Written evidence from BDO LLP
EXECUTIVE SUMMARY
— The challenge of the reform agenda cannot
be underestimated, and an informed understanding of the non-departmental
public body (NDPB) landscape is needed.
— NDPB reform has the potential to be an
unsupported government agenda, given the lack of expertise within
public sector organisations for fundamental organisational review.
— Departmental sponsoring bodies and NDPBs
should consider a strategic review approach to NDPB reform.
— The strategic review should encompass
a fundamental business appraisal, which distinguishes core from
non-core functions of the organisation and assess the NDPB and
its functions against strategic organisational objectives.
— Options for organisational reform should
be more diverse than an "abolish-keep" spectrum; the
public sector could look towards the private sector for models
and the expertise to do this.
1. INTRODUCTION
1.1 BDO is pleased to have the opportunity
to submit written evidence to the Committee's inquiry into Smaller
Government: Shrinking the Quango State and welcomes the Committee's
examination of this important issue.
1.2 BDO is the UK's 6th largest accountancy
and audit practice and part of the world's fifth largest accountancy
network. We employ over 2,600 staff across 14 offices in the UK.
We partner with a number of public sector organisations across
a number of sectors. These include the National Lottery Commissioner,
The Meat and Livestock Commission, Epsom and St Helier University
Hospitals NHS Trust; Hartlepool Council, and the London Borough
of Hillingdon. We are also an approved supplier to the Audit Commission
and a member of Buying Solutions Management Consulting and Accounting
Services framework.
1.3 As a firm working with a number of public
sector organisations (including a number of local councils and
NHS Trusts), we are alive to the need to drive value for money
across government activity. The scale of the challenge of NDPB
reform cannot be underestimated. There are 742 "Arms Length
Bodies" (defined as organisations that are part of the state
but do not operate within traditional departmental structures
by the Institute for Government Report "Burn Before Reading").
In total these bodies account for almost 13% of government expenditure
receiving £63.5 billion of government funding.
1.4 Our submission focuses on our experience
and understanding of NDPBs and the lessons learnt from both the
private and public sector. We would welcome an opportunity to
give oral evidence to the Committee and are happy to provide additional
information.
2. Question 1: How should the Government
decide which public bodies should be abolished
2.1 BDO agrees in broad terms with the Government's
analysis of the lack of accountability and of strategic purpose
of NDPBs. Indeed, we see this as a threefold challenge:
— Lack of accountability—NDPBs operate
(with good reason in many cases) at arm's length from government,
which can in many cases be used as an excuse for them to define
their own remit and avoid meaningful accountability for their
use of public resources;
— Many NDPBs lack the internal expertise
and incentive to exercise best practice cost control; and
— The remit of NDPBs are often well defined
at their creation, but do not evolve through their existence.
This means many are left with a lack of clarity of purpose, which
can often lead to duplication between bodies in strategic objectives
and resources (a notable example of this is the Carbon Trust and
Energy Savings Trust). The absence of sunset clauses in framework
agreements means there is often no regular opportunity to address
these issues.
2.2 Central government, in our view, faces
two fundamental options. First, there could be an immediate cull
of a number of bodies, driven almost entirely by a cost cutting
imperative. Whilst value for money should underpin the entirety
of government activity, this could be a blunt tool in assessing
the reform of NDPBs.
2.3 Research conducted by the National Audit
Office (NAO) shows that nearly 80% of NDPB expenditure is located
in just 15 NDPBs, with just seven executive agencies employing
more than three quarters of all agency staff.
2.4 It is clear that a more focused and
strategic approach is needed to evaluate how and which NDPBs to
reform, and a broader assessment than just value for money is
required.
2.5 The second option is to undertake a
strategic review of NDPBs to assess the fundamental business operations
and identify duplication with other bodies. This could lead to
a refocusing of a number of bodies and a streamlining of the NDPB
landscape.
2.6 The future NDPB landscape—democratically
accountable to ministers—should satisfy at least one of
the three criteria set out by the Prime Minister:
— Efficient technical operations;
— Political impartiality; and
— Transparency in operations and accountability.
The challenge of reform
2.7 The challenge for government will not
only be in assessing which of the NDPBs to reform, abolish or
merge, but how.
2.8 In many respects, this will be an unsupported
reform agenda within government. There are limited tools and expertise
both within NDPBs and within their sponsoring departments to deliver:
— the sort of analysis needed for a strategic
review of these bodies; and
— more crucially, the reform of these bodies.
2.9 In terms of the challenge there are,
however, strong parallels to be drawn with strategic reviews in
the private sector. Indeed, a range of private sector organisations
use the strategic review process to determine business restructuring
needs and priorities.
2.10 However, fundamental differences with
the private sector approach must be noted, most obviously the
objective and metric of profit and loss does not apply.
2.11 The purpose and objectives of NDPBs
are often complex and can change over time, with multiple outputs
and outcomes that are often difficult to measure.
Question 3: How does the Government decide
whether a public body that fails the tests should be merged, abolished
or re-absorbed into department?
Strategic Review Process
3.1 Any process to assess the reform of
NDPBs must understand the strategic drivers for change. We see
these as the following:
— Driving value for money and efficiency
throughout the organisation to contribute to deficit reduction;
— Increasing democratic accountability
across Whitehall;
— Increasing the effectiveness of organisations,
through decentralisation and leveraging external expertise, including
that from the public sector; and
— Yielding the flexibility for departments
and spending teams to respond to budget cuts.
3.2 A strategic review must take heed of
these strategic imperatives and draw in a fundamental business
appraisal process to determine an action plan for the organisation.
This process is explained further below.
Fundamental Business Appraisal (FBA)
3.3 The concept of the FBA is simple and
based on assessing a public body or service they offer against
two key variables:
— How core it is to delivering departmental
objectives; and
— How effective it is at delivering its
objectives.
3.4 By analysing against these variables
on a matrix (such as that illustrated below), decision makers
are able to clearly focus on making rational decisions based on
which quadrant the organisation or service is determined to fall
within.
3.5 The grid below illustrates the broad
course of action highlighted as a result of this analysis. Services
that are core and effective should be retained and possibly improved,
whereas ineffective non-core services should be stopped. It may
be appropriate to transfer non-core but effective functions into
new delivery structures that sit outside of the departmental family.
This may be in the form of a direct sale, or a new structure that
operates on a mutual or not for profit basis. This can create
value for the Government with the proceeds of sale or transfer
of appropriate debt into the new structure, and for the public
through the continued provision of non-core functions.
3.6 Ansoff's matrix (used to analyse products
and markets) and the BCG matrix (used to analyse products according
to growth rates and market position) are established analytical
tools to aid decision making in private sector organisations.
The FBA applies similar principles in the public sector. FBA techniques
have been used to great effect in NHS organisations.
3.7 A strategic approach to organisational
review must encompass the following process.
3.8 There should be objective analysis of
what the NDPB actually does—its core and non-core functions.
There are important differences in how this methodology is applied
in a public sector context, given the lack of a profit rationale
for organisational functions.
3.9 Therefore an analysis of how business
functions meet the strategic, and indeed the political, objectives
of the organisation must be agreed up front. This will be a challenging
undertaking, and must be agreed with the sponsoring department
or NDPB in advance. In particular, evaluation criteria for determining
core and non-core and effective and ineffective functions will
need to be agreed with the department or organisation.
3.10 In addition to the development of criteria,
an objective scoring mechanism should be developed with the NDPB
(or the functions within the NDPB) so functions can be scored
against the criteria.
3.11 These functions must also be mapped
against the NDPB's delivery objectives. This analysis can then
be used to make recommendations on potential options for future
arrangements.
3.12 The FBA is a tool to help segment different
functions of a NDPB and thereby facilitate objective thinking
about what an organisation actually does compared to what it should
do and provide an audit trail of the process. We have found that
the act of defining separate functions and allocating them to
a quadrant is a useful exercise in itself.
Question 5: How can the Government ensure
that the abolition/merger/re-absorption of public bodies result
in long term savings?
What to do next
4.1 The FBA process will highlight broad
options for reform. These are complex and should be more sophisticated
than a simple abolish/maintain spectrum. Options for reform range
from organisational improvement to organisational wind-down, and
encompass a gamut of activities.
4.2 Organisational improvement or turnaround
may require:
— Establishment of a forward looking business
plan with strategic objectives and imperatives agreed between
the body and sponsoring department;
— Systems realignment between organisations
or with the department to introduce greater efficiencies into
back office functions; and
— An operational improvement strategy to
ensure inefficiencies are identified and driven out and organisational
processes are streamlined.
4.3 Care must be taken when implementing
decisions to stop certain activities. Especially where there is
value that can be preserved either to the Exchequer through a
sale or divestment process, or to the public through the continued
provision of a service via a more innovative structure, such as
a mutual or collective ownership arrangement.
4.4 It is at this stage of reform where
stronger parallels can be drawn with the private sector. Indeed,
ministers and sponsoring departments could draw upon private sector
experience with organisational restructuring to ensure any operational
wind-down is done efficiently, while maximising value and technical
efficiency from organisations which remain in operation.
4.5 It may be appropriate to merge organisations
or functions and/or bring them back into departments to create
fewer larger bodies. The FBA approach can be flexed to look at
functions across departmental boundaries to identify overlap and
duplication.
October 2010
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