Select Committee on Public Accounts Twenty-Fifth Report

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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Prepared 7 April 2005