Conclusions and recommendations
1. Policy and operational delivery within
the Department and its delivery bodies have been adversely affected
by financial management failings.
In 2006-07 and 2007-08, the Department set budgets in excess of
its Departmental expenditure limits in the belief that not all
budgeted expenditure would materialise. As the risk of overspending
became real, the Department had to make in-year cuts to the budgets
of policy groups and delivery bodies, leading to curtailment of
planned operations and outcomes.
2. The Department's budget setting process
did not contain sufficient flexibility to deal with events which
were unforeseen at the start of the year.
In 2007, handling the floods and the outbreaks of foot and mouth
disease and avian influenza required additional resources of £60
million which had to be funded by reducing budgets for other activities
within the Departmental Group.
3. The financial management failings arose
largely from unwillingness within the Department's Management
Board to tackle budgetary problems, and from a failure to instil
a culture of tight financial management throughout the organisation.
The wider lessons from the DEFRA case study include:
- Clear budgets should be set
in advance of the start of each financial year which are consistent
with the expenditure limits set by the Treasury and with the strategic
objectives of the Department.
- A suitably qualified Finance Director should
be empowered to hold senior managers to account for the funds
for which they are responsible by being provided with a grade
and status commensurate with other Board members.
- A taut financial management culture should be
instilled throughout the organisation by employing sufficient
appropriately skilled finance staff, by requiring managers to
account for resources through regular progress reports, and by
challenging variations in expenditure throughout the financial
year so that early remedial action can be taken.
- The financial management of resources should
be scrutinised, challenged and debated regularly at the Management
Board alongside delivery performance.
- Department budgets should include realistic provision
for unforeseen events based on historic experience, and commitments
against such funding should be considered regularly by the Board.
This will allow the need for either additional funding or for
the release of funding to be identified so that action can be
taken quickly.
- The performance of Board Members and budget holders
throughout the organisation in managing their resources should
be incorporated into staff appraisal reporting processes. Development
discussions should be used to identify any financial skills gaps
for which further training may be necessary.
- The budgetary performance and cost effectiveness
of delivery bodies should be scrutinised in a consistent and rigorous
way, taking account of organisational maturity and risk.
4. The Department's financial management challenges
arise in part from the number and variations in scale of the delivery
bodies used to achieve its objectives, as well as the significant
variations in financial management skill and practice within those
bodies. The Department
should look to rationalise its organisational structure to identify
efficiency savings which might arise from, for example, greater
sharing of financial and other areas of administrative expertise.
It should devise an action plan setting out how administrative
costs can be reduced and by when.
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