2 Appendix
Review of errors in Guaranteed
Minimum Pension Payments, HC 878, Session 2008-09
CONCLUSION
The process for notifying pension schemes of Guaranteed
Minimum Pension entitlements is complex and fragmented, and therefore
prone to error. There was a collective failure to recognise the
interdependencies between the parties and the potential for the
process to break down. The successful administration of the Guaranteed
Minimum Pension process required effective joint working, but
the parties failed to achieve it.
The Guaranteed Minimum Pension process involves the
pension schemes and their payment contractors, but also relies
on HM Revenue and Customs and the Pension, Disability and Carers
Service, who in turn rely on employers. No one party owns the
process as a whole and no one took responsibility for checking
it was working properly or for ensuring that problems were satisfactorily
resolved when, for example, pension schemes could not match Guaranteed
Minimum Pension notifications to their systems. There was no assurance
therefore that the information passing between HM Revenue and
Customs and the pension schemes, and between the Pension, Disability
and Carers Service and HM Revenue and Customs, was complete. Despite
the complexity and the known history of problems, the process
lacked checks and controls, which meant that the missing Guaranteed
Minimum Pension information and the resultant payment errors went
undetected, in some cases for many years.
The payment errors resulted from the Guaranteed Minimum
Pension process breaking down in a number of ways, leading to
the pension schemes not having Guaranteed Minimum Pension information
recorded when they should have done. Responsibility for the errors
is shared between:
- the pension schemes and their
payment contractors, for neglecting to put in place checks that
they had obtained the information necessary to calculate payments
correctly. Specifically, they did not make sure that the Guaranteed
Minimum Pension information they held was complete and did not
have adequate arrangements for tracking rejected notifications;
- HM Revenue and Customs, for failing to have adequate
arrangements for tracking Guaranteed Minimum Pension notifications
which were rejected and returned by the pension schemes, and for
having no checks built into the National Insurance Recording System
to reduce the risk of notifications being sent to the wrong pension
scheme; and
- the Pension, Disability and Carers Service, for
not always finalising state pension claims either at all or properly,
meaning there was no trigger for HM Revenue and Customs to issue
a Guaranteed Minimum Pension notification, and for supplying incorrect
scheme contracted out numbers to HM Revenue and Customs, meaning
that notifications were sent to the wrong pension scheme.
RECOMMENDATIONS
Without co-ordinated action by all parties to improve
the Guaranteed Minimum Pension process, there will be duplication
of effort and potentially inconsistent new standards and approaches
adopted. Our detailed recommendations at (b) to (l) should therefore
be addressed in the context of the urgent resolution of recommendation
(a), which concerns responsibility for the process as a whole
and leadership of actions necessary to improve.
a) The Guaranteed Minimum Pension process involves
several inter-dependent parties who failed to work together effectively.
At present, none of the parties has a lead responsibility for
the process as a whole. HM Treasury, HM Revenue and Customs, the
Pension, Disability and Carers Service and the five pension schemes
should agree the one body which will be responsible for the Guaranteed
Minimum Pension process as a whole, and for oversight and co-ordination
of plans to address weaknesses in the process. The decision on
where this responsibility falls is not an easy one but, in our
view, it should be either the Pension, Disability and Carers Service
or the Cabinet Office. The Pension, Disability and Carers Service
is the body most directly connected to the pensioners who are
affected by administrative failings concerning Guaranteed Minimum
Pension, and to the overall quality of government services to
pensioners. The Cabinet Office is the body which, amongst the
departments responsible for paying public service pensions, is
the one which has been most closely involved in co-ordinating
actions to deal with the payment errors, and which also has the
role of strengthening the civil service as a whole.
We acknowledge the extensive work that has been carried
out so far to identify and deal with the payment errors. Our review
also identified two further risks which should be addressed by
the parties as part of this work.
b) There is a risk that pension schemes may be
underpaying members who left contracted out employment early but
who have deferred claiming state pension. It is not clear how
the pension schemes know whether these 'early leavers' have claimed
state pension and, if not, that the scheme should therefore suspend
the usual Guaranteed Minimum Pension rules and uprate the occupational
pension in full. Working with HM Revenue and Customs and the Pension,
Disability and Carers Service, the pension schemes should confirm
whether members in this category are in receipt of state pension,
and take action to both correct any underpayments that have arisen
and to address the risk of underpayments in the future.
c) There is a risk that payment errors will continue
to occur after the correction exercise during 2008 09, but before
actions to prevent errors recurring have been agreed and implemented.
Working with HM Revenue and Customs, the pension schemes should
check whether there are any further overpayments or underpayments
which were not captured by the correction exercise during 2008-09,
and take any necessary corrective action.
Going forward, we make the following recommendations
to help strengthen the Guaranteed Minimum Pension process.
On improving the overall management of the process
d) The lack of checks and controls over the Guaranteed
Minimum Pension process as a whole fails to take account of the
complexity of the process and the history of concerns and known
problems. The pension schemes, HM Revenue and Customs and the
Pension, Disability and Carers Service should review the checks
and controls in place over the process, both within their organisations
and over the exchanges of information between them.
e) There is little management information in
respect of key aspects of the Guaranteed Minimum Pension process.
The pension schemes, HM Revenue and Customs and the Pension, Disability
and Carers Service should collect information to help them monitor
key parts of the process, for example, on the finalisation of
state pension claims, the accuracy of scheme contracted out numbers,
and the clearance of rejected Guaranteed Minimum Pension statements.
f) Pension schemes remain concerned about the
completeness of the Guaranteed Minimum Pension notifications generated
by the National Insurance Recording System. HM Revenue and Customs
should identify how it can provide greater assurance about the
completeness of the outputs from the National Insurance Recording
System. The pension schemes should implement procedures to identify
members who have reached, or are soon to reach, state pension
age but for whom they do not have Guaranteed Minimum Pension information
recorded on their systems.
g) The pension schemes' payment contractors were
required under the terms of their contracts to calculate and pay
pensions correctly, and to do so the contractors need to obtain
Guaranteed Minimum Pension statements. However, under the existing
arrangements responsibility for the non-receipt of Guaranteed
Minimum Pension statements was not always clear, and therefore
the pension schemes agreed to pay them additional amounts to rectify
the resulting payment errors. At the earliest opportunity, pension
schemes should amend contracts to make explicit the extent of
their contractors' obligations for securing complete details of
Guaranteed Minimum Pension entitlements, and should subsequently
monitor the performance of contractors in this regard.
h) The responsibilities of the different parts
of government involved in the Guaranteed Minimum Pension process,
and the levels of service they can expect from each other, have
not been set out. Pension schemes, HM Revenue and Customs and
the Pension, Disability and Carers Service should agree and document
their specific responsibilities, including service standards for
the provision of timely and complete Guaranteed Minimum Pension
information, and responsibilities for checking that the process
as a whole is working properly.
i) The guidance on administering Guaranteed Minimum
Pension entitlements is out of date, and not all the parties directly
involved in the process were familiar with the guidance. HM Treasury,
the Pension, Disability and Carers Service, HM Revenue and Customs
and the pension schemes should collectively develop and agree
new guidance, promote it to staff, and then regularly review and
update it as necessary.
j) Action to prevent the payment errors recurring
will require the commitment of all parties involved in the Guaranteed
Minimum Pension process, but there is currently no forum which
brings them together. Strengthening the process requires the pension
schemes to be more proactive and all parties to work more closely
together. The pension schemes, their payment contractors, HM Revenue
and Customs and the Pension, Disability and Carers Service should
come together to agree detailed proposals for improvement, a timetable
for their implementation, and arrangements for monitoring the
effectiveness of the action that is taken.
On simplifying the process as a whole
k) Guaranteed Minimum Pensions were earned between
1978 and 1997 and are no longer accruing, meaning that the existence
of entitlements is known and will not change. While the base Guaranteed
Minimum Pension is re-valued each year up to state pension age,
pension schemes could annotate members' records with Guaranteed
Minimum Pension information in advance of their reaching state
pension age, rather than waiting for HM Revenue and Customs to
provide notifications. Pension schemes and their administration
and payment contractors should assess whether prior annotation
offers a cost-effective way of reducing the risks associated with
administering Guaranteed Minimum Pensions.
l) The complexity of the existing Guaranteed
Minimum Pension system increases the risk of error and makes it
costly to administer. A complicated administrative process has
evolved over a number of years, in a context of changing legislation
and organisational structures. A fundamental review should therefore
be commissioned to consider whether, within the existing legislation
in respect of Guaranteed Minimum Pensions, there are opportunities
to reform and simplify the administrative system designed to implement
that legislation. We suggest the review should be commissioned
by HM Treasury because of its responsibility for the financial
and budgetary framework and for ensuring departmental efficiency,
together with the Cabinet Office as the central co ordinator of
the response to these errors and with its wider responsibilities
for the civil service.
Government cash management, HC
546, Session 2008-09
CONCLUSION ON VALUE FOR MONEY
Central government as a whole is not managing its
cash in a way that maximises value for money, largely because
it could hold more cash in the Exchequer. Money that leaves the
Exchequer needs to be raised by the government at a cost that
is close to the Bank of England bank rate, which ranged from five
per cent to 0.5 per cent in 2008-09. In some cases this money
is held in commercial bank accounts, earning interest, before
it is used to make payments. However, for the bodies in our sample
the average interest rate earned was 0.7 per cent below the bank
rate. Using this rate, the £4 billion held in commercial
bank accounts at 31 March 2008 would have cost the government
£28 million in higher interest payments over the year. Although
the current unusually low interest rates would reduce the potential
savings, most of our sample of sponsored bodies held on average
50 per cent higher cash balances throughout 2008 09 compared to
31 March 2009. While it is not possible to extrapolate from this
small sample, it suggests the £4 billion is an underestimate.
There are also broader benefits from using the central expertise
of the Debt Management Office to manage cash balances and the
associated risk.
Some organisations are ready to move over to the
Exchequer as their banking provider almost immediately. Others,
especially those that have complicated banking arrangements or
want to maintain their independence from government, would incur
considerable one-off costs or require a significant cultural change.
These factors would apply to any change of banking provider, and
the costs may include changing internal processes to align with
those of the new provider, adjusting computer software, and ensuring
all customers know and use the new bank account details.
RECOMMENDATIONS
The following recommendations for departments, their
sponsored public sector bodies and the centre of government identify
improvements in government cash management that can be achieved
primarily by changing working methods, sharing information, or
adjusting organisation structures, without the need to incur significant
implementation costs.
The highest priority recommendations that would deliver
the greatest benefits, both financially and non-financially, are
recommendations a and f, on banking with the Government Banking
Service and refocusing the Treasury's incentive mechanisms.
Recommendations for departments and public sector
bodies
Central government departments and their sponsored
bodies hold more money in commercial bank accounts than they need
a) Departments and their sponsored bodies should
have their main account with the Government Banking Service, so
that unspent money is kept at the Exchequer. This is one of the
most important elements of good cash management in government,
as it not only reduces government borrowing, but minimises risks
and allows the government to plan and manage its cash flow more
cost-effectively. Organisations should only have commercial bank
accounts where they have agreed with the Treasury that the Government
Banking Service cannot satisfy a particular business need.
b) Departments need to improve their links with
sponsored bodies and collect more accurate information on when
they use their cash. Based on the data, they should amend payment
cycles to sponsored bodies with commercial bank accounts so that
the bodies receive money when they need it, and not before. This
amendment may be for more frequent payments, or making the monthly
payments closer to the date when significant liabilities, such
as payroll, need to be met.
Monthly net expenditure for the 14 departments
in our survey varies from forecast by an average of £1 billion
c) Public bodies need to gather information from
business units to forecast individual monthly expenditure. To
do this effectively they need to structure themselves to facilitate
continuous dialogue between those staff responsible for forecasting
cash requirements, and those making payments. They also need to
emphasise to budget holders responsible for approving large payments
and claiming receipts in their own organisation, as well as any
sponsored bodies, the importance of accurate forecasting and communicating
any changes to forecasts as soon as possible to the cash managers.
Few Boards routinely receive information about
their organisation's cash position
d) With the tighter fiscal position, Boards should
have greater oversight of information on cash flow so they better
understand the pattern of spend as well as total spend, and can
address any potential risks. Central finance teams should develop
more informative reports, which ought to include movements in
the main current bank accounts and comments on variances. Where
there is an operational need to have commercial accounts, Boards
should ensure that cash balances are invested in interest earning
accounts, while having due regard for credit risk. They should
also receive reports on the proportion of their cash which earns
interest, the rates earned, and a credit assessment of the institution
with which their funds are held.
Organisations are using less cost-effective methods
of payment, such as cheques and CHAPS (Clearing House Automated
Payment System), because of poor planning
e) Organisations should manage their payments
in a way that allows them to use the most cost-effective methods,
and develop strategies for limiting the use of expensive paper-handling.
RECOMMENDATIONS FOR THE CENTRE OF GOVERNMENT
The current incentives for cash management focus
on accurate forecasting, but this does not address money that
is unnecessarily kept outside the Exchequer
f) The Treasury needs to extend its incentives
to encourage public bodies to keep more money in accounts at the
Exchequer, for example, by making bodies' performance in this
regard more transparent. It could also, together with the Government
Banking Service, take a more active approach to achieving compliance
with its guidance on minimising commercial balances. Any of these
steps would need to be taken in a way that minimises unintended
behaviours, and would also incur some limited additional staff
cost. However, new mechanisms are critical in shifting the focus
away from just accurate forecasting. The most cost-effective system
would be for all public bodies to bank with the Exchequer and
manage their cash in accordance with the guidance without the
need for incentives.
Good practice in forecasting cash flow and managing
payments exists, but is not systematically adopted across government
g) The Treasury is already working with departments
to improve their performance, but should focus more on those departments
with the greatest scope to improve, based on current performance
and the context in which they operate. In light of the tighter
fiscal position, it should work with all departments to help them
identify how they can improve their forecasting accuracy, particularly
at the end of the financial year, without compromising the policy
of minimising cash balances held in commercial accounts.
By undertaking their own tendering processes for
commercial banking and cash transit services, public bodies are
unlikely to all be getting the best value for government as a
whole
h) Where there is a value for money case for
using a commercial provider for standard banking services, public
bodies should seek approval from the Treasury. When procuring
specialised banking services, organisations should first check
whether the new Government Banking Service is able to provide
them. If not, they should work with the Government Banking Service
during the specification and tendering process, as it can coordinate
knowledge sharing across the wider public sector.
Measuring Up: How good are the
Government's data systems for monitoring performance against Public
Service Agreements? HC 465, Session 2008-09
OVERALL CONCLUSIONS AND RECOMMENDATIONS
PSAs were introduced ten years ago. Our results show
a continued, if small, improvement in the quality of the underpinning
data systems, which has been achieved alongside a restructuring
of both the overall framework and the underpinning indicators
and metrics. However, clear weaknesses remain and the rate of
improvement has slowed considerably. At the current rate of progress,
it will take a long time to achieve a fit for purpose position.
Making the necessary improvements to data systems will required
a more determined effort by the Treasury and by Departments.
The following recommendations include key points we have made
in previous years, and re-emphasise the need to build data quality
into management systems from the outset.
The following recommendations are designed to improve
current performance reporting and accountability.
SPECIFICATION OF INDICATORS AND DATA SYSTEMS
Many of the more serious problems in data systems
were sourced in weak indicator or system design, and a failure
to apply known "good practices".
HM Treasury should:
a) Hold Departments to account for implementing
improvements in current weak data systems as detailed in published
NAO findings.
Departments should:
b) Review the measurement requirements of new
PSAs to ensure that all key elements of performance are well-defined
and measurable;
c) Continue to evaluate existing data sources
to assess their suitability for PSA monitoring purposes without
compromising performance management and accountability by using
data sources that do not offer the required validity or precision;
and
d) Ensure that the basis for claiming success
is clear and reasonable, taking into account the ability of the
data system to measure progress beyond chance or error.
OPERATION OF DATA SYSTEMS
More than a third of systems lacked proper controls
over data collection, processing or analysis. Data quality considerations
must be embedded in routine risk identification and management.
HM Treasury should:
e) Require adequate risk assessment and risk
management plans for current PSA monitoring, and as a precondition
to agreeing future measurement systems.
Departments should:
f) Specify the quality of data needed to monitor
progress, assess the risks to data quality, and the adequacy of
procedures and controls to mitigate or manage those risks;
g) Devise systems to detect errors in outturn
data, including potential over or under-counting;
h) Ensure that they assess risks to data from
external sources, and take steps to gain assurance that the data
provided are of adequate quality; and
i) Specify clear management and oversight responsibilities
for data quality.
REPORTING OF DATA
Transparent public reporting is essential to public
accountability. Almost a fifth of Departmental performance reporting
of PSA indicators lacked clarity.
Departments should:
j) Keep published technical information on indicators
up-to-date, including a record of changes made to associated data
systems;
k) Disclose limitations to data quality in reports
to management boards and to the public, and present all the information
necessary to place performance information in context; and
l) Specify criteria for success against each
indicator.
FUTURE FRAMEWORKS
We also have a number of recommendations for any
future developments of the overall performance framework. A performance
management framework for Government must enable the transparent
management of Government priorities and spending. There is no
single discipline that leads on performance accounting or reporting,
and no associated standards.
HM Treasury should:
m) Develop performance accounting and reporting
standards to promote a consistently high standard of performance
measurement and reporting;
n) Review the arrangements for agreeing measurement
systems and increase the degree of challenge before final agreement;
o) Recognise that new indicators and systems
pose increased risk and reflect that in its scrutiny of departmental
proposals; and
p) Develop clearer guidance on dealing with the
potential conflicts of measuring progress against national priorities,
and restricting monitoring burdens placed on local bodies.
Departments should:
q) Set out the measurement requirements of new
performance measures to ensure that all key elements of performance
are well-defined and measurable, and assess the risks to data
quality and the adequacy of procedures and controls to mitigate
or manage those risks; and
r) Select, as accountability measures, only indicators
of performance where they have adequate and attributable influence
over progress.
Complying with Regulation: Business
Perceptions Survey 2009, HC 1028, Session 2008-09
CONCLUSION
Departments continue to implement a wide range of
initiatives within the Administrative Burdens Reduction Programme.
In 2008 we found that the existence of a 25 per cent target was
an important driver in incentivising departments to consider the
burdens imposed by their regulations. Businesses are also reporting
that individual aspects of complying with regulation have become
less burdensome, indicating that departmental initiatives have
delivered benefits. The strengthened validation arrangements this
year have improved confidence that departments are testing the
assumptions underlying their claimed reductions, although the
estimated savings should still be treated with caution.
However, more broadly in 2009, as in 2008, very few
businesses reported that complying with regulation had become
easier or less time consuming than a year before, and around a
third said that it had become worse. Businesses appear to recognise
some non-quantifiable benefits of initiatives, such as improved
levels of clarity around what they need to do to comply. But whilst
business perceptions of how government regulates are generally
more positive than 2007, our survey results shows no improvement
between 2008 and 2009, and most businesses continue to question
whether government understands business well enough to regulate,
or consults well before doing so.
The limited improvement in overall business perceptions
of regulation, despite the action reported by departments and
the positive changes in perceptions on individual aspects of compliance,
may show the effect of a continuing flow of new regulations affecting
businesses that outweighs the impact of administrative burden
reductions. But it may also demonstrate that the Administrative
Burden Reduction Programme's approach of making a large number
of incremental improvements is not enough to make a visible difference
for businesses. If the government is to achieve a significant
change in business perceptions, the Better Regulation Executive
(BRE) and departments must therefore look to more strategic and
structural reform. The BRE is seeking to achieve this through
the wider regulatory reform agenda; the evidence from our survey
shows that changing business perceptions remains a very significant
challenge.
RECOMMENDATIONS
Our recommendations focus on overall strategic direction,
potentially cutting across the whole of the regulatory reform
agenda; delivery of the Programme and improving initiatives within
it.
Strategic Direction
Our 2009 survey results show that despite the efforts
of departments, overall business perceptions of the overall regulatory
burden are largely unchanged from 2008. Departments and the BRE
need to take action in three areas:
a) The results of our survey show that few businesses
feel government understands or consults well with them. Departments
need to look at regulation from the perspective of the individual
business, and seek to learn from businesses how best to minimise
the time and cost of complying with regulation. Departments should
look together at all of the regulatory demands placed on business
rather than concentrating on those regulations for which each
individually is responsible. Where this leads to changes that
cut across departments, the BRE should take a key coordinating
role in the process.
b) Identify more radical changes to regulatory
requirements for example, by reviewing existing regulation to
see if there is scope to remove whole requirements as well as
simplifying those already in place, and considering non-regulatory
means of achieving policy objectives.
c) Recognise the potential benefit of reducing
the policy costs of regulation as well as the administrative costs
currently targeted by the Programme, for example, by ensuring
that all reviews of policies imposing regulatory requirements
consider the scope to simplify both administrative and non-administrative
requirements.
Programme delivery
Our findings demonstrate the importance of understanding
what matters to business. The current measured target for the
success of the Administrative Burdens Reduction Programme focuses
exclusively on time and cost savings for business, and does not
recognise potential broader benefits, such as improving businesses'
confidence that they are complying with the requirements of regulation.
The BRE should put in place mechanisms to ensure that new simplification
initiatives address these broader issues:
d) The Government has announced that it will
adopt new simplification targets for 2010-15. The BRE must take
this opportunity to revise its set of indicators to incentivise
departments to look beyond time and cost savings at how to improve
the business experience of regulation. The indicators should take
into account qualitative benefits from the Programme, such as
reducing irritants and improving businesses' confidence that they
are complying fully with regulations.
e) The BRE should ensure effective arrangements
for holding departments to account against this broader set of
indicators. The BRE should consider whether the new Regulatory
Policy Committee has a role in testing whether new burden reduction
initiatives are based on an understanding of key business concerns.
Delivering initiatives
f) The BRE and departments have been developing
and implementing communication strategies over the last year,
but our survey showed mixed awareness of initiatives. Departments
should ensure that initiatives address the key business concerns
around complying with regulation. The results of our survey and
qualitative work indicate that departments should focus on delivering
initiatives and communications to businesses that:
- raise business awareness of
which regulations apply to them;
- are tailored to the key information that different
types of businesses require, for example, by considering factors
such as size of business or length of time in existence; and
- improve certainty for businesses that they have
complied fully with requirements.
g) Our qualitative interviews with business indicated
that the business link website was an important source of information
for many small businesses. The survey results show that only 33
per cent of businesses use the website as a source to help them
comply. The BRE and departments should further promote and raise
awareness of businesslink.gov.uk with small and medium sized enterprises.
The website must provide up-to-date, clear and reliable information
for business and should continue to provide information tailored
a) by different stages in the business life cycle, and b) by different
types of business.
Commercial skills for complex
government projects, HC 962, Session 2008-09
CONCLUSION ON VALUE FOR MONEY
Our past reports on complex government programmes
and projects have demonstrated that value for money has often
been compromised by a lack of commercial skills and experience.
Further evidence set out in this report, confirms that there are
still shortfalls across government in the commercial skills needed
to deliver these projects.
The Office of Government Commerce (OGC) and departments
share responsibility for developing the commercial skills and
experience needed across government, a priority recognised since
2000. Progress has been made particularly on the identification
of skills gaps within departments and project assurance. The OGC
and departments have not, however, always worked together effectively.
Some important issues have not been addressed fully and the initiatives
that have been taken forward have so far had a limited impact.
As a result, value for money is at risk for approximately £200
billion which will be spent on the 43 projects and programmes
in the Government's Major Projects portfolio. While close monitoring
of these projects goes some way towards mitigating this risk,
there is a greater risk to value for money on many other complex
government projects where skills shortages are not being assessed
as systematically.
There has been duplication of spending by the OGC
and departments on similar initiatives and a lack of uptake of
other OGC initiatives by departments. As a result, the value for
money of the £1.5 million a year that the OGC has been spending
on initiatives primarily aimed at improving commercial skills,
is also at risk. The OGC and departments need to agree and then
carry out a coordinated, coherent and targeted strategy addressing
these issues.
RECOMMENDATIONS
Our recommendations are aimed at helping the OGC
and departments obtain better value for money from projects, without
increasing departments' overall costs.
a) Government has yet to develop an optimal strategy
for building, retaining and effectively deploying commercial expertise
or raising commercial awareness.
The OGC and departments should evaluate and revise
their current commercial skills strategy by October 2010. This
should address:
- effective models of commercial
leadership;
- raising the commercial awareness of the boards
and senior responsible owners;
- key barriers to efficiently deploying commercial
expertise;
- departments' reservations about participating
in the OGC initiatives; and
- unnecessary duplication between the OGC and departmental
initiatives.
b) The government does not have the necessary
information or mechanism to place people with commercial experience
and skills onto the complex projects where and when they are most
needed.
Departments should by the end of July 2010:
- put in place project assurance
processes that will identify commercial skills gaps in individual
project teams; and
- produce an analysis of the commercial skills
required across their future complex project procurements, and
identify the contract management skills that are required to prevent
value for money being eroded during the delivery phase of complex
projects.
The OGC and departments should by October 2010:
- use these plans to establish
an optimal cross-government commercial staff plan; and
- work together to make it possible for commercial
staff to be seconded quickly between departments, addressing barriers
preventing this. The OGC should act as a broker of such secondments
where they are in both the government's and the individual's best
interests.
c) Commercially experienced staff can provide
valuable short term interventions at critical times during projects.
As a key part of the cross-government staffing plan,
the OGC should explore how to establish a cadre of experts that
can be deployed if a project runs into difficulty. Currently options
include:
- the coordination of central
resources of commercial experts from the OGC, Partnerships UK,
HM Treasury, and the Shareholder Executive;
- the identification of mechanisms for the short
term release of commercially experienced individuals from other
departments; and
- the use of quality assured individual consultants.
d) Public spending constraints have affected
the recruitment of commercial staff. Where opportunities for recruitment
do arise, however, government departments should be flexible in
how they recruit high calibre staff.
- Departments should ensure adequate
budgetary provision for individuals who have the commercial skills
to support complex project teams. Departments should be flexible
in determining the number, calibre and pay of the commercial staff
needed to ensure successful project delivery.
- The OGC should set out guidance on the factors
to consider in the recruitment of, and remuneration for, appropriately
skilled commercial staff.
e) Commercial experience is being lost to projects
due to commercial civil servants moving position frequently. The
retention of commercial expertise within government departments
should be given higher priority.
- Departments should produce
strategies which set out how they intend to develop, retain and
fully utilise commercial staff in critical posts on projects.
These strategies should be produced in line with the recommendations
set out in the OGC's Building the Procurement profession in the
Future. The strategies also need to investigate other options
for improving the retention of commercial staff, such as allowing
project staff to be promoted in their current post.
f) Given the scarce commercial staffing resources
in government departments, project teams need tools which will
help them to address commercial issues and reduce the risk of
poor commercial decisions. The OGC and departments should:
- Establish a comprehensive set
of best commercial practice and standard approaches to be applied
across government wherever appropriate. Its adoption should be
supported with guidance, training events, and access to experts.
This work should draw on the contractual standards already developed
for private finance projects, information communication technology,
and construction.
- The OGC and departments should further develop
information sharing on:
- learning and development opportunities;
and
- individuals' experiences of
interacting with different private sector companies.
g) Procurement Capability Reviews (PCRs) continue
to be a useful indicator of the commercial skills of departments.
But the OGC does not have an adequate ongoing performance management
system to measure the success of its individual initiatives. The
OGC should:
- collect data from commercial
directors, to assess the impact of OGC's commercial skills initiatives
against their objectives. This could include tracking the impact
that initiatives have had on the future retention of commercial
staff, their career progression, and confidence in dealing with
commercial challenges; and
- establish by October 2010 a performance measurement
framework, with key performance indicators for commercial skills
capability across government. The OGC should coordinate the collection
of relevant data from departments and make use of existing sources
such as the Government Procurement Service annual survey and PCRs.
Independent Reviews of reported
CSR07 Value for Money savings, HC 86, Session 2009-10
OVERALL CONCLUSIONS ON THE DEPARTMENT FOR TRANSPORT
The Department has reported VFM cash releasing savings
totalling £892 million in 2008-09. The reported saving was
made up of six separate initiatives. We have rated £585 million
of the savings as Green or Amber; but have significant concerns
over £307 million (34 per cent) of the claim to date.
We concluded that elements of the Department for
Transport's governance arrangements for the programme are good
but that the Department's lack of control over and visibility
of third party grant recipients reduces its ability to gain or
provide assurance on savings reported in these areas. Our areas
of concern with the savings reported mainly relate to the calculation
of baselines, rather than the governance arrangements.
The majority of the reported savings (80 per cent)
relate to the two rail workstreams in the Department's programme.
These were derived from a decrease in support for passenger rail
services (the net subsidy paid to Train Operating Companies) and
from a reduction in the grant for Network Rail. We consider the
starting baseline for Network Rail should be revised to reflect
actual 2007-08 expenditure. This would significantly reduce the
saving made in 2008-09. We therefore rated the element that we
consider represents an overstatement Red with the remaining element
rated as Green.
We rated £80 million of the Support for Passenger
Rail Services saving of £280 million as Red as we consider
that the starting baseline against which the value of the saving
was measured should be altered downwards to reflect actual spend
for 2007-08, after allowing for early VFM action. This would result
in a lower saving being reported in 2008-09. We also concluded
that there is a risk that large elements of the saving are not
sustainable in all CSR07 years owing to the impact of the economic
downturn on passenger revenues. The Department recognises that
there is a risk to sustainability, although it has pointed out
that this did not fully materialise until after the annual report
figures were finalised.
RECOMMENDATIONS FOR THE DEPARTMENT FOR TRANSPORT
a) Recalculate rail baselines and savings.
We recommend that the Department recalculates its Rail savings
in the light of the most accurate information available. The savings
were based on the difference between the estimate of spend without
VFM reform (counterfactual) and the actual spend. We recommend
that the baseline is recalculated such that it represents 2007-08
spend for Network Rail, and the re examination the Department
has undertaken of expenditure on Support for Passenger Rail Services,
and should obtain Treasury's agreement to these recalculations.
b) Review of all reported savings prior to
publication. We recommend that as well as the Internal Audit
review of reporting systems required by Treasury guidelines, the
Department needs to ensure that all significant savings, are real
and are publicly defensible. If possible this review should take
place before the figures are published in annual and autumn reports.
OVERALL CONCLUSIONS ON THE HOME OFFICE
The Department has reported VFM cash releasing savings
totalling £544 million in 2008-09, of which £404 million
are new savings and £140 million represents over delivery
of efficiency targets by police forces in 2007-08 that we did
not review in detail. Taking into account delays in reporting
police savings, the Department is broadly on course to meet its
target of £1.7 billion by 2010-11 if it can sustain the present
level of savings generation. The reported savings were comprised
of a number of separate strands, four of which we examined in
detail. These four strands reported new savings of £338 million,
comprising 83 per cent of the Department's new reported savings.
We have rated £280 million of the sampled savings as Green
or Amber; but have significant concerns over £58 million
(17 per cent) of the sampled savings.
We have assessed the Home Office's overall governance
arrangements for its Value for Money Savings programme as strong,
and welcome its proposals to involve its internal audit service
more closely in future. However, reporting of individual savings
in 2008-09 was in insufficient detail to allow Home Office centrally
to effectively challenge individual savings claims with the result
that a significant proportion did not meet our criteria.
The main reasons for our Amber and Red assessments
were that:
- Procurement savings of £54
million were reported by the Department. The Treasury has issued
further guidance on measuring the sustainability of procurement
savings. The Department expects that a substantial proportion
of its reported savings in future will comply with the revised
rules. However, we assessed three quarters of the procurement
savings we examined as Red because the claimed savings represent
one-off actions such as resisting extra contractual claims for
which no budgetary provision had been made, or were not new annual
savings as the procurement actions had been taken in prior years.
The Department believes that although many of the savings claimed
are individually one-off savings, they are typical of the savings
being generated by the more commercial style adopted by its procurement
staff. However, in our view, the Department is unable to establish
a suitable baseline against which to measure improved overall
performance, or to establish that the savings were cash releasing,
for instance, that the contracts on which the individual savings
were claimed had been delivered below budget.
- Police forces report savings as either cash releasing
reductions in annual budget for units, or non-cash releasing savings
where operational units reinvest efficiency savings in priority
areas. We have no serious concerns about the overall standard
of reporting of police savings. We assessed many of the non-cash
releasing savings as Amber, as forces were not always able to
demonstrate a clear link between the reported efficiency savings
and increased spending on priority areas. In addition, the non-cash
releasing savings we examined also contributed to the savings
being claimed through budgetary reductions and may partly be double
counted.
- We assessed some £20 million of other savings
as Red because they were double counted due to the same savings
having been claimed by different units or, for example, because
savings on staff were also claimed through reductions in average
case costs. A small proportion of police savings for example were
one-off savings, or were not cash releasing in 2008-09 as resources
had been reinvested in improving support services rather than
releasing cash or improving front line services.
RECOMMENDATIONS FOR THE HOME OFFICE
c) Reported savings should clearly distinguish
between savings meeting the Treasury's criteria and other improvements
in value for money to give credit to activities which do not
count towards the CSR07 target but are nevertheless worthwhile.
The Home Office wishes to incentivise activities which improve
efficiency but which do not necessarily contribute to its savings
target, because they do not release resources in the short term.
Better use of police time which does not allow redeployment and
innovative procurement of long-term contracts are two such areas
highlighted in this report.
d) Issue further guidance for police forces
on the difference between cash releasing savings and service improvements,
and rules covering the carry-over of savings made in previous
years. A substantial proportion of police savings result from
efficiency measures that do not release cash but enable key resources
to be reallocated to priority frontline services. To distinguish
these savings from more qualitative improvements, forces should
be specific in how savings are being reinvested.
e) Review of all reported savings prior to
publication. We recommend that as well as the Internal Audit
review of reporting systems required by Treasury guidelines, the
Department needs to ensure that all significant savings, including
those made by police forces and other arms length bodies, are
real and are publicly defensible. If possible this review should
take place before the figures are published in annual and autumn
reports.
f) Establish clear budgetary baselines for
evaluating major procurement projects and administrative spending.
In order to demonstrate that reported savings have released cash
as claimed, and is meeting the five per cent target for administrative
spending, the Department should be able to reconcile actual spending
to a defensible counterfactual based on its spend in 2007-08.
Department for Work and Pensions:
Pension Protection Fund, HC 293, Session 2009-10
CONCLUSION ON VALUE FOR MONEY
For the Pension Protection Fund (the Fund) to represent
value for money, it must manage the balance of its assets against
its liabilities to provide an adequate level of protection while
minimising the cost of the levy. To achieve this balance, the
Fund must invest efficiently and have suitable means to assess
and respond to the potential impact of future claims. Against
these criteria, the Fund has delivered value for money thus far.
It managed its investments satisfactorily to achieve an aggregate
return in 2008-09 of 13.4 per cent, after taking into account
deals to manage the impact of inflation and interest rate changes.
The Fund has also developed a suitable model for assessing the
impact of potential future claims. Nonetheless, the Fund needs
to take steps to maintain value for money in future, in particular,
adapting its investment processes to reflect the growing value
of its assets, continuing regularly to audit its risk model and
establishing a framework for illustrating the sensitivity of its
longer term risk modelling projections.
RECOMMENDATIONS
The value of assets transferred to the Fund is expected
to reach at least £4 billion by April 2010. For its investment
operation to continue to operate efficiently in the light of an
increasing portfolio of assets, the Fund should:
a) complete its review of the roles and responsibilities
of its Investment Committee and Asset and Liability Committee.
This should consider increasing the delegation of responsibility
to the Asset and Liability Committee, particularly with regard
to the replacement of investment managers;
b) fully develop objective procedures for actively
responding to ratings decline among Fund Managers and appointing
replacements; and
c) further develop, in line with best practice,
capability for detailed analysis of the prospective performance
of managers to minimise the risk of counter-productive investments.
The Fund has developed a suitable model for assessing
its potential future liabilities. For the Model to be more responsive
to changing circumstances, the Fund should:
d) review the transition matrix, which models
how probability of default against credit can change over time,
in light of recent experience;
e) continue to audit the Model regularly, and
at least once every five years to review the cumulative effect
of small structural changes, or when large model changes occur,
to continue to provide assurance that the methodology and outputs
are reasonable and robust;
f) model routinely over the truly long term (15
to 30 years);
g) continue to improve the documentation of the
Model in line with emerging best practice;
h) establish a framework for illustrating to
a wider audience the sensitivity of modelling results to all key
assumptions, such as the specific circumstances of recessionary
scenarios; and
i) consider further consultation on the operation
of the Model to make it more accessible to employers paying the
levy on behalf of schemes.
The recession could increase the Fund's deficit considerably
as it takes on the under-funded schemes of a growing number of
insolvent employers. To guard against the prospect of an unmanageable
deficit, the Fund regularly discusses key metrics, such as the
ratio of the assets to liabilities, with the Department and the
Regulator.
j) The Fund and the Department should review
these metrics each year to confirm their suitability.
Department for Environment, Food
and Rural Affairs: Reducing the impact of business waste through
the Business Resource Efficiency and Waste Programme, HC 216,
Session 2009-10
CONCLUSION ON VALUE FOR MONEY
There are indications that the Programme may have
generated cost savings and increased income to those businesses
that participated and had some effect in reducing business waste,
but it is not possible to conclude whether the £240 million
of expenditure delivered value for money because:
- The Department did not have
comprehensive and timely data to target resources effectively
and did not establish specific, quantified objectives for the
Programme.
- Our survey found low awareness amongst businesses
of the support available through the Programme. Given that businesses
had to apply for assistance it is reasonable to suppose that the
Programme's initiatives were insufficiently targeted on the areas
of greatest impact. The Department does not accept that awareness
was low, however, as the take-up was broadly comparable to another
similar scheme.
- As no Evaluation of the Programme has yet taken
place, the Department has not been able to establish sufficiently
which initiatives had the greatest impact and thus warrant ongoing
funding.
RECOMMENDATIONS
a) To better target and monitor ongoing and future
a funding of initiatives to reduce business waste, the Department
should:
- undertake a formal evaluation
of the Programme in order to inform the priorities and direction
of the new single delivery body;
- use the data from its proposed survey of commercial
and industrial waste to improve the targeting of future initiatives
and direct resources to where they are most needed; and
- identify whether in future it could monitor change
more cost-effectively by, for example, identifying a cohort of
key organisations to measure change in business waste over time.
b) To drive efficiency and performance from its
delivery bodies the Department should:
- put targets and performance
measures in place from the outset in any future funding arrangements;
- set up and validate data collection and collation
arrangements, so that useful data are produced on a timely basis;
- use performance data to challenge the funded
bodies effectively; and
- remind its senior officials of the need to balance
demands for urgent action adequately against the risk that expenditure
may not be managed effectively in these circumstances.
c) To achieve more substantial reductions in
the tonnage of business waste sent to landfill, the Department
should:
- set clear objectives and targets
for reducing the tonnage of waste produced and the tonnage sent
to landfill;
- identify opportunities for integration between
its business and municipal programmes, including encouraging:
- shared recycling and treatment infrastructure
where this will result in economies of scale; and
- joint collection and disposal of commercial and
industrial waste; and
- task its Waste Strategy Board with monitoring
and challenging the level of coordination between the municipal
and business waste programmes.
d) To improve awareness of its services amongst
key waste producers, the Department should:
- Draw up and implement specific
engagement strategies with key organisations and business sectors,
setting out the interventions that are likely to prove effective,
the anticipated results, and the mechanisms for monitoring success.
Reorganising central government,
HC 452, Session 2009-10
CONCLUSION ON VALUE FOR MONEY
The value for money of central government reorganisations
cannot be demonstrated given the vague objectives of most such
reorganisations, the lack of business cases, the failure to track
costs and the absence of mechanisms to identify benefits and make
sure they materialise. Some arm's length bodies apply sound cost
management and systematic benefits measurement, but even they
cannot necessarily demonstrate value for money. Overall, the value
for money picture is unsatisfactory and the costs are far from
negligible.
RECOMMENDATIONS
We make the following recommendations to address
the clear and significant risks to value for money that current
arrangements present. They are not intended to affect the ability
to change ministerial portfolios but to separate those changes
from major departmental restructuring.
a) There should be a single team in government
with oversight and advance warning of all government reorganisations.
Over time we would expect the impact of having such a team in
place to be that the number of reorganisations would reduce. This
central team should have the skills and experience to exercise
quality control over reorganisations, with the authority to insist
that any conditions it judges necessary are in place and, if they
are not, to assign people with relevant skills to the reorganisation
project. In order to intervene effectively, the central team would
need prior notice of all proposed reorganisations. The central
team should:
- oversee a 'cool-off' period
for reorganisations of departments, during which time most staff
would stay in their current organisations and change would be
achieved through, for example, a small support team for ministers
and changed reporting lines;
- oversee a review process of these minimally disruptive
arrangements after two years, leading to the implementation of
more permanent change, if appropriate, at that stage;
- undertake continual assessment of how well the
interaction of central government bodies is working and where
there is scope or need for improvement; and
- be accountable for overseeing the overall reporting
set out in subsequent recommendations.
b) For announcements of significant reorganisations,
a statement should be presented to Parliament, quantifying expected
costs, demonstrating how benefits justify these costs and showing
how both will be measured and controlled. Recognising the Treasury
principle of 'cost neutrality' for reorganisations, the statement
should identify which activities are expected to be cut to pay
for the reorganisation.
c) Intended benefits should be stated in specific
measurable terms that enable their later achievement (or otherwise)
to be demonstrated. The broad terms in which reasons for reorganisation
are currently expressed do not enable a clear assessment to be
made of whether reorganisation is necessary. A lack of clearly
stated intended benefits hinders subsequent assessment of whether
the aims of reorganisation have been achieved.
d) The planned and actual costs of reorganisations
should be separately identified within financial accounting systems
so costs can be managed and subsequently reported. All bodies
affected by a reorganisation should set planned costs before implementation
begins, or soon after where this is not practicable.
e) A breakdown of planned and actual costs and
financial benefits of every significant central government reorganisation
should be reported to Parliament in the organisation's annual
report in the year the reorganisation is announced. This report
should also set a date for a final report on reorganisation costs
and benefits, and for an interim report at three years if the
final report is expected later. The central reorganisation team
should consider the level of detail Parliament requires, but this
should include all significant costs and financial benefits. The
team should also set a clear and appropriate definition of what
constitutes a significant reorganisation for reporting purposes.
f) Each body at the heart of a central government
reorganisation should share with the Cabinet Office an analysis
of lessons learned within two years of the date of the reorganisation.
Such analysis should collect insights from other bodies involved
in the reorganisation and draw on feedback from staff and stakeholders.
The Cabinet Office should review and update its own guidance annually
on the basis of its analysis of these submissions and of the reports
recommended above on costs and benefits. The current lack of systematic
analysis is a lost opportunity to improve implementation in an
area of central government activity that is repeated many times
a year.
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