By Vivienne Russell
27 January 2010
Independent audit committee members have vastly improved financial management in Whitehall. Vivienne Russell finds out how the Foreign Office has benefited
The quest for good financial management has shaped much of the internal change in Whitehall over the past few years. The requirement for professionally qualified financial directors has been well publicised. But a less well-known reform was the introduction of independent audit and risk committees to scrutinise and challenge departmental budgeting.
Recent concerns over the level of fraud in the public sector serve as a timely reminder of the need for good financial management across government.
Robust financial systems and processes are vital weapons in the armoury when it comes to the fight against fraud. The Public Accounts Committee noted as much when it published its review of financial management at the Foreign and Commonwealth Office last month.
Doling out a rare pat on the back, the PAC noted that overall improvements in the FCO’s procedures and practices had caused the level of fraud at overseas posts to drop to a ‘relatively low level’.
And it wasn’t just progress in fraud prevention. The FCO had managed to overturn a history of weak financial management and worked to ‘improve the accuracy, reliability and timeliness of financial information’, the PAC said.
Following successive years of under-spend, budget management and activity costing were found to be stronger and the department was playing its part in spreading good practice across Whitehall.
For Sir Peter Ricketts, permanent secretary at the FCO, there is no doubt that much of this progress can be ascribed to the work of the department’s independent audit and risk committee.
Whitehall departments must now have an independent audit and risk committee to undertake risk analysis and scrutinise and challenge spending plans. The move followed the 2003 publication of the Treasury-backed review of company boardrooms, led by the late City grandee Derek Higgs.
The Higgs Review recommended a shake-up of private sector governance, part of which should be a shift to audit committees comprising independent members rather than a company’s own executives.
In a spirit of wishing to practise what they preached, Whitehall decided to follow suit. Out went the senior civil servants who had previously dominated department’s audit committees, in came professionally qualified outsiders.
One such is Alistair Johnston, global vice chair at accountancy giant KPMG. Johnston has just stepped down as chair of the FCO’s audit committee after five years in the role, although he will continue to serve as a non-executive member of the department’s board.
Johnston, who has more than 30 years experience in the accountancy profession, gives Public Finance an insight into the role.
‘The FCO, like all government departments, is on a journey very much connected with the professionalisation of government, and I think one of the audit committee’s key roles is to oversee and support that as it relates to finance and control and systems.’
The improvements in financial management at the FCO have been largely achieved by having a professionally qualified finance director and director general for finance, he says.
The committee’s role is to provide ‘air cover’ for them, Johnston says. ‘[We] make sure finance and controls are being treated very seriously, as controlling our spend and our money is ever more important, particularly in the current times.’
Ricketts says the audit committee, and Johnston in particular, have ‘tirelessly’ improved the quality of financial data.
‘That constant badgering, chasing, demanding that it’s good quality data… that’s been really positive and something Alistair Johnston has been able to do because he comes in with the authority and the credibility of a senior professional from the accountancy profession,’ he tells PF.
‘His pressure on the finance people in the organisation is something we really listen to and it’s a great reassurance to me to have him there as a sort of independent scrutineer of the numbers and also the process for producing them.’
Ricketts says the PAC’s December report agreed that the work of the independent audit committee was a vital factor behind the FCO’s improvement.
The PAC said: ‘The challenge that non-executives can bring with their outside experience is very helpful, not just to the audit and risk committees, but to departmental boards more generally.’
‘There are plenty of people who have a senior business background, alongside a basic level of understanding of accounting matters, who are capable of making a very good contribution to government departments as non-executives.’
The Whitehall and Industry Group, which encourages greater understanding between the government and the private sector, finds suitable candidates to serve on audit committees. Chief executive Mark Gibson says there is no shortage of interest from private sector executives.
But, he adds: ‘It’s harder to find the right sort of people.’
Committees typically consist of three members, including a chair who must be a qualified accountant. They tend to meet formally four or five times a year, although the chair also sits on the departmental board and is often a familiar presence around the wider department, spending time with policy officials.
Gibson, a former senior civil servant himself, agrees that the introduction of independent audit committees has made a difference to financial control in Whitehall.
As a director general of the former Department of Trade and Industry, Gibson was a member of its audit committee before the Higgs reforms took hold.
‘I was a little mortified to be replaced by independent members, but having seen them in action, I saw the greater rigour and, frankly, the level of scrutiny that comes with professionalism.’
For the civil servant this can be discomfiting, Gibson adds. ‘You have to go along and you have to know your onions, and that’s less comfortable than an environment where you’re talking to your peers, but it’s a good thing.’
Ricketts adds that the fresh perspective supplied by the FCO’s audit committee has been useful.
‘Alistair looks at things in a different way and he sometimes says, “Why do you guys do things like that? We don’t do it like that where I come from”, and that’s helpful.
‘It’s good that he comes with a fresh eye… and can see through some of the complexities to what really matters.’
At the FCO, the quest for excellent financial management continues. Both Johnston and Ricketts agree that financial management at the department is not yet where it should be. What is clear is that the work of the independent audit committee will be vital.
Ricketts says he’s ‘100% convinced’ that audit committees are here to stay. ‘I think we owe quite a lot to Alistair and the audit committee.’
27 January 2010
Independent audit committee members have vastly improved financial management in Whitehall. Vivienne Russell finds out how the Foreign Office has benefited
The quest for good financial management has shaped much of the internal change in Whitehall over the past few years. The requirement for professionally qualified financial directors has been well publicised. But a less well-known reform was the introduction of independent audit and risk committees to scrutinise and challenge departmental budgeting.
Recent concerns over the level of fraud in the public sector serve as a timely reminder of the need for good financial management across government.
Robust financial systems and processes are vital weapons in the armoury when it comes to the fight against fraud. The Public Accounts Committee noted as much when it published its review of financial management at the Foreign and Commonwealth Office last month.
Doling out a rare pat on the back, the PAC noted that overall improvements in the FCO’s procedures and practices had caused the level of fraud at overseas posts to drop to a ‘relatively low level’.
And it wasn’t just progress in fraud prevention. The FCO had managed to overturn a history of weak financial management and worked to ‘improve the accuracy, reliability and timeliness of financial information’, the PAC said.
Following successive years of under-spend, budget management and activity costing were found to be stronger and the department was playing its part in spreading good practice across Whitehall.
For Sir Peter Ricketts, permanent secretary at the FCO, there is no doubt that much of this progress can be ascribed to the work of the department’s independent audit and risk committee.
Whitehall departments must now have an independent audit and risk committee to undertake risk analysis and scrutinise and challenge spending plans. The move followed the 2003 publication of the Treasury-backed review of company boardrooms, led by the late City grandee Derek Higgs.
The Higgs Review recommended a shake-up of private sector governance, part of which should be a shift to audit committees comprising independent members rather than a company’s own executives.
In a spirit of wishing to practise what they preached, Whitehall decided to follow suit. Out went the senior civil servants who had previously dominated department’s audit committees, in came professionally qualified outsiders.
One such is Alistair Johnston, global vice chair at accountancy giant KPMG. Johnston has just stepped down as chair of the FCO’s audit committee after five years in the role, although he will continue to serve as a non-executive member of the department’s board.
Johnston, who has more than 30 years experience in the accountancy profession, gives Public Finance an insight into the role.
‘The FCO, like all government departments, is on a journey very much connected with the professionalisation of government, and I think one of the audit committee’s key roles is to oversee and support that as it relates to finance and control and systems.’
The improvements in financial management at the FCO have been largely achieved by having a professionally qualified finance director and director general for finance, he says.
The committee’s role is to provide ‘air cover’ for them, Johnston says. ‘[We] make sure finance and controls are being treated very seriously, as controlling our spend and our money is ever more important, particularly in the current times.’
Ricketts says the audit committee, and Johnston in particular, have ‘tirelessly’ improved the quality of financial data.
‘That constant badgering, chasing, demanding that it’s good quality data… that’s been really positive and something Alistair Johnston has been able to do because he comes in with the authority and the credibility of a senior professional from the accountancy profession,’ he tells PF.
‘His pressure on the finance people in the organisation is something we really listen to and it’s a great reassurance to me to have him there as a sort of independent scrutineer of the numbers and also the process for producing them.’
Ricketts says the PAC’s December report agreed that the work of the independent audit committee was a vital factor behind the FCO’s improvement.
The PAC said: ‘The challenge that non-executives can bring with their outside experience is very helpful, not just to the audit and risk committees, but to departmental boards more generally.’
‘There are plenty of people who have a senior business background, alongside a basic level of understanding of accounting matters, who are capable of making a very good contribution to government departments as non-executives.’
The Whitehall and Industry Group, which encourages greater understanding between the government and the private sector, finds suitable candidates to serve on audit committees. Chief executive Mark Gibson says there is no shortage of interest from private sector executives.
But, he adds: ‘It’s harder to find the right sort of people.’
Committees typically consist of three members, including a chair who must be a qualified accountant. They tend to meet formally four or five times a year, although the chair also sits on the departmental board and is often a familiar presence around the wider department, spending time with policy officials.
Gibson, a former senior civil servant himself, agrees that the introduction of independent audit committees has made a difference to financial control in Whitehall.
As a director general of the former Department of Trade and Industry, Gibson was a member of its audit committee before the Higgs reforms took hold.
‘I was a little mortified to be replaced by independent members, but having seen them in action, I saw the greater rigour and, frankly, the level of scrutiny that comes with professionalism.’
For the civil servant this can be discomfiting, Gibson adds. ‘You have to go along and you have to know your onions, and that’s less comfortable than an environment where you’re talking to your peers, but it’s a good thing.’
Ricketts adds that the fresh perspective supplied by the FCO’s audit committee has been useful.
‘Alistair looks at things in a different way and he sometimes says, “Why do you guys do things like that? We don’t do it like that where I come from”, and that’s helpful.
‘It’s good that he comes with a fresh eye… and can see through some of the complexities to what really matters.’
At the FCO, the quest for excellent financial management continues. Both Johnston and Ricketts agree that financial management at the department is not yet where it should be. What is clear is that the work of the independent audit committee will be vital.
Ricketts says he’s ‘100% convinced’ that audit committees are here to stay. ‘I think we owe quite a lot to Alistair and the audit committee.’
