Annex C
DEFRA FINANCIAL MANAGEMENT REVIEW
Finding 1: Significant past achievements set
the agenda for future improvements
111. Defra has made considerable progress
on its financial management systems over the past four years which
provides a good platform for the next major stage of development—the
FPRD Change Programme. In four years or less Defra has:
— moved from disclaimed to unqualified
accounts;
— updated its ORACLE financial systems
and embarked upon a challenging programme of process re-engineering
and system enhancement;
— articulated a clear vision of a future
financial organisation consisting of a small professional core,
financial managers supporting business areas and a shared service
organisation geared to support core Defra and its family members;
— introduced changes which can form
the building blocks for an integrated professional approach to
managing the business, including:
— risk management processes from Board
level down;
— an integrated business planning and
budgeting process; and
— programme and project management
disciplines;
— obtained senior management sponsorship
for the FPRD Change Programme.
Finding 2: The review team concluded that
embarking on a long-term change programme was very much the right
kind of response to the financial management weaknesses identified.
The change programme should deliver benefits in accordance with
agreed and promulgated milestones, and its good management should
be continuously demonstrated
112. The Department must continue to articulate
and deliver the benefits from the FPRD Change Programme, providing
best value for money financial management services to Defra and,
over time, to members of the Defra family. The benefits include:
— meeting the long-term goal (and cross-Whitehall
challenge) of embedding financial and other professional skills
in the business. In particular, improved financial management
should allow the business to:
— allocate resources on the basis of
better information;
— reallocate resources more swiftly
in year, according to costed pressures and known underspends;
— provide more accurate estimates of
resource requirements and balance sheet positions;
— understand the costs of policies,
programmes and projects and compare them to outputs and outcomes;
and
— and clearly identify and value risks
and compare them to the costs of potential mitigating actions.
— meeting the short and medium-term
objectives, which include:
— delivering improvements in the format
and accuracy of management reports (including to the Board and
budget holders at all levels);
— enabling the financial modelling
of different options (from straightforward changes, such as changes
in grade of personnel, to complex modelling of different policies);
— finalising "procure to pay"
and other changes to payable business processes; and
— providing users with access to on-line
financial information.
THE MANAGEMENT
OF THE
FPRD CHANGE PROGRAMME
113. The programme is complex and FPRD is
approaching it using the expected programme management disciplines.
Over the summer, full project management documentation should
be produced which sets out:
— prioritised output and outcome based
milestones for the programme as a whole, and the relationships
between each work-stream;
— the full costs of the programme,
including the economic costs involved, and how each work-stream
will be funded;
— the full benefits of the programme,
valued, quantified and described as far as possible; and
— the output from risk assessments
(eg from a risk workshop) of the change programme as a whole,
including the mitigating actions proposed and responsibilities
assigned.
114. It is important to get the fundamentals
right, including:
— ensuring that commitments are recorded;
— all financial data is processed through
ORACLE, so that there is a "single version of the truth",
including forecasting and procurement financial data; and
— agreeing and implementing the new
chart of accounts.
115. One evolution of the programme-based
approach should be to introduce time-recording for those staff
affected (ie those engaged on more than one key activity, work-stream
or project) to enable full project costing.
Finding 3: It is expected that, over time,
Defra's group organisations will have financial services provided
by a single shared service organisation using a common IT platform
116. Defra (and its predecessors) has been
using Oracle-based financial systems since 1994 and has developed
considerable expertise in managing a central processing unit at
its facility in York. A major driver behind the FPRD Change Programme
is the development of a shared service organisation (SSO) that
will provide financial management services to Defra and other
members of the Defra family. Defra now needs to demonstrate the
benefits that the SSO can provide—to itself, the organisations
in the Defra group, and the wider central government sector.
117. Core to the change programme is the
expected development of a shared service organisation (SSO). The
review team believes that maximum benefit would be derived if
the whole of Defra's group eventually moves to the new SSO, using
a common IT platform. This will not only promote efficiency but
also enhanced effectiveness in providing group figures. The May
meeting of the Management Board discussed shared services, and
a business case should be finalized for approval by the Board
in early July. Establishing an early indication of the extent
of wider family participation will be critical to how shared services
develop within the Department.
Finding 4: Continue to change the financial
culture in Defra
118. As part of the change programme, Defra
has set up various processes (including a separate "embedding"
work-stream) to instil a new culture of financial management in
the organisation. The main building blocks of this approach are:
— a new structure. Interim finance
managers are currently being recruited to the business areas.
They will help specify the longer-term structures, skills and
roles required for DG finance staff. In the long term, finance
staff in the DG business areas will need to have both expert finance
skills and knowledge of their own business area. In addition,
the central finance function will be redesigned, in the light
of the decisions on the SSO. A subsequent preference exercise
and a recruitment programme should ensure that staff are satisfied
with, and equipped to perform, their new roles;
— appropriate delegation of responsibilities
to budget holders (who may or may not be financially qualified),
accompanied by appropriate training and demonstrable accountability
back to the centre for the use of delegated funds; and
— continuous training, from professional
financial qualifications to training for non-finance staff.
119. This overall approach is commended.
It will need long-term Board level sponsorship, and commitment
across the organisation, to achieve the cultural change envisaged.
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