House of Commons - Public Accounts

Select Committee on Public Accounts Forty-Third Report

2 Embedding financial capability in government departments

11. Departments, HM Treasury, the Cabinet Office and the National School of Government have taken steps to improve financial resource management capability across government. There remains some way to go to make this improved capability more widespread across Government and more deeply embedded within departmental cultures.

12. The Departmental Capability Reviews assessed how well-equipped departments were to meet their key objectives. A key aspect of this is their capability to manage financial resources effectively.[27] Of the 17 departments who were subject to a Review, only seven were assessed as well-placed to 'plan, resource and prioritise', and only four were considered able to 'manage performance' (Figure 2). More recently, some departments, notably the Home Office, have improved their financial management. HM Treasury considers that the Departmental Capability Reviews are providing further stimulus to departments to improve their financial managements.[28] Figure 2: The Departmental Capability Reviews show that improvements are needed in areas that depend on strong management of financial resources

Figure 2: The Departmental Capability Reviews show that improvements are needed in areas that depend on strong management of financial resources

Source: National Audit Office analysis of data from Cabinet Office Capability Reviews: Findings and common themes

13. In order to develop a strong finance culture, it is important that Permanent Secretaries, the board and budget-holders are accountable for financial resources under their control and that appropriate incentives are in place to manage them effectively.[29] A strong finance culture is driven by departmental boards and, in particular, the support of Permanent Secretaries.[30] Financial management is not, however, a routine consideration in the performance appraisal of Permanent Secretaries or senior budget holders. The Cabinet Office's 'Performance Management Guidance 2007-08' sets out a common framework with which to assess and manage the performance of the Senior Civil Service.[31] Finance is a core component of this framework along with efficiency and people management.[32] Although the introduction of Public Service Agreements and Departmental Strategic Objectives is intended to promote stronger departmental accountability for the use of resources, there are few examples of Finance Directors or other senior staff who have lost their positions, in spite of the many examples of financial mismanagement in recent years.[33]

14. HM Treasury and departments have taken steps to improve finance professionalism. The Government's 2004 Spending Review made it a requirement that all departments have a professionally qualified Finance Director with a seat on the Board.[34] While in 2004, only 39% of departments met this requirement,[35] now only the Finance Directors at the Ministry of Defence, Her Majesty's Revenue and Customs and the Crown Prosecution Service do not hold a professional finance qualification.[36] The Ministry of Defence are undertaking a recruitment drive to recruit a qualified Finance Director. Her Majesty's Revenue and Customs currently have an interim Finance Director who is an actuary, though not a Chartered Accountant, and the Finance Director at the Crown Prosecution Service is currently training to become a chartered accountant.[37] Since publication of the C&AG's Report, the Director of Finance at the Department for International Development has joined the board. Although the Finance Directors at the Office of Fair Trading, the Office of Gas and Electricity Markets and the Water Services Regulation Authority are not board members, they are generally present when the board discusses financial matters.[38]

15. HM Treasury has taken steps to improve finance professionalism below the level of Finance Director, but further progress is needed before finance professionalism becomes embedded within departments. More than 4,000 civil servants now hold a recognised finance qualification, an increase of more than 8% since 2006.[39] Graduates of the finance option of the Civil Service Fast Stream, which HM Treasury introduced in 2006, should further increase this number.[40] The Treasury recognises, however, that there is a need for more qualified finance staff and that, in order to spread financial expertise more widely, they should not only be based in the finance department, but deployed more widely throughout the organisation.[41] Recruiting qualified finance staff is likely to continue to be a challenge for departments because of the disparities in salaries between the public and private sectors.[42]

16. Lack of financial skills and awareness amongst non-finance staff is one of the most significant barriers to improving and embedding financial resource management capability in departments.[43] As part of the Professional Skills for Government, launched in 2005, the Cabinet Office set a minimum standard of finance skills which all senior civil servants should attain.[44] The Cabinet Office considers, however, that the self-assessment questionnaires which it used to evaluate civil servants' progress towards attaining this minimum standard are unreliable and not sufficiently comprehensive. The Cabinet Office is now in the process of designing a more robust methodology for assessing the attainment of skills.[45]

17. In 2006, HM Treasury launched Finance Skills for All, a finance training course for non-finance staff. It is not mandatory for civil servants to complete the course and take-up has been low; in 44% of departments, not a single civil servant has completed the first tier of the course.[46] One reason for the low course take-up is that many departments run their own finance training courses for non-finance staff. When, however, HM Treasury last reviewed the quality of these courses in August 2005, only the courses run by the National School of Government and the Ministry of Defence complied with the standards required by the Professional Skills for Government programme.[47] One department, the Department of Transport, has made Finance Skills for All mandatory for its board members and senior civil servants, while the Department for Work and Pensions and the Foreign and Commonwealth Office have included the course in their wider business transformation programmes.[48]

18. Although steps are being taken to improve financial accountability, leadership and professionalism, departments still have some way to go before financial resource management is regarded by staff as central to organisational culture.[49] For example, the relationships between the finance function and other areas of the department require improvement; only 14% of departments consider collaboration between the finance team and policy and operational units to be excellent. Some departments have developed new organisational structures which encourage closer collaboration between the finance function and policy and operational units. Furthermore, only 14% of departments consider collaboration between the finance team and the human resources function to be excellent. This remains a cause of particular concern.

19. The independent challenge which non-executive directors can make through their presence on the departmental board has helped departments improve their financial resource management. 97% of departments' Audit Committees are chaired independently and many Audit Committee Chairs hold a recognised accountancy qualification which has been particularly important in scrutinising departments' financial performance.[50] Some departments consider that the precise remit of non-executive directors needs greater clarification, particularly if they are to challenge and support departmental activity effectively.[51]

27 Q 44 Back

28 Q 44; C&AG's Report, paras 4.13-4.14 Back

29 C&AG's Report, para 2.24 Back

30 C&AG's Report, para 2.23 Back

31 Cabinet Office, Performance Management Guidance for Permanent Secretaries and the Senior Civil Service (2007-08) Back

32 Qq 3-4, 73-77; C&AG's Report, para 2.25 Back

33 Qq 56-57, 62-63, 65-66 Back

34 C&AG's Report, paras 2.2, 2.3 Back

35 Q 13; Committee of Public Accounts, Managing financial resources to deliver better public services, para 7 Back

36 Qq 6-9, 13-19 Back

37 Qq 8, 13, 73, 83-86 Back

38 C&AG's Report, paras 6, 2.2-2.5 Back