related documents
RR68 - Accounting and Control in Executive Agencies and Executive NDPBs in Scotland
ACCA Research Report No. 68
This research report provides the findings from the Aberdeen project, which formed part of the ACCA Research Programme on Executive Agencies in UK central government. This project sought to place those Executive Agencies and Executive Non-Departmental Public Bodies (NDPBs), which are funded out of the Scotland public expenditure programme (Scotland Programme), within their distinctive environment of territorial management. The focus is upon financial reporting, auditing and financial control mechanisms, rather than on performance measurement or reporting.
The study period runs from 1990/91 to 1997/98, covering the first year that there was an Executive Agency in Scotland and extending until the financial year that ended 15 months before Scottish devolution took effect on 1 July 1999. Executive NDPBs have a much longer history; they are a residual category, defined in a negative way, straddling the public/private boundary and taking a variety of legal forms on each side of that boundary.
The project consisted of three components: mapping the Executive Agencies; mapping the Executive NDPBs; and then comparing and contrasting the two as they operate within the context of the Scotland Programme. Almost all such bodies are funded from the Scotland Programme and those which are significant in expenditure terms are funded from within the formula-controlled Scottish block. This link to territorial public expenditure aggregates necessarily constrains their financial autonomy. A corollary, however, is that Cabinet Office and Treasury control impacts less directly on Scottish bodies than would be the case for their English counterparts.
Quasi-government will not now go away. The financial reporting documents examined in this study constitute one of the principal vehicles of public accountability. As academic accountants, the researchers view this focus as an antidote to the excessive preoccupation with the, albeit important, topics of appointments and patronage. Much of the literature about Executive NDPBs has a strong rhetorical element, whether the motive is to praise quangos or condemn them. The concerns of this study are narrower and more focused.
Clarity about organisational design is not a characteristic feature of British government, an experience shared at the Scottish level. A striking result regarding Executive NDPBs is how the landscape was transformed within the study period by a surprising level of turnover, as evidenced by the number of births, deaths and mutations. A consequence of the system of territorial management is that there are a considerable number of Scottish bodies paralleling much larger English ones, as a reflection of Scotland's much smaller population.
The overall assessment is that the programme for establishing Executive Agencies was implemented quite smoothly in Scotland, being the rolling out of high-profile Cabinet Office machinery of government reform.
In contrast, the situation with Executive NDPBs is untidy and less creditable. The central co-ordination of the Next Steps programme by the Cabinet Office has never been matched for Executive NDPBs, which have evolved over a much longer period. The historical effects concerning Executive NDPBs are a UK-wide phenomenon, not just a Scottish one. The impression derived from this research is of untidiness and a certain disorder, rather than of any endemic structural problem. This lack of tidiness reflects the number of Executive NDPBs and their diversity, in terms of size, history, function and capacity. The adoption of private sector forms of financial reporting, in advance of the Treasury's Resource Accounting and Budgeting (RAB) project for central government departments, went smoothly, though the substance was sometimes more variable than the form. Timeliness (as measured by the audit lag) was generally satisfactory. The quality of accounts (as measured by the absence of qualified opinions) was high, though this finding has to be interpreted in the light of two factors: some Accounts Directions authorised departures from UK GAAP, and the auditors of some Executive NDPBs set up as companies limited by guarantee (CLGs) failed to qualify when accounting policies clearly breached UK GAAP.
Nevertheless, accounting developments in Executive Agencies and Executive NDPBs undoubtedly eased the path for central government to switch to accruals. These precursors made the transition seem less strange and problematic than it would otherwise have done.
The project has generated a number of relatively modest but cumulatively important proposals. Five of the most important can be briefly summarised. First, there is an overwhelming need to revisit and rationalise the auditing arrangements for Executive NDPBs. These arrangements have been chaotic and almost unintelligible to the outside observer. They have also contributed to a mystifying variety of publication arrangements, making the availability of accounting information problematic for some bodies, despite their governmental status.
Second, there should be a complete overhaul of the Accounts Direction system, as it is vulnerable to abuse. There is simply not enough public attention paid to the reports and accounts of Executive Agencies and Executive NDPBs to counter the temptation to evade 'onerous' requirements. Moreover, some Accounts Directions are frequently revised while others remain unchanged even when circumstances indicate that updating is necessary. Some are published with the annual accounts, others are not. The way ahead should be for Accounts Directions to operate on the exceptions principle: all Executive Agencies and Executive NDPBs should follow UK GAAP, as modified by the Resource Accounting Manual, except for explicitly authorised and disclosed departures. This would diminish the Treasury's workload associated with routine updating and harmonisation, allowing more time to be spent on monitoring the timeliness and quality of financial reporting.
Third, aspects of the financial control system for quasi-government bodies, such as Executive Agencies and Executive NDPBs, are poorly documented, at least when 'looking in' from the perspective of academic researchers. It is more difficult to assess how well the systems of financial control are understood within government, though the limited evidence available from the fieldwork suggests that there are gaps in knowledge and misunderstandings. Some initiatives have originally been well documented, though there is often a failure to keep material up to date. The dissemination of well-drafted and up-to-date documentation is particularly important in the light of the isolated existence led by the finance staff of quasi-government bodies and the encouraging practice of recruiting financial skills from outside government.
Fourth, there are strong arguments for Executive Agencies and Executive NDPBs being self-accounting whenever possible. This status should not be granted to organisations below the threshold size for running a viable finance function, however, unless there is to be a contracting out of that function to a suitable service provider. If meeting exemplary standards is beyond the capacity of a public body, or involves a cost that is unreasonable in relation to total expenditure, the body itself should be contractorised or merged, or its tasks reallocated. The practical effect would be that smaller Executive NDPBs, whose functions made that organisational status appropriate, would be more likely to be financed directly on the Vote of a government department.
Fifth, timely publication of annual reports and accounts is essential, not least to avoid the undesirable practice of publishing unaudited financial statements. Both audit and reporting lags should be kept to the minimum practical length, and reporting documents should always carry the date of publication so that reporting lags can be reliably measured. The accessibility of financial information needs to be improved. Researchers are a small but potentially significant group of 'intermediate' users who would find it much easier to retrieve documents for previous years if these were published in properly numbered series and reliably archived.
Heald and Geaughan, 2001
Executive summary
This research report provides the findings from the Aberdeen project, which formed part of the ACCA Research Programme on Executive Agencies in UK central government. This project sought to place those Executive Agencies and Executive Non-Departmental Public Bodies (NDPBs), which are funded out of the Scotland public expenditure programme (Scotland Programme), within their distinctive environment of territorial management. The focus is upon financial reporting, auditing and financial control mechanisms, rather than on performance measurement or reporting.
The study period runs from 1990/91 to 1997/98, covering the first year that there was an Executive Agency in Scotland and extending until the financial year that ended 15 months before Scottish devolution took effect on 1 July 1999. Executive NDPBs have a much longer history; they are a residual category, defined in a negative way, straddling the public/private boundary and taking a variety of legal forms on each side of that boundary.
The project consisted of three components: mapping the Executive Agencies; mapping the Executive NDPBs; and then comparing and contrasting the two as they operate within the context of the Scotland Programme. Almost all such bodies are funded from the Scotland Programme and those which are significant in expenditure terms are funded from within the formula-controlled Scottish block. This link to territorial public expenditure aggregates necessarily constrains their financial autonomy. A corollary, however, is that Cabinet Office and Treasury control impacts less directly on Scottish bodies than would be the case for their English counterparts.
Quasi-government will not now go away. The financial reporting documents examined in this study constitute one of the principal vehicles of public accountability. As academic accountants, the researchers view this focus as an antidote to the excessive preoccupation with the, albeit important, topics of appointments and patronage. Much of the literature about Executive NDPBs has a strong rhetorical element, whether the motive is to praise quangos or condemn them. The concerns of this study are narrower and more focused.
Clarity about organisational design is not a characteristic feature of British government, an experience shared at the Scottish level. A striking result regarding Executive NDPBs is how the landscape was transformed within the study period by a surprising level of turnover, as evidenced by the number of births, deaths and mutations. A consequence of the system of territorial management is that there are a considerable number of Scottish bodies paralleling much larger English ones, as a reflection of Scotland's much smaller population.
The overall assessment is that the programme for establishing Executive Agencies was implemented quite smoothly in Scotland, being the rolling out of high-profile Cabinet Office machinery of government reform.
In contrast, the situation with Executive NDPBs is untidy and less creditable. The central co-ordination of the Next Steps programme by the Cabinet Office has never been matched for Executive NDPBs, which have evolved over a much longer period. The historical effects concerning Executive NDPBs are a UK-wide phenomenon, not just a Scottish one. The impression derived from this research is of untidiness and a certain disorder, rather than of any endemic structural problem. This lack of tidiness reflects the number of Executive NDPBs and their diversity, in terms of size, history, function and capacity. The adoption of private sector forms of financial reporting, in advance of the Treasury's Resource Accounting and Budgeting (RAB) project for central government departments, went smoothly, though the substance was sometimes more variable than the form. Timeliness (as measured by the audit lag) was generally satisfactory. The quality of accounts (as measured by the absence of qualified opinions) was high, though this finding has to be interpreted in the light of two factors: some Accounts Directions authorised departures from UK GAAP, and the auditors of some Executive NDPBs set up as companies limited by guarantee (CLGs) failed to qualify when accounting policies clearly breached UK GAAP.
Nevertheless, accounting developments in Executive Agencies and Executive NDPBs undoubtedly eased the path for central government to switch to accruals. These precursors made the transition seem less strange and problematic than it would otherwise have done.
The project has generated a number of relatively modest but cumulatively important proposals. Five of the most important can be briefly summarised. First, there is an overwhelming need to revisit and rationalise the auditing arrangements for Executive NDPBs. These arrangements have been chaotic and almost unintelligible to the outside observer. They have also contributed to a mystifying variety of publication arrangements, making the availability of accounting information problematic for some bodies, despite their governmental status.
Second, there should be a complete overhaul of the Accounts Direction system, as it is vulnerable to abuse. There is simply not enough public attention paid to the reports and accounts of Executive Agencies and Executive NDPBs to counter the temptation to evade 'onerous' requirements. Moreover, some Accounts Directions are frequently revised while others remain unchanged even when circumstances indicate that updating is necessary. Some are published with the annual accounts, others are not. The way ahead should be for Accounts Directions to operate on the exceptions principle: all Executive Agencies and Executive NDPBs should follow UK GAAP, as modified by the Resource Accounting Manual, except for explicitly authorised and disclosed departures. This would diminish the Treasury's workload associated with routine updating and harmonisation, allowing more time to be spent on monitoring the timeliness and quality of financial reporting.
Third, aspects of the financial control system for quasi-government bodies, such as Executive Agencies and Executive NDPBs, are poorly documented, at least when 'looking in' from the perspective of academic researchers. It is more difficult to assess how well the systems of financial control are understood within government, though the limited evidence available from the fieldwork suggests that there are gaps in knowledge and misunderstandings. Some initiatives have originally been well documented, though there is often a failure to keep material up to date. The dissemination of well-drafted and up-to-date documentation is particularly important in the light of the isolated existence led by the finance staff of quasi-government bodies and the encouraging practice of recruiting financial skills from outside government.
Fourth, there are strong arguments for Executive Agencies and Executive NDPBs being self-accounting whenever possible. This status should not be granted to organisations below the threshold size for running a viable finance function, however, unless there is to be a contracting out of that function to a suitable service provider. If meeting exemplary standards is beyond the capacity of a public body, or involves a cost that is unreasonable in relation to total expenditure, the body itself should be contractorised or merged, or its tasks reallocated. The practical effect would be that smaller Executive NDPBs, whose functions made that organisational status appropriate, would be more likely to be financed directly on the Vote of a government department.
Fifth, timely publication of annual reports and accounts is essential, not least to avoid the undesirable practice of publishing unaudited financial statements. Both audit and reporting lags should be kept to the minimum practical length, and reporting documents should always carry the date of publication so that reporting lags can be reliably measured. The accessibility of financial information needs to be improved. Researchers are a small but potentially significant group of 'intermediate' users who would find it much easier to retrieve documents for previous years if these were published in properly numbered series and reliably archived.