information
to the Committee.
Doug Rayner
HM Treasury
December 2000
RESOURCE ACCOUNTING
AND BUDGETING:
DEPARTMENTAL MANAGEMENT
INFORMATION SYSTEMS
The PAC's 29th Report, Progress on Resource
Accounting and the Adoption of Resource-Based Supply (HC 556,
Session 1999-2000) requested that the Treasury provide the Committee
with information on departmental management information systems
in place, their coverage and the use made and benefits of the
information drawn from them. The Committee concluded that "unless
resource estimates and resource accounts form the bedrock of financial
management in departments, much of their value will be lost. Sound
management accounts should be part and parcel of departmental
systems."
The Treasury's response to the PAC Report[27]
confirmed that the Treasury was in the process of undertaking
the analysis requested by the Committee, and would report the
results as soon as the relevant information was available from
departments. The Treasury has now received from departments the
detailed information requested by the Committee; this is summarised
in the attached Annex on an individual department by department
basis.
A great deal of work has been done on the implementation
of Resource Accounting and Budgeting (RAB) and in particular on
the systems required to provide the information necessary to operate
the new regime. This has been underpinned by managerial training
at all levels on how to make use of RAB information, in preparation
for full implementation of the new resource management process
for planning, monitoring and controlling expenditure and performance
against budget on a resource basis from April 2001, when further
improvements are expected to be realised.
Since RAB is now an integral part of departments'
systems, it is not always possible to separate developments relating
to RAB from all other systems development. However, on the basis
of the returns submitted by departments on their management information
systems in response to the Committee's request, it is clear that
there is already mainly a good story to tell across the board:
(a) Sound management information systems
are generally already in place in departments, or are in the process
of being implemented. Many departments are looking at "next
generation" integrated systems, revision of charts of accounts
and upgrading of finance systems.
(b) Effective use is being made of the information
provided by the systems in terms of helping ensure that departmental
business is carried out more efficiently.
(c) Significant benefits are being derived
from the information. Specific examples identified by departments
include:
Budgeting and planning
Some departments are already benefiting from
the additional RAB-related information. Specific improvements
include better quality information, the integration of financial
and management planning and taking assets and liabilities into
account in the budgeting process. Actions as a result include
targeting resources, linking targets and resources, mitigation
of the effects of annuality and greater budgetary delegation.
There have also been improvements to project management and project
costing. Further benefits are expected when systems are generating
additional data from April 2001.
Fixed assets
The first area of improvement has been the identification,
sometimes for the first time, of ownership and responsibility.
Once assets have been identified, a second area has been proper
recording and then updating of records and control of the assets
themselves. A third area has been improved purchasing, including
decisions on renting or buying, and whether to retain or dispose
of assets. A fourth area has been in better planning and management
of the use of assets, including improved awareness of maintenance
costs and the recognition of their opportunity cost. Finally,
the capital charge has enabled departments to recognise the holding
costs of fixed assets, including those under construction.
Management information
There is evidence of more user-friendly management
information, with better quality data produced faster and with
greater focus, including a clearer hierarchy, better integration
into decision-taking and better links to performance. All of these
factors have contributed to better quality decision taking. Additional
benefits include more efficient use of support services and an
improved ability to make private sector comparisons.
Organisational
There are now more financially aware and better-trained
managers at all levels. Greater scope has been possible for delegations,
with encouragement from the change in systems to reassess them.
Internal departmental restructuring has provided better links
between functions. Greater efficiency and effectiveness for the
finance function has been been possible, including better channels
of communication with the rest of the department.
Outputs and outcomes
There is a greater focus on outputs and outcomes,
moving away from an input focus, with better links between costs
and activities and separation of output changes from changes in
effectiveness. There is also greater visibility for performance
measures, as well as links to Public Service Agreements (PSAs)
and Service Delivery Agreements (SDAs). In costing outputs, there
has been greater awareness of the relationship between costs and
outputs in budgeting and for analysis at other times.
Use of cost information
Improvements to the identification of objectives
have come through the requirement to put costs against them. The
main benefit in the costing of resources has been the ability
to account for full costs, as well as to align activity with full
cost. Improvements in the conduct of the 2000 Spending Review
and in reporting to Parliament have come about through greater
awareness of costs through better information available for cost
control.
Working capital
There has been improved management of working
capital, including better control of debtors and stock and the
rationalisation of suspense accounts. There has also been improved
management of cash flow, including better forecasting and profiling,
as well as information on financial commitments and on liabilities
on a systematic basis. As with fixed assets, there has been a
formal recognition of the holding costs of working capital.
The Treasury recognises, however, that these
examples of good practice may not be uniform across departments.
It will therefore continue to monitor departments' progress in
developing suitable management information systems as part of
its Modernising Government agenda.
The Committee is invited to note the detailed
analysis of departments' management information systems contained
in Annex A to this Memorandum. This is inevitably summarised
information, particularly for the more complex departments. If
there are specific aspects of individual departments' systems
which the Committee would like to pursue further, the departments
concerned would be happy to supply further explanatory information
to the Committee.
26 Treasury Minute on the 27th-29th and 37th Reports
of the Committee of Public Accounts, Session 1999-2000 (Cm 4901). Back
27
Treasury Minute on the 27th-29th and 37th Reports of the Committee
of Public Accounts, Session 1999-2000 (Cm 4901). Back
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