Accounting for Democracy Revisited: The Government Response and Proposed Review Contents

Appendix 1: Government Response

Introduction

The Government welcomes the report into departmental Annual Reports and Accounts (ARAs} and management information, and notes the important work that the Committee has undertaken in this area. We continue to support actions to improve the quality of information and make it more accessible and understandable.

The Government has made significant improvements to both financial reporting and management information in recent years. We agree that the main purposes of government accounts and information should be to enable Parliamentary control and accountability, to enable the public and Parliament to understand and consider the value for money offered by public spending, to provide a credible and accurate record which can be relied upon, and to provide managers with the information required for decision making. The UK is seen as a proponent of international best practice in financial reporting, and the Simplifying and Streamlining Accounts project has made improvements to reporting .arrangements. We are committed to ensuring that these improvements continue.

The Government agrees with the Committee that decision making should be made on the basis of a full understanding of the practically available data. The ongoing work of the Government Finance Function and the further development of Single Departmental Plans (SDPs) continue to improve the quality of management information through focused interventions . Ultimate responsibility for managing effective data and governance systems rests with each department. HM Treasury and Cabinet Office continue to encourage individual and cross-cutting efforts to strengthen these systems.

The Government continually works to improve financial reporting and is keen to build on the recommendations made in the report. In response to the Committee’s report and recommendations, the Treasury plans to undertake a review of departmental ARAs in liaison with the Parliamentary Scrutiny Unit and National Audit Office (NAO). It is proposed that the review will build on the Committee’s recommendations by evaluating progress since the Simplifying and Streamlining project was implemented and identifying best practice in departmental accounts. The results of the review would be shared with the Committee and published online.

While the government fully supports the overall aims and spirit of the report, it is important to note that adding a significant amount of additional reporting requirements could be seen as going against the recommendations of the Simplifying and Streamlining Accounts project. The Government is also committed to ensuring that ARAs are timely to enable proper and effective Parliamentary scrutiny.

Are Annual Reports and Accounts Meeting the Needs of the Public or Parliament?

As part of the Simplifying and Streamlining project in 2013, the Government undertook a significant amount of outreach work with users, potential users, and preparers of the ARAs, and reviewed private and public sector best practice worldwide. The Treasury also launched a public consultation to engage with as wide a range of users and potential users as possible and engaged with Parliamentary select committees and the NAO. As part of the planned review, the Government is keen to build on this work, and where appropriate conduct further research, in order to ensure that the needs of users are better met in ARAs. The aim of the Simplifying and Streamlining project was to ensure that ARAs provide information about the reporting entity that is useful to Parliament and the wider user community for accountability and decision making purposes, as well as encouraging better financial reporting more generally. Reporting entities now have greater freedom to focus on what matters to them and the users of their accounts and how they define success in their ARAs. This is carried out within a defined and agreed format to ensure comparability and consistency. The information provided in those reports should then become more output and outcome focused. The Government therefore agree with the Committee’s recommendations that departments should make concerted efforts to present financial data in a way that clearly links measurable outputs and outcomes, and is useful to readers.

Following the introduction of the Simplifying and Streamlining project, the Treasury has undertaken a post-implementation review and sought feedback from preparers and stakeholders on its relative merits and success. Those canvassed for feedback include representatives from departments and arms’ length bodies through the Resource Account Special Interest Group (RASIG) and various cross-government training events. Feedback from external stakeholders was also sought from the Parliamentary Scrutiny Unit and the NAO. This feedback was discussed with the Financial Reporting and Advisory Board {FRAB) at its November 2016 meeting. In line with the Committee’s helpful views and recommendations, the Government will continue to identify and share best practice as part of a further and wider review of departmental ARAs, building on the important work of the Scrutiny Unit in this area.

One of the key findings of the Simplifying and Streamlining project was a recognition that mandatory requirements for a large amount of detail were obscuring the ‘big picture’ and limiting the usefulness of ARAs. Government departments have been encouraged to invest greater thought in their reporting; identifying the key messages to stakeholders and communicating in a succinct, fair and balanced way.

The Government continues to support this principle and not introduce additional mandatory reporting requirements for departments. However, we will encourage departments to consider additional reporting where it is relevant and significant for them. This may include disclosures by project, programme or policy area, and we would expect reporting to be proportionate in ARAs. The Infrastructure and Project Authority’s (IPA) Annual Report on Major Projects provides analysis of performance on the largest transformation, ICT, military capability, and infrastructure projects (including HS2) across government departments.

We agree that departments should also consider reporting the unit costs of key services, trend data and time series analysis where appropriate to them, as the Committee recommends. However, the government is conscious that where annual reporting does not remain focussed on the material issues, they are likely to be somewhat obscured. Therefore, the Government is committed to not increasing the reporting burden for departments. This in line with the Simplifying and Stream lining project as well as current best practice, with an emphasis on reporting being tailored to the individual entity with increasingly less focus on generic reporting requirements and standardised wording.

Financial forecasts are inevitably contingent on future factors outside a department’s control. They also regularly change and are likely to be out of date by the time that ARAs are published. The Government is committed to the provision of good quality management information, including financial forecasts, and this is most relevant for managers in departments rather than a wider audience. It would not be appropriate to be held to account for these numbers to a similar degree to financial outturn information.

The Government also agrees with the Committee’s recommendations on publishing core tables in Excel, as well as other data from ARAs where appropriate. The use of visualisation to present information in ARAs has increased, allowing the user to more easily and quickly gain an overview of the entity, but we will consider within the scope of the review where this could be improved and highlight and promote best practice.

The Financial Reporting Advisory Board

The role of the Financial Reporting Advisory Board (FRAB) is to ensure that government financial reporting meets the best possible standards. Membership includes a Parliamentary observer and the Board is attended by the Parliamentary Scrutiny Unit. The Board’s focus is on providing expert technical accounting advice, with less emphasis on the format and· content of accounts. In response to the Committee’s recommendations, the Treasury has had discussions with the FRAB over the content of PACAC’s report and the potential for greater user involvement in considering proposed changes to accounting policy and practice. The Treasury will continue to work with the FRAB to explore opportunities for user groups where appropriate.

The Treasury keep in touch with improvements to the wider corporate reporting landscape and will seek to align where appropriate to enhance the quality of financial reporting. Departmental select committees should play an important role in determining specific content in annual reports, and we strongly encourage departments to consult with select committees and user groups.

Estimates and Spending Review

The Government is committed to alignment between Estimates and accounts and will continue to review how they can be made more consistent with each other as the Committee have recommended. The Spending Review is where Government’s high-level financial plans are presented. Detailed budgets are approved and scrutinised by Parliament through the Supply Estimates process. The Estimates Memoranda are therefore a more appropriate place to track changes in approved budgets. In response to the Procedure Committee’s report, the Government will review the Estimates documentation and will consider the PACAC recommendations in relation to Estimates as part of that review.

Specific Ministerial Commitments

The Government feels that the Annual Report and Accounts are not the best vehicle to track ministerial commitments and that the inclusion of an audited statement tracking spend against commitments may not be practicable. Well-established means for scrutiny already exist such as departmental select committees and Freedom of Information (FOI) requests. All government expenditure is approved by Parliament through the Supply Estimates process.

The Government is willing to support the National Audit Office and Scrutiny Unit in publicising the information contained in the accounts and offering training to Members, their staff and other Parliamentary staff in how to use the accounts. Due to the scale and scope of financial and non-financial information in ARAs, as well as staff turnover, it would not be appropriate for ARAs to include the contact details for named individuals in departmental finance functions. More established communication channels, such as FOi requests and correspondence, ensure that queries get to the most appropriate person and can be answered accurately and promptly.

The Accuracy of Departmental Annual Reports and Accounts

The Government recognises and supports fully the important role and independence of the NAO. We fully agree that it is important that accounts are accurate and transparent, so that MPs, the public and others can take decisions based on good quality information. We also recognise that the low numbers of qualified accounts are an important measure, revealing that in the clear majority of cases, the public and Parliament can, and should have, confidence in the accuracy of the figures reported by the Government.

The Government is committed to providing ARAs that are frank, impartial, objective and understandable as per the Committee’s recommendations. Each Accounting Officer is required to confirm that the ARAs as a whole are fair, balanced and understandable and that he or she takes personal responsibility for them, as per the UK Governance Code. Government accounts also adhere to the generally accepted accounting principles (GAAP) of consistency, relevance, reliability, and comparability.

Management Accounts : Earlier Attempts to Reform

At the start of this new Parliament, the Government confirmed its support for maintaining SDPs as the basis for Government’s planning and performance framework, under Cabinet Office and HM Treasury’s joint responsibility. The Government is committed to continuously improving how it plans and manages its business to deliver its objectives and provide value for money for the taxpayer. SDPs establish a consistent framework to link what a department will deliver and how a department will deliver it, within the multi-year Spending Review settlement.

The Government agrees that it must give priority to improving management information and that management information, alongside realistic medium-term plans, should be seen as a key enabler of a department’s ability to deliver effective and efficient public services. Accounting Officers are ultimately responsible for the quality of management information produced and used in the department. The Government expects that this should provide ministers, the Accounting Officer, the Board (including Non-Executive Directors) and senior officials with the necessary information for decision making and internal financial management and control. The Government will continue to work to ensure that the leadership of departments are committed to good management information. For example, the ongoing work to implement the priorities previously identified in the Financial Management Reform programme and the further development SDPs continue to improve the quality of management information through focused interventions to improve board reporting, financial data, forecasting, performance data and costing across government.

The Financial Management Review

While the ultimate responsibility for managing effective data and governance systems rests with each department, HM Treasury and Cabinet Office continue to encourage individual and cross-cutting efforts to strengthen these systems and promote the value of good data linking outcomes to spending and realistic medium-term plans, for example though SDPs.

The Government agrees with the Committee that departments should use SDPs internally. The SDP framework has been designed to be flexible to encourage departments to integrate it within their existing planning and decision making processes and governance. The Cabinet Office and HM Treasury maintains regular engagement with departments to identify and share best practice. This has promoted aligning financial planning and business planning; aligning internal performance management with the business plan; and utilising the SDP to communicate strategic priorities within the department.

Through its leadership of the Government Finance Function, HM Treasury continues to drive collaborative work across government, including within cross-cutting functions, to put finance at the heart of decision making. There have been improvements in the quality and consistency of financial data in recent years, including the establishment of a dedicated costing unit in HM Treasury to better understand large areas of spend and drive value for money and share best practice in the production and use of management information. The Government is committed to continuing with this important work.

Public Accountability

The Government remains committed to the principle that detailed business planning, which underpins the public versions of SDPs, should remain internal to Government. For the plans to be used as an effective part of departmental management and ongoing decision making, it is necessary that they contain ongoing policy development and information that is commercially sensitive or secure, which should be protected.

The Government agrees that we should make comprehensive and balanced information on performance available to the public and Parliament. The aim of the public versions of SDPs is to provide an accessible, forward-looking view of the Government’s objectives and to allow the public and Parliament to monitor progress against them, during the year, as new information becomes available. This information is available in conjunction with existing official statistics on performance, workforce, major projects and public spending.

The Government published updated versions of SDPs for 2017/18 in December 2017 and updated versions of SDPs for 2018/19 in May 2018. These annual revisions of the plans were a broad collaborative exercise involving departments, the Cabinet Office and HM Treasury, informed by departments’ own business planning. The Government will continue to iterate the public versions of SDPs to improve them as tools for accountability and performance monitoring. This includes updating performance information at least twice a year; clear signposting of further performance information (including links to the source data which can often be exported in Excel format); and a clearer reflection of where departments are working together to achieve shared objectives. The Government considers that, with these existing improvements we have committed to make to the public versions of SDPs, the right balance is struck between transparency of information and allowing departments a ‘safe space’ to manage their own affairs. We continue to engage closely with the NAO and welcome their ongoing support.

The publication of the 2016–17 ARAs provided for the first time the opportunity for departments that produce SDPs to present an assessment of performance aligned with the objectives and headline indicators set out in the public versions of their SDPs. We will continue to encourage departments to report against their SDP in a manner that would best contribute to the understanding of performance and value for money in their areas of responsibility. Aligning the structure of the performance report to SDP objectives provides a consistent structure for departments to use, whilst maintaining flexibility to focus on what matters to them. ARAs and the public versions of SDPs, including the performance information they contain, will remain available when new information is published so they can be used as accountability documents in the future, and progress over time can be understood. We will identify and share best practice in performance reports and their link to SDPs as part of our planned review of departmental ARAs.

The Government also published a description of the collective processes that make up the government’s planning and performance framework, including Spending Reviews, SDPs, Estimates and ARAs, in December 2017. This explains how existing processes operate together and how the public can use the information available to understand the Government’s planning, spending and performance over time. The Government is committed to promoting continuous improvement to this approach.





Published: 27 June 2018