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Financial resource management is relevant to every aspect of a department's business, from the smallest transaction to the largest programme. Annually, central government spends some £558 billion, and this is forecast to increase to £678 billion by 2010-11. Strong and competent financial resources management is central to departments meeting their objectives cost effectively and delivering public services which represent value for money.
Since our last Report in 2004,[1] the number of qualified finance directors with a seat on the departmental board has increased. This has enhanced the focus on financial performance at senior management level, but the lack of financial skills and awareness amongst non-finance staff remains a barrier to improving financial management more generally across government. Accruals-based accounting and budgeting systems are now well established. This is helping some departments identify under-utilised assets and dispose of those no longer required. Departments need, however, to improve their forecasting capabilities to strengthen budgetary control and to avoid underspends not being identified early enough to reallocate resources to other priorities. Departments are continuing to spend less money than they forecast, particularly on capital projects, thereby increasing the risk that resources are not being allocated across government in the most effective way.
Few departmental boards are presented with accurate, timely and integrated financial and operational performance information to enable them to take sufficiently informed decisions on the use of resources and to review how well they are utilised. Policy and operational decisions, for example, are rarely based on a full assessment of their financial implications.
The Treasury and the Cabinet Office are championing a number of initiatives to achieve improvements in resource management. The Treasury, in particular, has set itself the objective of achieving world class standards of financial management in government and is supporting this through guidance and models of good practice. There is some way to go, however, before financial management is fully embedded within departmental cultures and given the priority required for services to be delivered efficiently and cost effectively.
On the basis of a Report by the Comptroller and Auditor General,[2] we took evidence from the Treasury and the Cabinet Office on the extent to which financial management skills and awareness had improved across government, and whether the management of financial resources was effective.
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