Rewards from reform?

The introduction of resource accounting in the UK public sector has not brought the improvements to financial management practices that were expected, according to MPs. Reforms have been held back by the failure of government departments to recruit sufficient qualified accountants.

A report from the Public Accounts Committee (PAC) highlights major variations between departments in their application of resource accounting and budgeting (RAB). Only a quarter are making good progress, with most failing to adopt the necessary changes in approach. Three quarters of departments continue to spend heavily towards the end of the financial year, ignoring new flexibilities provided to carry forward underspends.

Insufficient progress has been achieved, said the committee, in complying with the Treasury's requirement for all departments' finance directors to be qualified accountants, or otherwise to be staff with equivalent skills and a proven track record. As at January 2004, just 39% of departments had qualified accountants as finance directors, compared with at least 84% of FTSE 100 companies. In addition, MPs said that departmental boards should do more to reform unproductive activities, which RAB should have highlighted if it is operating effectively.

Edward Leigh MP, chairman of the PAC, said: 'Resource accounting and budgeting must not be a superficial change focusing only on end-of-year accounts, it must be embedded at the heart of how departments manage their business. Departments now have highly developed mechanisms to help them use their resources more productively. Many departments are not yet using them properly. If they did, they could identify areas of waste or low productivity. Just a small proportion of efficiency gain could save billions of pounds for the taxpayer.'

RAB has been adopted to make public sector accounting practices closer to those of commercial organisations, provide incentives to make more effective use of resources, and compare public sector operating costs with those of external service providers. It is accompanied by complementary measures, including the use of three-year budgets, public service agreements, and approval to carry forward unspent resources. Departments and their agencies spend some £421bn a year and are responsible for assets and liabilities respectively of £334bn and £112bn.

The committee recommended further management reform to achieve better use of resource accounts. Best practice among departments should be identified and publicised by the Treasury. Meetings of departmental boards and audit committees should consider, as a matter of course, accruals-based financial reports. Departments should adopt positive action plans to enable them to meet the Treasury's requirement for finance directors to be properly qualified. And departments need to improve their management of debtors, creditors, stock, and cash.

Andy Wynne, head of public sector technical issues at ACCA, responded cautiously to the report. 'What the [earlier] National Audit Office (NAO) report and the select committee are saying is that departments should do more with the information provided,' he said. 'By now we should be questioning whether the information that is provided is useful. It is 10 years since the green paper [proposing resource accounts and budgeting]. There's been a long run-in to this. Yet a significant chunk of departments are not using the information.

'Perhaps the select committee should have asked, 'Is this useful information that is being provided?' Perhaps we should be questioning the efficiency of the RAB reform. The NAO says there is no evidence of increased efficiency. So we have a fairly substantial reform, which presumably cost millions of pounds, and we don't know what the benefits are. In terms of public accountability, there is a question of whether that information is useful for MPs and the public. The accounts that are produced contain a lot more information, but they are a lot more complex. I suspect that most MPs could not understand the information provided.' But Wynne endorsed the comments of the PAC in calling for the employment of more qualified accountants as departmental finance directors.