1 Learning the lessons from past difficulties
in managing expenditure
1.The Department for Environment, Food and Rural
Affairs (the Department) is responsible for tackling climate change
and maintaining our natural environment. Along with its agencies
and non-departmental public bodies, the Department delivers a
range of different services and operations. Most of these activities
are funded by the taxpayer, and the Treasury set the Department
an expenditure limit of £3,617 million for 2007-08. The principal
objective of the Department's Accounting Officer and Management
Board was to manage the resources efficiently and effectively
within the funding provided.[2]
2. In May 2006, the Department's Management Board
recognised that, as a result of poor financial management, the
Department faced a significant risk that it would exceed its expenditure
limit in 2006-07. The Department instigated a series of budget
reductions to generate £170 million in savings, but the mid-year
timing of these reductions had an adverse impact on policy delivery
within the Department and its delivery bodies. The Marine and
Fisheries Agency, for example, deferred a vessel decommissioning
grant scheme aimed at reducing over-fishing by helping trawler
owners to leave the industry, and the Veterinary Laboratories
Agency reduced its scientific surveillance work.[3]
3. In 2007-08, the total cost of the Department's
approved business plans exceeded its resources by some £66
million, and in April and May 2007, certain Policy Groups within
the Department declared financial commitments above the agreed
budget allocations. The risk of overspending was compounded further
by a number of unforeseen events, including floods, and outbreaks
of foot and mouth and avian influenza, which required additional
expenditure of some £60 million. A series of meetings with
senior managers was required to agree budget reductions. This
meant that final budgets were not allocated to Policy Groups until
August 2007, five months into the financial year.[4]
4. At the start of 2006-07 and 2007-08, the Department's
Management Board agreed budgets which exceeded the funds available,
because in previous years budget holders had typically over-estimated
their budgeted expenditure. The Board, therefore, believed that
the excess budgeted expenditure would not materialise. The difference
between the Departmental Expenditure Limit and actual expenditure
had declined in recent years, however, and in 2005-06 the underspend
was less than £1 million (Figure 1). Senior officials
were not sufficiently aware of the impact of changes in financial
practices within the Department which had led to the tauter budgeting.[5]
Figure 1:
The Department's actual expenditure came close to its Departmental
Expenditure Limit in 2005-06
Source: C&AG's Report, Figure 3
5. The absence of a Finance Director with Management
Board status contributed to Board Members' lack of awareness and
understanding of the effective management of expenditure. Until
April 2007, the Departmental Finance Officer had reported to the
Director General of the Service Transformation Group. Subsequently,
the Accounting Officer replaced the Finance Director and some
members of the finance team. She upgraded the Financial Director
role to a Director General with a place on the Department Board,
reporting directly to her. The Finance Director is now empowered
to hold each part of the Department to account for their budgets.
He is supported by 27 fully qualified accountants in the Department
and 29 in training, as well as a further 48 accountants in the
Department's agencies. The Accounting Officer and Management Board
intend to undertake the Treasury's on-line computer training course
to improve their understanding of good financial management.
[6]
6. The Management Board's monitoring of financial
performance had been hampered by difficulties in obtaining timely
and realistic monthly profiles of expected expenditure from delivery
bodies. Following the change in Finance Director, however, the
Department introduced more robust arrangements to collect financial
performance data from all parts of its operations on a timely
basis. Delivery bodies now submit monthly financial
data direct to their associated sponsor team in the Department.[7]
7. Following the introduction of a Financial
Management Improvement Programme for 2008-09,[8]
the Department has agreed budgets in accordance with the Comprehensive
Spending Review 2007 allocation. The Accounting Officer does not
expect the problems of 2006-07 and 2007-08 to recur in 2008-09.
Better project management, leading to closer management of expenditure
by teams, is expected to reduce the likelihood of resources being
significantly over- or under-spent. The Department has been innovative
in applying project management techniques to implement policy
related topics, but has not applied these techniques effectively
to internal projects and procedures. The Management Board has
now put in place more rigorous financial and outcome monitoring
systems. Intensive business case development for new projects
means that before approving an activity the Management Board is
aware of the expected outcome, its risk and costs, and the impact
on customers. Senior responsible officers for budgets would be
told that their key objective was to manage finances effectively.[9]
2 Q 57; C&AG's Report, para 1 Back
3
Qq 1-3, 41; C&AG's Report, paras 1.4, 2.6; Appendix 2 Back
4
Qq 2, 13, 28-29; C&AG's Report, para 2.7 Back
5
Qq 3, 28-29, 35-41; C&AG's Report, paras 1.3, 2.5, Figure
3 Back
6
Qq 13, 16; C&AG's Report, para 2.16 Back
7
Qq 8-9, 13, 16-18; C&AG's Report, para 2.8 Back
8
The Financial Management Improvement Programme aims to improve
financial management capabilities across the Department, and to
achieve faster preparation and completion of its annual accounts. Back
9
Qq 2, 4, 12-13, 42, 50, 57, 62; Committee of Public Accounts,
Twenty-seventh Report of Session 2005-06, Lost in Translation?
Responding to the challenges of European Law, HC 590; Fifty-fifth
Report of Session 2006-07, The Delays in Administering the
2005 Single Payment Scheme in England, HC 893 Back
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