By Richard Johnstone | 13 June 2013
Financial management in government must improve to ensure that public services are sustainable at a time of spending cuts, the National Audit Office said today.
Auditors examined Whitehall’s finance skills base, including the impact of the Finance Transformation Programme, which was established in January 2011 to develop professional competence. Their report concluded that fiscal consolidation presented an ‘urgent challenge’ to financial managers.
The launch of the FTP had led to some ‘signs of improvement’ in financial management within government, the auditors said. Qualified professionals were now better represented at senior levels. Publication of two sets of Whole of Government Accounts were also a step forward, the report said.
However, Financial management in government also warned that the scale of the challenge the government’s deficit reduction plan posed to financial professionals was 'stark’.
As the fiscal consolidation programme is now expected to last into the next Parliament – longer than originally planned – financial professionals had a ‘critical’ role in ensuring that opportunities to improve value for money were realised.
The scale of the challenge meant further improvements in skills would be needed to ensure public services were ‘sustainable’ auditors added.
This must address the fact that not all decision-making on spending was currently made using ‘robust information’. For example, departments often did not integrate financial management with their own strategic and operational planning. This then prevented ministries from achieving the best results by linking resources and outcomes.
Although both departments and other public bodies had generally managed within reduced spending limits up to now, only some of the savings were ‘sustainable’, the report added.
Some reforms, such as the changes to public sector pensions, were expected to lead to long-term reductions, but others, such as the two-year public sector pay freeze, were ‘less sustainable’.
The government therefore needed to go further than simply controlling spending to respond to financial and demand challenges. Instead, it had to redesign public services so that they operated permanently at a lower cost.
The Treasury’s Finance Leadership Group, which leads the government’s finance profession in Whithehall, should be responsible for ‘diagnosing’ the challenges, and addressing them, the NAO said.
Auditor general Amyas Morse said that finance teams had 'a vital role to play if the government is to deliver the planned public service reform’.
He added: ‘Finance managers are now being taken more seriously and playing a more central role in the efforts to provide sustainable services at lower cost.
‘However, the pace of change must be accelerated. Savings are being made but progress in restructuring how services are being delivered is lagging. If the challenge of reforming the delivery of public services is to be met, then the Treasury and Finance Leadership group need to provide more effective impetus to strengthen financial management capability across government.’
The report comes after the head of the civil service Sir Bob Kerslake told Public Finance that Whitehall’s finance function could undergo further reform.
Responding to the NAO’s findings, a Treasury spokeswoman said high quality financial management in government was vital to meeting spending plans and delivering public services as efficiently and effectively as possible.
She added: ‘The NAO notes the positive impact of government action to increase accountability and build skills, and the government will review what further improvements could be made as we conclude this Spending Round.’
CIPFA’s director of policy, Ian Carruthers, said the report acknowledged ‘improvements in public financial management that have taken place over the past few years as a result of the development and increasing impact of the finance profession in central government’.
He added: ‘The report identifies a number of key issues ahead, and we believe that the widespread deployment of the CIPFA Financial Management Model will help focus work and track progress towards addressing these.’