Why is financial scrutiny important?

Why is financial scrutiny important?

Good practice in financial scrutiny

Departments budgets

DEL v AME

Financial scrutiny is not about looking at financial documents at financial events/ Financial scrutiny should be embedded into your inquiry ...

• Do you know what the individual budget of your policy area is within the department? Is it affected by cuts/staff reductions?

• Are there value for money issues in your inquiry? (Value for money issues arise from poor policy articulation as well as poor financial planning/ if policy objectives and monitoring poorly articulated, this leads to problems in implementation later on)

• It might help to identify how your inquiry relates to "policy cycle"? Does your inquiry look to improve policy aims/ policy delivery mechanisms/implementation/monitoring? Were there financial issues related to stage of the policy cycle?

• Are there transparency issues in your inquiry (should there be more information out there about finances)?

• Do any of financial documents (Annual Report and Account/Supplementary Estimate/Budget) provide you with additional information on your policy area?

• Is financial context of department useful in your report to set the scene ?

• Core task of select committees “to examine the expenditure plans, outturn and performance of the department and its’ arms length bodies and the relationship between spending and delivery of outcomes”.

• Financial scrutiny as a whole of the department is carried out through the analysis of key documents that Departments produce in the financial year/ Annual Report and Accounts/Main Estimate /Supplementary Estimate

• For analysis of these documents, some knowledge of composition of departments' budgets and financial cycle is useful.

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DEL (Departmental Expenditure Limit) – expenditure that departments can largely control. Annual DEL budgets (spending limits) for several years are set in Spending Reviews, and may only be modified with Treasury agreement. There are separate DELs for Resource and Capital spending.

AME (Annually Managed Expenditure) – largely difficult to forecast public expenditure such as demand-led benefits and tax credits; non-cash costs; and bank holdings and loan repayments. Spending in AME is separate to DEL

Look at patterns in departments' spending which are not routine

follow up questions from last year - eg Health transferred from capital to resource in its Supplementary/ FCO shows underspend of capital budget

Use financial information to give you general background for your dept and potential challenges - dept of transport resource budget is being cut but its capital budget is protected and increasing/ will there be problems of maintaining new infrastruture

Important to remember materiality - need to focus on significant changes (5% of budget)

Remember context of austerity - how is department cutting its budget?/ what are the consequences of cuts on individual departments? are cuts in particular areas sustainable? e.g. cuts in social care put pressure on health budgets/ rise in prison suicides have been associated with cuts in home office

Written questions may be better than oral questions

Need to focus on quality of financial documents - if there is no explanation of changes in budgets/variances between actual and budget, we do not understand the policy background and do not understand issues involved - financial transparency and clarity is important

Resource v capital

Performance Information

Financial Scrutiny

Single Departmental Plans give information about priorities and performance information

~Extract from Single Departmental Plan

DCLG (Department of Communites and Local Government Objectives

1.Driving up housing supply

2.Increasing home ownership

3.Devolving powers and budgets to boost local growth in England

4.Supporting strong communities with excellent public services

SU analysis of indicators in 2015 Spending Review

Resource spending – current expenditure on day to day running costs and delivery of public services, including salaries, rent, grants and non-cash costs such as depreciation.

Capital spending – expenditure on the creation of assets that will generally last more than a year. This includes spending on road construction, hospital construction, infrastructure etc.

• Why is financial scrutiny important?

• Departments budgets and Treasury rules

• Financial cycle and select committee involvement

• Good practice in financial scrutiny

Annual Reports and Accounts

SU produces analysis for each departmental select committee. Committee may choose to writes letter and suggested questions to department.

Examples of what to look out for

Performance side Did department meet its objectives/challenges facing department/?

Financial side. Did the Department under-spend or over-spend in any particular areas?

What are the historic trends in expenditure?

Resource

DEL

Departments publish their Annual Report and Accounts each year (Around June). Focus on the previous financial year

They consist of (1) an Annual Report which includes a management commentary and information on past activity and future plans (2) Accounts which are audited by National Audit Office

Main Estimates and Supplementary Estimates

It is through the Estimates that government seeks authority from Parliament to spend funds. Main Estimate summaries resource budget and capital budget for each department in the year.

Supplementary Estimate asks Parliament to approve changes to budget in-year.

Capital DEL

What to look out for?

There are lots of routine changes/ machinery of government changes/transfers between departments. However odd movements such as transfers from capital to resource may indicate cost pressures. If department is carrying forward money through budget exchange this may indicate problems with departments' capacity to implement programmes or delays. Additional funds from Treasury may mean that Department is having to respond to unforeseen events.

Transcipt of EFRA commitee looking at flood defences using information in the Annual REport and Accounts

Treasury rules

Are there any implications for your department's spending allocation?

Spending Review (last Spending Review and Autumn Statement happened in Dec 2015)

Sets Resource and Capital DEL for next five years up 2016/17 to 2019/20

(see pp78-71 for tables)

Examples of what to look out for

How did Spending Review affect your department ?

Is it a protected department? Have any policy announcements been made which will significantly change Spending Review totals?

BREXIT has happened since then, are there any spending implications for your department in the short term?

Budget/Spring Statement

Generally the Budget and previous Autumn Statements had revenue raising measures.

However, sometimes Chancellor makes announcements that affect spending.

• Managing Public Money/ Consolidated budgeting guidance/ Estimates Manual

• Departments may not switch provision from Capital budgets to Resource budgets (such switches would mean that money that had been earmarked for investment was used for current spending)

However rule is sometimes broken ... Last few years, health has had to transfer funds from capital budget to resource budget

• Departments may not switch from programme budgets to administration budgets. Such switches would mean increasing provision for back-office or policy staff at the expense of front-line staff and programmes. Departments are free to switch provision from administration budgets to programme budgets.

(Administration budgets in resource cover expenditure on running Central Government entities but excluding their frontline activities)

SU produced analysis and suggested questions

Some select committees had oral evidence sessions

Chancellor announced in last year's Autumn Statement that there will be no more Autumn Statements.

In next financial year Budget will be held around November.

There will be a Spring Statement which will give updated forecasts and Government's response to those forecasts.

Select Committees:

Library produces note.

SU sends brief analysis to select committee clerks about implications for all departments.

Treasury Committee does inquiry on Budget and Autumn Statement