Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 80-99)


18 OCTOBER 2006

  Q80  Mr Todd: Your memory perhaps was more gentle on this subject than the memo was. It said, "This is reflected in some cases in a lack of sufficient management information to enable better performance of existing programmes and to undertake the type of financial and operational modelling that prevents strategic financial management." That sounds like a weakness to me, and it would be if I were in one of these organisations. I would perceive it as such.

  Ms Keegan: Yes, and the departments whom we reviewed and with whom we developed action plans also admitted those were key actions which had to be taken.

  Q81  Mr Todd: So how widespread was that problem?

  Ms Keegan: Reasonably widespread.

  Q82  Mr Todd: Can you quantify?

  Ms Keegan: Many of the top spending departments admit that they have considerable work to do on improving the data systems and improving the reports which come from those in terms of the management reporting used to run departments—performance targets, related risks and related resources.

  Q83  Mr Todd: Indeed, and you have said that you produced some action plans with them.

  Ms Keegan: Yes.

  Q84  Mr Todd: Is there any chance of us seeing some samples of some of those?

  Ms Keegan: I think we discussed this last time I appeared a year ago and I said that I was not minded to release those financial management reviews because they are part of a process of improving with departments.

  Q85  Mr Todd: In testing your memory just now you have not changed your mind on that one then?

  Ms Keegan: No, I have not, because I prefer a system where we can encourage progress. We did the first 45 reviews, including all the smaller departments, between 2004 and 2005 and I have just embarked upon a process of follow-up reviews, using colleagues from across the Treasury in terms of the spending team—

  Q86  Mr Todd: So how are we to carry out our duty of testing whether progress had been made?

  Ms Keegan: I think each select committee will be interviewing its own relevant departments on the progress they are making and the other place in which we are—

  Q87  Mr Todd: But this appears as one of your objectives, does it not?

  Ms Keegan: It does, but it is an objective through the Treasury mechanisms of working across government to improve the capability across departments, and what I was about to say was the other area in which the proof of the financial management process is now feeding into published reports is because we are working also with the capability reviews led from the Cabinet Office. You will have seen those capability reviews, which focus on leadership, delivery and resource management, which fits into that capability to deliver.

  Q88  Mr Todd: Would you encourage departments with whom you are working on action plans to make available their progress, of which they may wish to be proud, I do not know?

  Ms Keegan: Yes, indeed, and a number of departments have discussed with their own select committees some of the headline actions from the initial reviews and will be discussing the progress they are making.

  Q89  Mr Todd: Among the possible actions one can take—and since you are not going to share them with us, I do not know whether they are being taken—would be to consider shared service arrangements, for example, in some smaller departments, perhaps, or possibly outsourcing some aspects of financial management. Do those feature in the action plans?

  Ms Keegan: Yes, most departments are actively engaged in considering how they can generate better value for money in, for example, their accounting processes or their HR processes, or a number of other shared service processes across government. John Oughton and I, and others from the Cabinet Office, work together on driving the shared service agenda for government as a whole.

  Q90  Mr Todd: But you are aware that is certainly not an easy and consensual path to follow. There have been some criticisms both of some of the risks about sourcing some aspects of finance functions and also some concern about the progress made on one or two shared service proposals. I must admit your approach, which is to keep this very firmly within the civil service club, is not one which leaves me altogether reassured.

  Ms Keegan: Mr Todd, I am very much a member of the civil service club, but a recent member, and I think you will find my colleagues across the civil service telling you that I am at least as challenging as you might be with us in committee! We are making a lot of progress. Let me use a domestic example. A year ago the Treasury had three finance functions driving the finance operation of the group. The OGC had its own finance function, we, the Treasury, and the DMO. Within the last year each of those finance systems is now accounted for on the same software. We have combined the accounting teams of the three areas and we are now driving reduction in that process. So we have very good experience on which to go out and talk with other departments about what can be achieved in terms of moving accounting services onto a common platform. That is a very, very small example within the Treasury group, but we are doing that process of change with a view to in due course being able to move our accounting transaction work elsewhere.

  Q91  Mr Todd: Could I just pull out from that section one other thing, which is risk management, which was drawn attention to and where I think most aware people have a concern that there is not sufficient skill in identifying risk on major ventures before one proceeds with them. I am not sure who I am talking to here—is it you again? I see your Permanent Secretary slightly ducking and weaving here!

  Ms Keegan: Many of us are involved. I think we have made a lot of progress in the last four years when a team within the Treasury has been supporting a Permanent Secretary—

  Q92  Mr Todd: This is the one chaired by Brian Bender?

  Ms Keegan: Yes, chaired by Brian Bender, and that team has been working for four years and has done a great deal to educate colleagues and to develop the understanding of risk management in departments and produced a lot of good work, exchanging best practice between departments.

  Q93  Mr Todd: He has certainly got some personal experience to bring to bear. But you are satisfied with the way in which that group is working with your team?

  Ms Keegan: Yes. I think we have made huge progress over the last four years. The improvement of either financial management or risk management never stops. One is never satisfied with where one gets to.

  Q94  Mr Todd: No. I would second that. Good. Just turning to the Treasury's own function, you touched on one very welcome step. The resource budget for 2004-05 was £316 million and it actually came in at 249. I did glance through the budget and there are some quite big variables in there which are not necessarily predictable, but I would be interested in the reason why that difference was quite as large as that in a relatively small figure.

  Ms Keegan: I am terribly sorry, Mr Todd, could you repeat the question? Which year are you focusing on?

  Q95  Mr Todd: Sorry, 2004-05.

  Ms Keegan: The main effects in 2004-05 were two property effects, revaluation of the Treasury's property and sale of a property out, sale of half the Treasury building from our department to HMRC, which has to be accounted for on an arm's length basis. So that is the exceptional creditors of 19, which is disclosed in table 2. Otherwise, I would like to suggest to the Committee that we have done rather well just generally in controlling costs over the period. The unitary payment to which we referred earlier for the building has an inflation-linked element in it, and of course salaries have an inflation element in it, and against that the way in which we have brought the core Treasury administration costs in line, effectively flat across the period, I think shows good financial management.

  Q96  Mr Todd: There is also how you deal with the Bank of England in that total, which must also be a slightly difficult to predict variable, I would imagine?

  Ms Keegan: The Bank of England, yes. There is that cost, which is a cost to capital on the net assets of the Bank of England put against the dividend, but it is in fact done under annually managed expenditure (AME) rather than being part of the department expenditure limits. So, as we do for other departments, as we set the departmental budget we recognise that the Bank of England is not as controllable a cost.

  Q97  Mr Todd: You were supposed to be producing planned expenditure by objectives for 2007-08, but you have not done so as yet. Your Permanent Secretary is looking a little puzzled about that one.

  Ms Keegan: The inclusion of table 2A in the departmental report this year, p 98, was an innovation and one where colleagues are encouraging other departments to do the same for the future. If I could remind the Committee, the figures in this report for the 2006-07 plans are the funding outline allocated to the department in the 2004 Spending Review. So although they are called plans, they are not detailed plans where we have been through and re-budgeted or re-forecast what we planned to spend in 2006-07 at this point, and certainly we would not go as far ahead—

  Q98  Mr Todd: As 2007-08?

  Ms Keegan: To include a 2007-08 column would be really a pure projection at this stage, because it really would be too far ahead to be producing something which we would convincingly call a plan.

  Q99  Mr Todd: You have made encouraging progress on improving the financial qualifications of finance directors. When do you expect to achieve your target of having all of them professionally qualified?

  Ms Keegan: I am optimistic that we may be able to report intentions by December 2006, which was the target which the Chancellor set. If I can give you an update on the position at the beginning of October, about 90% of current spend is in departments which have a qualified finance director now. The other 9% is between the Foreign & Commonwealth Office and the Ministry of Defence. The Foreign & Commonwealth Office has run a recruitment campaign over the last two months and is due to interview over the next few weeks. An advertisement has already appeared now for the finance director post at the Ministry of Defence and the intention will be that if the executive recruiters whom the MOD has employed are successful in developing a sensible list of candidates for a final selection at Defence, the interviews will take place before Christmas. Thus, a qualified finance director may not actually be on board, but we are optimistic may have been appointed.

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