Tag: #pac

PAC demands improvements in the Whole of Government Accounts

4 February 2021: The Public Accounts Committee has said production of the WGA should be speeded up and a better commentary is needed on the government’s financial position and exposure to forward-looking fiscal risks.

The Public Accounts Committee (PAC) recently issued a report on the Whole of Government Accounts (WGA). The PAC says that while the WGA is a world-leading document in helping the public understand both how government has used taxpayers’ money and what challenges face public finances in the future, the focus on the WGA being a backwards-looking document considerably hampers its usefulness as a tool for information, accountability and planning.

In 2018-19, the WGA reported public sector assets and liabilities of £2.1tn and £4.6tn respectively, equivalent to approximately £75,000 and £165,000 per household.

The PAC is particularly concerned about how the WGA sets out the Government’s financial position and its exposure to financial risks, including:

  • How income and expenditure are expected to change in the future and what this means for the sustainability of the public finances
  • How fiscal sustainability risks are being managed by HM Treasury, including from EU exit, covid-19 and other emerging risks
  • HM Treasury’s role in managing specific risks in the balance sheet, in particular the £152bn nuclear decommissioning obligation and the £85bn clinical negligence liability
  • What analysis and scenario planning has been done, for example, to address the impact that increases in interest rates might have on the economy and government spending
  • What HM Treasury is doing to address the fiscal sustainability of local authorities, particularly in the light of concerns over local authority investment in commercial property and the weaknesses in local audit and transparency of local authority financial reporting identified by the Redmond review.

The PAC was critical of the lack of more detailed disclosures in particular areas, such as the cost of exiting the EU where more information on the EU exit settlement and cross-government spending on preparations was needed. COVID-19 spending will need to be fully captured to assess both the true cost to the government and whether government can deliver.

The PAC acknowledges that improvements have been made in the quality of analysis in the WGA and work on better categorisation of expenditure across government to improve analysis is underway. In particular, there are plans to implement a new chart of accounts and a new financial consolidation system (OSCAR II) in 2021.

The 2018-19 WGA took 15 months to produce and the PAC highlights how pandemic-driven delays in producing departmental and local government financial statements last year will present significant challenges in producing the 2019-20 WGA in less than 14 months. 

The timetable remains significantly more than the two to three months typically taken for large multinational listed companies to produce audited financial statements, the five to six months taken by New Zealand, Canada and Australia, or the six to nine months that might be reasonably possible given the WGA incorporates local as well as central government.

The PAC concludes by commenting that the WGA still does not provide Parliament and the public with the information needed to understand the government’s financial position and exposure to fiscal risk. 

Using the annual report to give the reader an understanding of the development, performance and position of an organisation’s business, including a consideration of how forward-looking risk is managed, is standard practice across the private and public sector. The WGA falls significantly below this standard and is not meeting the needs of its users.

Martin Wheatcroft FCA, external advisor to ICAEW on public finances, commented: “The PAC is right to highlight how far HM Treasury still needs to go in improving the WGA to provide Parliament and the public with the comprehensive overview of financial performance, position and risks that a good quality annual report and financial statements can do. 

HM Treasury should be applauded for putting the UK at the forefront of international developments in public sector financial reporting when it introduced the WGA a decade ago. However, progress since then has been hampered by inadequate internal reporting systems and underinvestment in financial analysis. The WGA remains far behind best practice.

Speeding up production and improving the clarity and quality of analysis will not only make the WGA much more useful to Parliament and citizens, but it will help improve the decision-making within government that is needed to put the public finances onto a sustainable path.”

PAC slams Ministry for local commercial investment failures

13 July 2020: The Public Accounts Committee has severely criticised central government for complacency as local authorities put £7.6bn into risky commercial property investments.

In a hard-hitting report, the Public Accounts Committee (PAC) has severely criticised the Ministry of Housing, Communities and Local Government (MHCLG) for failing to properly oversee the local government prudential framework in England.

The National Audit Office (NAO) reported earlier this year on the huge rise in local authority investment going into commercial property, with £1.8bn invested in 2016-17, £2.6bn in 2017-18, £2.2bn in 2018-19 and £1bn in the first half of 2019-20. This compares with the £200m spent on commercial properties in 2015-16.

ICAEW submitted evidence to the inquiry.

Key findings and recommendations from the PAC report include:

  • More active oversight of the prudential framework is needed, including publicly challenging local authorities where there are concerns.
  • MHCLG’s failure to ensure local authorities adhere to the spirit of the framework has led to some local authorities taking on extreme levels of debt.
  • Requirements to set aside money each year to service debt (the Minimum Revenue Provision) should be strengthened.
  • Actions taken to address risky and non-compliant behaviour have been too little and too late.
  • A ‘soft’ approach of guidance changes has not worked, and ‘hard’ more timely and effective interventions are needed, with rigorous post-implementation reviews.
  • The local government prudential framework has been impaired and now requires a fundamental review.
  • MHCLG does not have access to the data it needs to carry out its oversight responsibilities.
  • External audit has a role to play, but more important is real-time scrutiny of commercial investment strategies and investment decisions.
  • Local governance arrangements are not robust enough, with investments not being properly transparent or subject to adequate scrutiny and challenge.

The PAC is particularly critical of the Ministry for taking four years between identifying that local authorities were starting to ‘borrow for yield’ to making more substantive changes to Public Loan Work Board lending rules. This was despite NAO and PAC reports highlighting the issue in 2016.

The PAC also highlights significant shortcomings in data, with MHCLG ‘flying blind’ as local authorities borrowed billions of pounds. It also doesn’t feel that lessons have been learned about capturing data on emerging and future commercial investment activities and not just about investments that have already been made.

Commenting on the report Alison Ring, Director for Public Sector at ICAEW, said: “This is a hard-hitting report from the Public Accounts Committee that severely criticises the Ministry for Housing, Communities and Local Government for complacency about the huge expansion in debt-financed commercial property investment by English local authorities over the last four years.

The PAC rightly focuses on the importance of data in carrying out central government’s oversight role, enabling better understanding and analysis of risks in local authority balance sheets. Stronger governance at a local level is also needed, with improved transparency and scrutiny needed both before, and after, investments are made.

However, it is important that any changes to the prudential framework do not prevent local authorities in making essential investments in local infrastructure and in encouraging local economic activity as the country emerges from lockdown.

Supporting the economic recovery may involve councils taking on more – rather than less – balance sheet risk, making the PAC’s recommendations about strengthening both local governance and central oversight even more critical.”

This article was originally published by ICAEW.

Treasury backs PAC in battle over recommendations

17 June 2020: Treasury writes stern ‘Dear Accounting Officer’ letter instructing departments to stop delaying compliance with PAC recommendations.

In a co-ordinated move, the Public Accounts Committee (PAC) and HM Treasury issued instructions to government departments to stop unilaterally extending the deadlines on addressing PAC recommendations, and to write to the PAC promptly to explain any delays in completing agreed actions.

Meg Hiller MP, Chair of the PAC, recently wrote to HM Treasury complaining about the behaviour of some departments who have been deferring implementation of agreed actions to address PAC recommendations and doing so without providing an explanation for the delay. Sometimes the PAC only finds out about delays many months after deadlines have been missed.

In response, Treasury has issued a ‘Dear Accounting Officer’ letter instructing departments to ensure systems are in place to monitor progress on implementing recommendations and to write to the PAC immediately it becomes clear that a recommendation is no longer on track to be implemented by the agreed target date. Departments need to provide a detailed explanation for a deferral together with a revised date for completion.

Martin Wheatcroft FCA, advisor to ICAEW on public finances, said:

“This is an unusual and very public shot across the bows of departments. It brings out into the open the frustration felt by both the Public Accounts Committee and Treasury when weaknesses in systems and processes identified by the PAC are not dealt with as planned.

Permanent Secretaries are now on notice that any backsliding on implementing agreed actions is not acceptable, and that attempting to slip missed deadlines past the PAC in routine reports many months later is not going to work anymore.”

This article was originally published by ICAEW.