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Connolly and Hyndman, 2005

Executive summary

The focus of this study is the implementation of resource accounting (RA) and, more widely, resource accounting and budgeting (RAB), in the Northern Ireland (NI) public sector. RA is a set of accruals accounting techniques for reporting on the expenditure of UK central government and a framework for analysing expenditure by departmental objectives (related to outputs wherever possible). Resource budgeting (RB) is planning and controlling public expenditure on an RA basis. This summary outlines the main themes in the report. It provides a background to the devolved government in NI, and an explanation of the key features and case for the introduction of RAB. It also presents the objectives of the empirical studies, together with the key findings.

Devolved Government in Northern Ireland (1999 to 2005)

Following a sustained period of political engagement during the early 1990s, multi-party talks started in NI in 1996 between the elected representatives of the political parties. This culminated in 1998 in the signing of the Belfast Agreement, which provided the basis for the establishment of the NI Assembly, with substantial devolved powers, in 1999 (similar institutions in Scotland and Wales were established at the same time). NI has a population of 1.7 million, with the NI Civil Service having some 30,000 civil servants, approximating to a medium-sized department in Whitehall. The Agreement heralded significant changes in the departmental configuration of the NI government, in that 11 departments were created to replace the previous six.

The Belfast Agreement, while not resolving the seemingly intractable constitutional question in NI, paved the way for local politicians to manage local issues through a power-sharing arrangement. Given the stumbling progress towards this pact, the process of devolution commenced with a mixture of anticipation and foreboding. By May 2005 (at the time of writing), the Assembly’s first period of operation, punctuated by four periods of suspension during which significant periods of direct rule from London were required, had been completed. New elections to the Assembly were held in November 2003, and resulted in the anti-agreement Democratic Unionist Party, led by Ian Paisley, holding the greatest number of seats, a situation justifiably acknowledged by many as presenting difficulties in re-establishing a functioning Assembly (the Assembly has not operated since).

RAB – Key Features and Timetable for Introduction

RAB is an accruals-based accounting and budgeting system that is also intended to integrate objectives and targets into the accounting procedures. In the mid-1990s, the announcement of its introduction was proclaimed as an epoch in the UK public sector accounting framework. RAB (and, in particular, the change to RA, which is the primary focus of this report) was predicated on the presumption that the production and use of this new information would lead to decisions being made that would support effective and efficient operations, as well as providing a better basis for the discharging of accountability. A White Paper was issued in August 1995 and, as well as containing the broad strategy for managing the transition from cash-based appropriation accounts (AAs) to accruals-based resource accounts, it presented a timetable of providing live resource accounts by 2001/2. Additionally, it proposed the parallel running of AAs and resource accounts in advance of this, and live resource budgets by 2003/4, again with parallel running with the cash-based budgeting system in advance. Such a timetable was to be used in both mainland Britain and NI, although, mainly because of the protracted devolution process, the periods of parallel running were shorter in NI.

HM Treasury argued that RAB could provide a number of benefits.

For departments

• More accurate and relevant management information would be available with which departments could cost the resources that they use, and match them with the outputs they deliver.
• Better-informed decisions could be made on the balance between current and capital expenditure, taking into account the opportunity cost of capital and its consumption over time.

For the public sector as a whole

• Improvements would be made in the way in which government conducted its public sector expenditure planning and control procedures at all levels.
• It would facilitate the development of cash control at a higher level than hitherto, while ensuring tight control of public spending as a whole.
• In line with other initiatives, it would contribute to the further development of a strategic approach to managing the Civil Service, in line with the principles of the Financial Management Initiative.

For the economy as a whole

• Better information would be available for formulating economic policy, and for preparing National Accounts on the value and use of fixed assets and on capital consumption in the public sector.
• There would be the possibility of a reduction in the public sector's call on funds by promoting better use of resources.

The Empirical Studies: key findings

The objectives of the empirical studies included in this report were to ascertain the principal benefits, drawbacks and costs related to implementing RAB in NI, and to gain an appreciation of the degree of compliance with (or progress towards meeting) the demands of RA. Fifteen interviews (with 20 interviewees, the majority of whom were qualified accountants) were held in a total of 13 organisations situated in NI. In addition, resource accounts were analysed, and Northern Ireland Audit Office publications, examining progress in implementing RA, were reviewed.

The following points are among the main findings of the research.

Inadequate accounting skills in NI departments led to difficulties in implementation
Serious deficiencies in the accounting skills available to NI departments were identified in reports well before the introduction of RAB was announced. However, there was only a limited response to these identified needs. Such shortages were not resolved by the time RA went live, resulting in a lack of available in-house skills and an over-reliance by a number of departments on consultants to support them (even though these were often viewed as unhelpful). Although such skills shortages were not unique to NI (similar problems had been identified in Britain), their magnitude, coupled with the impact of devolution-related restructuring, compounded the problem. Overall, these factors contributed to a rushed, confusing and uneven implementation process.

Devolution hindered progress in NI
As a result of devolution in 1999, progress in implementing RA (and indeed RAB) was slower in NI than in Britain. Departmental restructuring, with a number of departments being created that had no, or inadequate, accounting systems, resulted in difficulties in meeting trigger point deadlines. In addition, changes necessary to cement the Belfast Agreement took precedence over modifications to accounting processes. One of the most notable effects of this was that NI had significantly less parallel running than Britain, and this affected the quality of the resource accounts that were produced.

RA information not yet used; problems still to be resolved
In May 2005 (at the time of writing) there was little evidence that RA, or indeed RB, information was extensively used in decision making within the NI public sector (as has been the case in Britain). Many interviewees identified the problems of unnecessary complexity and incomprehensibility of the information as undermining its potential use. In addition, most evidence of its use was found in discussions at high levels within organisations rather than in terms of use by operational managers utilising it to influence day-to-day decisions, where its impact was likely to be greatest (a potential danger in many public sector initiatives). A number of stakeholders suggested that, as problems relating to resources and levels of understanding are addressed, more substantial benefits may be realised in the long term.

Performance measurement aspects viewed as offering more than financial accounting aspects
The performance measurement aspects of RAB were viewed as offering more than the traditional financial accounting aspects because they provided managers with information that would improve decision making. While problems in measuring performance were identified, many interviewees suggested that the performance focus of RAB had helped with business planning and had educed ‘buy-in’ from non-financial managers. The perceived decoupling, at least in the minds of some managers, of performance measurement and RAB (for example, the performance measurement features of RAB are not driven by the finance function) may have helped the acceptability of performance measurement.

Quality of early resource accounts in NI was poor, although progress has been rapid
The quality of the early resource accounts in NI (as evidenced by a clear audit opinion) was poor (with only 12 per cent of accounts receiving a clear audit opinion in the dry-run year). The preparation and implementation process relating to RA did not easily match the articulated trigger point strategy of HM Treasury and the Department of Finance and Personnel (DFP) in NI. However, reasonably rapid progress may signify that some of the most important difficulties in producing best-practice resource accounts have been overcome (albeit far later than both HM Treasury and DFP officially articulated).

The costs of RAB are unclear
Claims that the implementation of RAB would have limited cost impact (claims made by both HM Treasury and DFP) were acknowledged, but dismissed out of hand, by stakeholders. In addition, the interviews revealed that while no department had prepared a budget for the introduction of RAB, or kept records of actual costs, the costs were perceived as being substantial (in particular, those relating to payroll). Some stakeholders argued that the production of accurate cost information, either in advance or as part of an ex-post evaluation, was unlikely to be welcomed by those promoting RAB.

Evolving process of change to RA (and RB) was different from the articulated plan
The change to accruals accounting within the public sector can be seen as an aspect of the New Public Management (NPM) agenda in the public sector (an agenda that emphasises giving an increasing prominence to privatisation, ‘marketisation’, decentralisation and performance measurement). The research indicates a process of accounting change that is significantly different from the articulated view in the NPM and official UK Government RAB literatures. Often changes associated with NPM and RA (and RB) are presented as technologies that can be applied crisply and cleanly. RAB is often viewed as an aspect of, or a supporting element to, NPM. The research presented here, however, indicates that: the implementation of RA (and RB) in NI to date is partial and uneven; the RA information produced is rarely understood by the managers who were meant to be using it for decision-making purposes; and adequate systems and personnel have not been available in many departments, leading to problems in implementation.

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