Examination of Witnesses (Questions 80-99)
MR NICHOLAS
MACPHERSON, MS
MARY KEEGAN,
MS SAM
BECKETT, MS
MRIDUL BRIVATI
AND MR
JOHN OUGHTON
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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