Conclusions and recommendations
1. Departments need to better understand resource
accounting and budgeting if they are to manage their resources
effectively and get the best out of the financial freedoms granted
by Treasury in recent years.
While around a quarter of departments have made good progress,
many others still have a significant way to go to change the focus
of control from cash to accruals, and to demonstrate the skills
and capacity to use accruals-based information to better manage
their finances and activities.
2. The Treasury should identify and promote
examples of good practice in resource management and the benefits
that have been derived, to encourage others to follow suit. The
Treasury provided guidance, training and support to departments
in advance of the introduction of resource accounting and budgeting.
Where departments continue to struggle they need to be shown,
through emerging practical example, how others are making a success
of this initiative.
3. Departmental Boards need to address unproductive
activities where these are identified.
Resource accounting and budgeting provides the means to assess
the efficiency of departments' activities by comparing the full
costs of different activities on a consistent basis, allowing
for the identification of areas of poor productivity or unnecessary
back-office functions and overheads.
4. Accruals-based financial reports should
feature as a specific agenda item at monthly departmental board
meetings, and at Audit Committees. As
well as providing information on efficiency, resource accounting
and budgeting provides regular information about the financial
health of an organisation, including the timely identification
of emerging risks or adverse trends.
5. Departments should take positive steps,
including succession planning, staff transfer or direct recruitment,
to meet the Treasury's requirement for their Finance Directors
to be qualified accountants, or staff with equivalent skills and
a proven track record. In January 2004
only 39% of departments' finance directors were qualified accountants
compared to at least 84% of FTSE 100 companies.
6. Departments should make better use of end
year flexibilities and extend their use to agencies and other
delivery partners. Despite having greater
freedom to carry forward resources into future financial years,
three quarters of departments in 2001-02 still exhibited bias
towards spending in the last two months of the financial year,
indicating a lack of understanding of this new facility, and how
to make best use of it.
7. Departmental Boards should use resource
accounts to make sure their assets are used efficiently, disposing
of those that are surplus to need. Resource
accounts show for the first time the value of assets and liabilities
as well as information about their associated costs. Few departments
are, however, as yet in a position to use accruals-based information
to manage actively their assets and future investment strategy.
8. Departments should take steps to improve
the management of debtors and creditors, inventory and cash. Accruals
accounting has highlighted weaknesses in departments' management
of their working capital including poor management of debtors
and excessive levels of stock.
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