The Scrutiny Unit Annual Reports and Accounts Aruni Muthumala, House of Commons Scrutiny Unit 13 March 2012

(1) Organisations involved in financial scrutiny (2) Characteristics of Annual Reports and Accounts (3) Why do select committees look at them? (4) How do select committees analyse them? Contents

Parliamentary Scrutiny of Government Finances Government Departments Departmental Select Committees [On average 13 members supported by 5/6 staff ] Scrutiny Unit [6 staff in finance team] National Audit Office [880 staff] Public Accounts Committee [14 members supported by 4 staff]

In the UK all Government Departments produce Annual Reports and Accounts:  An Annual Report which includes a management commentary and information on past activity and future plans, and  Resources Accounts audited by the National Audit Office which report on spending relating to the financial year and assets and liabilities as at year end Definition

 Overview of Department’s financial performance - Did the department under spend - Changes in the composition of expenditure  Highlight Department’s performance in meeting objectives - Management commentary highlights whether department is meeting objectives (structural reform priorities - Overall strategic direction of the Department  Any weaknesses in financial management capability – reports submitted late/ qualified. [Poor financial management leads to poor policy implementation]  Shows interesting information to Members that they not have been previously aware for Why are Annual Reports and Accounts of interest to Committees?

Some numbers £bn Health86.4 Education 57.9 Work & Pensions80.9 Business, Innovation and Skills23.5 Defence48.8 International Development7.1 Foreign & Commonwealth Office2.3 Energy and Climate Change3.0 Environment, Forestry & Rural Affairs4.7 Transport10.1 Treasury14.7 Communities & Local Government37.7 Cabinet Office0.4 Home Office10.7 Ministry of Justice49.1

How does scrutiny take place  Most select committees hold oral evidence sessions on Departments’ Annual Reports and Accounts. A few write a report and recommendations on the basis of the oral evidence session. [Format: Members will ask questions on finances and department’s administration to the Permanent Secretary]  Before the oral evidence session, the Scrutiny Unit provides analysis of relevant Annual Reports and Accounts and suggested questions to department to each select committee  Select committees have different approach to SU Analysis of Annual Reports and Accounts  Some will use suggested questions in oral evidence session to committee  others will send written questions to department and will use the response by Department to ask more pointed questions to the committee

What do we focus on  Have the accounts been qualified? Have they been submitted in time?  insufficient and appropriate audit evidence obtained  the financial statements have not been prepared in accordance with accounting standards  the financial statements are affected by significant uncertainties  financial statements do not give a true and fair view  irregular expenditure [In , DWP, DEFRA and HMRC accounts were qualified ]  Department’s performance – structural reform plan [actions in business plan not completed in time/performance against input indicators highlighted]  Staff costs  Provisions – funds set aside for future  Big changes  Remuneration report – directors are paid

Some examples of questions Justice This is the second successive year that you have missed the pre- summer recess deadline for laying your accounts. What went wrong this time? Foreign & Commonwealth Office Which embassies and areas within the FCO have lost out the most due to cut-backs in the capital program? How much funds did the Department raise last year through selling buildings? How much will it raise this year? Environment, Forestry & Rural Affairs Has the Department delivered the £162m in-year savings that were announced for and where were the savings made? Transport The Department under spent on its budget by £1 billion and you ended up giving £543 million back to the Treasury. Why were you unable to spend that money on transport projects? Communities & Local Government Why did the Department pay £428k for the ten months work of its interim Finance Director between 1 March 2010 and 4 January 2011?