Select Committee on Public Accounts Twenty-Fifth Report

1 Improving departments' resource management

Modernising the management of resources

1. From 1998 HM Treasury introduced a number of fundamental changes in how departments manage their resources. These changes include a public spending and control regime which allocates resources to departments over a three year period and gives more flexibility to carry forward unspent resources to encourage well planned investment and reduce the risk of unnecessarily rushed spending; Public Service Agreements to concentrate departments' efforts on achieving sustainable improvements in core services; and the introduction of accruals accounting and budgeting to improve information on the cost of services, which came into full effect in 2001-02.[2]

2. The changes were intended to address long standing weaknesses in the way resources were managed by departments in the past. For example, funding departments on an annual cash basis with any unspent money usually having to be returned at the year end provided little incentive for longer-term planning and investment and led to potentially wasteful year end surges in expenditure. With cash accounting, the values and costs of assets and liabilities were not brought into account, which meant that departments did not know how much it really cost to deliver a service or to make the investment required to improve it.[3]

Progress towards improved resource management

3. The new resource management tools have the potential to bring a range of benefits for service delivery and efficiency (Figure 1).[4] Despite a seven year lead time for the introduction of resource accounting and budgeting, however, only 28% of departments have made good progress in implementing accruals based accounting and are using it as an effective resource management tool.[5] Over one third of departments still rely mainly on cash based budgets and management information and prepare accruals based financial statements as a separate one-off exercise at the year end to meet external reporting and accounting requirements.[6]

4. Departments have identified three main barriers to progress: 63% of departments considered that insufficient financial expertise had held up progress; 39% considered the main barrier was raising awareness and understanding among operational managers, who often lacked the necessary financial expertise; 11% considered that their IT systems were inadequate to produce integrated financial and output performance information.[7] Departments have concentrated on procuring and putting in place new systems and then ensuring these systems are capable of producing reliable accounting information. The emphasis is only now turning to how the new accruals information can be used to improve the quality of management information and the delivery of core business.[8]Figure 1: Resource management can improve both public service delivery and efficiency

RESOURCE MANAGEMENT REQUIREMENT	BENEFITS
	Service delivery	Efficiency
Targets and objectives are clearly defined and underpin the way resources are allocated.	Resources can be directed at achieving key outcomes such as raising educational standards rather than simply putting money into an activity.	Non core activities can be identified providing opportunities to shift unproductive resources to front line delivery.
Resources can be used flexibly and expenditure is not constrained by short term annual cycles.	Expenditure can be better matched to service needs ensuring more consistent delivery throughout the year. Unspent resources are not lost but available to redeploy to other priorities.	Risks associated with the rush to spend all money at the year end are reduced such as nugatory expenditure and poor value for money because of limited time to confirm that expenditure is justified and to determine the most cost effective procurement approach.
Full cost information on an accruals basis is available and used to monitor and review performance and influence the allocation of resources.	The full cost of delivering a service is known including its consumption of assets. Costs can be assessed to determine whether they are reasonable for the level and quality of outputs delivered. Information on the consumption of assets can inform future investment.	Inefficient use of assets can be more easily identified and remedied. High cost, inefficient processes and working practices can be eliminated. Resources tied up in unproductive and inefficient activities can be more easily identified and redeployed.
Resource allocation and management are aligned throughout the service delivery chain.	If all the key organisations contributing to a service have targets which are mutually supportive and underpinned by resources that are allocated on a consistent basis the potential to deliver higher quality services is increased.	Supporting activities which involve duplication or are delivered out of sequence or late or are over or under resourced can be identified and addressed.
Performance and resource utilisation is regularly reviewed at a senior level and informs future resource allocation.	Reliable performance information allows shortfalls in service quality to be identified sufficiently early for remedial action to be taken.	Trends in the unit costs and the overheads of delivering services can be monitored and where practicable benchmarked to identify poor use of resources.
Source: C&AG's Report[9]

---

2   C&AG's Report, para 1.10 Back

3   ibid, para 1.8 Back

4   ibid, Figure 1 Back

5   Q 2; C&AG's Report, paras 2.11-2.13, Figure 14 Back

6   Q 1; C&AG's Report, para 9 Back

7   C&AG's Report, para 2.15 Back

8   Q 3 Back

9   C&AG's Report, Figure 1 Back

---

Prepared 7 April 2005