Written evidence from the National Audit
Office
1. PURPOSE
1.1 The Comptroller and Auditor General's report
on Financial Management in the Ministry of Justice (the Ministry)
was published on 6 July 2010, using financial information from
the Ministry's 2008-09 Resource Accounts. Since the Report was
published, the Ministry's 2009-10 Resource Accounts were presented
to Parliament on 15 September 2010. The Ministry has also been
addressing the Report's conclusions and recommendations. This
memorandum provides the Committee with an update on:
¾ the
Ministry's general progress on financial management since our
report was published (part 2);
¾ the
Ministry's response to our conclusions and recommendations (part
3 and Annex 1): and
¾ the
charts and tables in our report to show financial information
for 2009-10 (part 4), where updated information was available.
2. GENERAL PROGRESS
ON FINANCIAL
MANAGEMENT
2.1 As part of the Ministry's response to the
report it has performed a self-assessment of its financial management.
The Ministry has conducted a comprehensive evaluation against
the five financial management criteria used in the C&AG's
report together with a review of its progress against the recommendations.
The Ministry shared its analysis and supporting evidence from
this work with the NAO on 14 October. In the time available, it
has not been possible for the NAO to review the Ministry's self-assessment
in detail but, with their co-operation, the NAO has been able
to perform a preliminary review to ascertain the strength of the
evidence presented. The NAO will be working with the Ministry
to complete a review of the Ministry's self-assessment against
the five financial management criteria.
2.2 The Ministry's self-assessment review of
its progress on financial management demonstrates that the Ministry
is responding positively to the C&AG's report. This suggests
the Ministry is serious about taking forward a series of initiatives
to further improve its financial management and reinforces the
NAO's view that the direction of travel for financial management
in the Ministry is positive.
3. PROGRESS ON
CONCLUSIONS AND
RECOMMENDATIONS
3.1 The table below provides a summary of the
NAO conclusions made in July 2010, and of our view on the progress
made by the Ministry. Our conclusions and recommendations are
repeated in full at Annex 1, along with a summary of relevant
actions taken by the Ministry and our assessment of progress.
| Conclusion | NAO view on progress made
|
| On delivery of the Ministry's financial management improvement initiatives
|
| a The Ministry has yet to commit to a clear plan for the delivery of its financial management improvement initiatives.
| The Ministry has enhanced the profile of financial management and further progress will be made once the Ministry's detailed financial improvement plan is completed in October 2010.
However, the Ministry missed the deadline for laying its 2009-10 resource accounts before the summer recess. These were laid before Parliament on 15 September.
|
| On the consistency of the Ministry's financial management approach
|
| b The Ministry's accountability structures and delivery model affects its ability to introduce consistent financial systems and processes across its remit and ensure the timely flow of financial and operational information.
| Work to align financial management across the Ministry is at an early stage
Some simplification of governance structures has started and the Ministry has a plan and a timetable for its review and reform of Arm's Length Bodies.
The Ministry is working towards moving all of its major bodies onto one common financial accounting and human resource system by March 2013.
|
| c The Ministry's financial management systems did not bring the control weaknesses within the Legal Services Commission to the Board's attention in time.
| The Ministry has strengthened its monitoring of the Legal Services Commission. It is not yet possible to conclude that the Ministry has addressed strategic issues relating to the oversight of the Ministry's Non-Departmental Public Bodies; the Ministry is due to complete its review in January 2011.
|
| On the Ministry's understanding of its costs
|
| d The Ministry does not understand the detailed costs of the delivery of its activities across its full range of arm's length bodies and activities.
| Progress is being made with initiatives to better understand costs. We have yet to see evidence that work has been accelerated since our report or of how the outputs will be used to drive future savings.
|
| e The Ministry's Finance Directorate does not have sufficient visibility of the costs of its proposed policy initiatives reducing its ability to manage its forward policy programme within the constraints of its available resources.
| We welcome the Ministry's assurances that all submissions put before Ministers now require clearance from Corporate Finance with regard to funding and costings. We have not yet been able to test a sample of submissions to confirm that the control is operating as intended.
|
| On the Ministry's financial management systems and processes
|
| f The Ministry does not produce integrated operational and financial reports affecting the Board's ability to make decisions on the basis of the full range of relevant performance information.
| Overall good progress is being made to improve the performance reports received by the Board. However, the Ministry does not yet report fully to the Board on its assets, liabilities and commitments and the focus of financial reporting remains (understandably) on keeping within budget/Estimate limits.
|
4. UPDATED FINANCIAL
INFORMATION FOR
2009-10
4.1 In part 4 of this Update Memorandum we update the charts
and tables in our July report to include 2009-10 financial information,
which has since become available with publication of the Ministry's
2009-10 Resource Accounts.
- Updated Figure 1 - The Ministry's network of arm's length
bodies, showing cash flows and the use of resources
Source: Cash flows and resource requirements from the Ministry's
Resource Accounts (note 3.2) and other entities' accounts for
2009-10.
4.3 Updated Figure 2 - The Ministry's delivery network (Total
Ministry Group Expenditure) for 2009-10 (2008-09 shown in brackets)
| Corporate Performance
Note this cost has been allocated across the following activities
| National Offender Management Service
| Access to Justice | Criminal Justice (includes Office for Criminal Justice Reform)
| Democracy, Constitution & Law |
Wales Office | Scotland Office
|
£610m
(£484m) | £4,990m
(£4,973m)
| £4,333m
(£4,546m) | £592m
(£618m)
| £117m
(£71m) | £13,012m
(£12,176m)
| £26,937m
(£24,870m) |
Source: Ministry of Justice Resource Accounts 2009-10 (Consolidated
Statement of Operating Costs by Departmental Aims and Objectives).
Note: the 2009-10 Resource Accounts include restated figures following
the transition to International Financial Reporting Standards,
which are £4,943m for NOMS, £4,549 million for Access
to Justice, £618 million for Criminal Justice, and £71
million for Democracy Constitution and Law.
- Updated Figure 4 - The Ministry's historical resource budgets
and spending
Source: NAO analysis of Ministry of Justice Resource Accounts.
The figures are the total of those reported in notes 3.1 (resource)
and 5 (capital).
4.5 Updated Figure 5 - The Ministry has consistently underspent
against its budgets
Source: NAO analysis of Ministry of Justice Resource Accounts
notes 3.1 (resource) and 5 (capital).
4.6 Updated Figure 6 - The Ministry's performance against
its budget in 2009-10
| Estimate | Period 11 forecast
| Year-end outturn | Underspend/ (overspend) against forecast
| Underspend/(overspend) against Estimate
|
| £m | £m
| £m | £m
| Percentage | £m
| Percentage |
| HQ + rest of Ministry | 4,172
| 4,053 | 4,042 | 11
| 0% | 130 | 3%
|
| HM Courts Service | 1,072 |
968 | 874 | 94 |
10% | 198 | 18% |
| NOMS agency | 4,394 | 4,297
| 4,197 | 100 | 2%
| 197 | 4% |
| Probation Boards and Trusts | 706
| 719 | 719 | 0
| 0% | (13) | (2)%
|
| NOMS agency total | 5,100 |
5,016 | 4,916 | 100
| 2% | 184 | 4%
|
Source: Forecast figures are from the Ministry's February 2010
management accounts, revised to a resource accounting basis. The
estimate and outturn figures are taken from Note 3.1 in the Ministry's
Resource Accounts 2009-10.
- Updated Figure 8 - The Ministry's cash balances
Source: NAO analysis of the Ministry's Resource Accounts and financial
information provided by the Ministry.
- Updated Figure 9 - Recovery of costs after taking account
of exemptions and remissions via fees and charges
Source: NAO analysis of HM Courts Service Accounts
- Updated Figure 10 - The amount of outstanding impositions
and provision for fines and confiscation orders in arrears over
six months is increasing
Source: NAO analysis of the Ministry of Justice Resource Accounts
4.10 Within the total outstanding impositions, the provision
for outstanding confiscation orders at 31 March 2010 was £653
million (£569 million at 31 March 2009) against gross amounts
outstanding of £788 million (£707 million), hence only
17% (19%) was considered fully recoverable.
National Audit Office
27 October 2010
Annex 1
This annex repeats the conclusions and recommendations in the
Comptroller and Auditor General's July 2010 report, summarises
relevant actions taken by the Ministry since then, and provides
an NAO assessment of the progress made.
| Report Conclusion and Recommendation
| Ministry of Justice Progress | NAO Assessment
|
| Recommendation a - The Ministry has yet to commit to a clear plan for the delivery of its financial management improvement initiatives. The Ministry should, within the next four months, articulate a strategy for the development of financial management across its span of control and set clear milestones and resource requirements for the delivery of its programme of financial management improvements.
| The Ministry is planning to finalise its financial improvement strategy by the end of October 2010. The Ministry's monthly Value for Money Improvement Committee (VFMIC) manages the Ministry's in year financial position, discusses financial management improvement measures and the response to the C&AG's Report.
The Director General of Finance now reports directly to the Accounting Officer.
The Ministry appointed a new Director of Finance in July 2010 and one of his roles is to lead the Ministry's Financial Improvement Programme.
The Ministry has accelerated reporting timescales for its monthly management accounts.
| The profile of financial management has been enhanced by the changes in reporting and the creation of the new Director of Finance role.
Further progress will be made once the Ministry's detailed financial improvement plan is complete.
Notwithstanding these improvements, the Ministry missed HM Treasury's deadline for laying its 2009-10 resource accounts before the summer recess. These were laid before Parliament on 15 September.
|
| | |
|
| Recommendation b - The Ministry's accountability structures and delivery model affects its ability to introduce consistent financial systems and processes across its remit and ensure the timely flow of financial and operational information. In its review of its arm's length bodies, the Ministry should seek to streamline its financial systems and accountability structures to facilitate the introduction of consistent financial management processes.
| The Ministry has established an Arm's Length Bodies Review Programme and this is ongoing, including potential streamlining of accountability structures. It has simplified some of its governance structures by abolishing the Access to Justice Group and the Group's audit committee.
The Ministry is working towards moving all its major bodies onto one common financial accounting and human resource system by March 2013.
| Simplification of governance structures has started and the Ministry has a plan and a timetable for its review and reform of Arm's Length Bodies.
Work to align financial management across the Ministry is at an early stage.
|
| | |
|
| Recommendation c - The Ministry's financial management systems did not bring the control weaknesses within the Legal Services Commission to the Board's attention in time. To improve its control framework for its Non-Departmental Public Bodies and ensure the Accounting Officer is able to gain sufficient assurance over their financial and operational risks, the Ministry should:
— clarify its monitoring remit with its Non-Departmental Public Bodies;
— determine the circumstances in which it would intervene to strengthen their control environment; and
— clarify the role of its Internal Audit function in relation to its arm's length bodies.
| The Ministry has taken steps to strengthen its monitoring of the Legal Services Commission. It has put in place a fortnightly stewardship update process where the Legal Services Commission reports to a meeting chaired by the Ministry's Director General of Finance. The Ministry's relationship with, and future monitoring of, its Non-Departmental Public Bodies is one of the considerations in its ongoing Arm's Length Body Review Programme (due to report in January 2011). This needs to be in line with Cabinet Office guidance on the oversight of executive agencies and NDPBs.
The Ministry has clarified the access rights of its Head of Internal Audit in relation to its arm's length bodies.
| On the basis of the supporting evidence provided to the NAO, it is not possible to conclude that the Ministry has addressed the higher level strategic monitoring aspects captured in the recommendation. The Ministry has agreed to abolish certain bodies, including the Youth Justice Board. The Ministry's Arm's Length Body Review Programme is ongoing.
Other than to note the Ministry's more active monitoring of the Legal Services Commission, we are unable to conclude on the progress that has been made.
|
| | |
|
| Recommendation d - The Ministry does not understand the detailed costs of the delivery of its activities across its full range of arm's length bodies and activities. To drive long term and sustainable efficiencies, and to enable it to make informed decisions on relative operational performance, the Ministry should, where resources permit, look to accelerate its Specification, Benchmarking and Costing programme in the National Offender Management Service, and activity-based costing work in HM Courts Service. It should also plan how it will use the outputs from these programmes to drive cost savings and should seek to expand these programmes to the Ministry's other delivery bodies.
| We understand from the Ministry that it established a corporate forecasting unit in January 2010 to develop a suite of forecasting tools and resource planning models for use throughout the Ministry.
The Specification, Benchmarking and Costing work that commenced within the NOMS Agency in 2008 is progressing. This work covers 74 services and so far specifications have been published covering 13 services. Within HM Courts Service, the results of activity based costing exercises within the magistrates' courts are out for consultation. We were informed that similar work looking at back office functions within Crown Courts is nearing completion and HMCS are looking to finalise this and work on frontline activities by the end of 2010-11.
| Progress is being made, but we have yet to see evidence that this work has been accelerated, if the planned completion date of April 2012 has been brought forward or plans of how the outputs will be used to drive future savings.
|
| | |
|
| Recommendation e - The Ministry's Finance Directorate does not have sufficient visibility of the costs of its proposed policy initiatives reducing its ability to manage its forward policy programme within the constraints of its available resources. The Ministry's Finance Directorate takes assurance from its Policy Committee and economists embedded in local policy areas for the costs of proposed policy. However, the Ministry should ensure that its Finance Directorate is able to monitor the likely costs of policy proposals centrally.
| We understand from the Ministry that from July 2010 all submissions put before Ministers now require clearance from MoJ Corporate Finance with regard to funding and costings. Further, the Ministry has now developed a standardised method of modelling the financial impacts of policies.
| We welcome the Ministry's assurances. The Ministry has provided the NAO with the schedule of individual submissions. We have not yet been able to test a sample of submissions to confirm that the control is operating as intended, and therefore to conclude on whether this recommendation has been cleared at this time.
|
| | |
|
| Recommendation f - The Ministry does not produce integrated operational and financial reports affecting the Board's ability to make decisions on the basis of the full range of relevant performance information. The Ministry should build on the recent improvements it has made to its financial monitoring processes by:
— producing a combined report for the Board including: all relevant financial information (covering income and expenditure, financial commitments, assets, liabilities, cash flows and staff numbers); operational performance and risk data; and
— providing a clear commentary in the report describing the data, the potential implications and the decisions that are required by the Board.
| At the level below the Board the Ministry has made progress in strengthening and expanding the breadth and detail of the financial information reported to the leaders of finance within the Ministry (via the Value for Money Improvement Committee, which is chaired by the Director General of Finance).
A combined operational and financial "Interim performance report" was produced in July and Sept 2010. This shows that combined reports are starting to be produced. The Ministry intends to have full balance sheet reporting in place from November 2010.
Monthly management accounts and related reports now include the Ministry's utilisation of its "cash allocation". This information appears to have already been collated by the cash management team for HM Treasury reporting purposes and, following the NAO recommendations, is now included in monthly financial update to the VFM Improvement Committee. In the time available, the NAO has not been able to assess the robustness of this information, whether it will help identify risks or how management will use it.
| Other than cash, the Ministry does not yet report on its assets, liabilities and commitments and the focus of reporting remains (understandably) on keeping within budget/Estimate limits.
Overall good progress is being made but further work is required in order to clear this recommendation.
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