Post on 29-May-2018
National Audit Office
Value For Money Report 2012:
Financial Management
20th June 2012
Paul Brown
Director
This report provides an overview of the National Audit
Office’s (NAO) approach to financial management. The
work has taken place as part of the annual Value For
Money review undertaken by RSM Tenon, the External
Auditor. The approach of the NAO has been assessed
using the model developed by the NAO for review of
financial management within Government departments.
This report is prepared solely for the use of National Audit Office (NAO)and the Public Accounts Commission (TPAC) of the House of Commons Details may be made to
specified external agencies, but otherwise the report should not be quoted or referred to in whole or in part without prior consent. No responsibility to any third party is accepted
as the report has not been prepared, and is not intended for, any other purpose.
Whilst every care has been taken to ensure that the information provided in this report is as accurate as possible, based on the information provided and documentation
reviewed, no complete guarantee or warranty can be given with regard to the advice and information contained herein.
This report is provided on the basis that it is for NAO and TPAC‟s information and usage only. For this reason, we do not consider it appropriate for the report to be made
available, in part or in full, to third parties without our written prior consent. Nor do we accept responsibility for any reliance that third parties may place upon the report. Insofar as
this report refers to matters of law, it should not be taken as expressing any formal opinion whatsoever.
Please refer to our letter of engagement for full details of responsibilities and other terms and conditions. RSM Tenon Limited is a member of RSM Tenon Group. RSM Tenon
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RSM Tenon Limited (No 4066924) is registered in England and Wales. Registered Office 66 Chiltern Street, London W1U 4GB, England.
03 Scope &
Approach
Page 15 to 16
10 Appendices
- Definitions of Financial Information by NAO staff
- NAO’s Financial Management Maturity Model – Level Scoring
- User guide graphs in the report
Page 44 to 48
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04 Background &
Governance
Page 17 to 19
07 Finance for
decision-making
Page 32 to 36
08 Financial
Monitoring &
Forecasting
Page 37 to 42
01 Executive
Summary
Page 4 to 10
02 Summary of
Recommendations
Page 11 to 14
05 Financial
Governance &
Leadership
Page 20 to 27
06 Financial
Planning
Page 28 to 31
09 Financial and
Performance
Reporting
Page 43
Overall Value For Money Conclusion
We find that financial management processes in the NAO are sound and that there is a high level of
engagement and ownership by the Board and Leadership Team with good levels of engagement by other
managers and staff.
Summary of Findings:
The NAO is striving to instill a culture of performance improvement across the organisation. The importance of this task has been
raised by Management‟s commitment to take cost out of the business. We found that there is a determination by the Board and the
Leadership Team to ensure that the quality of the audit is maintained, despite the reduction in resources.
There is a recognition that NAO staff need to be supported, trained and developed in financial management. The majority of staff
recognise this support. A minority of managers struggle to understand the information and the NAO should seek to help this minority
enhance their skills and confidence in the management of financial resources.
Financial management has an appropriately high profile in the organisation. There is evidence of this in the papers and through
questioning of Board members, the Leadership Team, managers and a large number of staff.
We say „appropriately‟ because the NAO is a relatively straightforward organisation: It does not have complex costing structures and
income is relatively fixed, one year to another. So whilst more complex organisations have more sophisticated financial management
systems and processes, the NAO‟s approach is appropriate to its complexity and the management information needed.
As the cultural change takes place, there are still some managers who find the new responsibilities and accountabilities more difficult
to accept - inevitable in our experience of this type of change. This manifests itself in some managers failing to provide all the
information required by central finance to monitor the full range of KPIs. The Board needs to support the management team in ensuring
that all managers comply with their full range of financial management responsibilities
The Board and Leadership team review risks and consider the risk register. We recommend that an action log is created to help the
monitoring process and to enable the management team to hold its managers to account
Overall we found that there is a high awareness by NAO staff of the importance of a strong financial discipline and that all leaders and
the majority of managers and staff are engaged in the process of financial management. This is a solid baseline for the NAO to
continue with its programme of cultural change and to further develop the financial maturity of the organisation.
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1 Executive Summary
The Context For This Study
We present our findings in the format of the Financial Management Maturity Model - a tool designed and used by the NAO in the
delivery of the audits it undertakes. For each area of the matrix we provide commentary and a view on the level or levels that apply to
the NAO at this time. The five levels defined by the model are attached as Appendix A and summarised below.
The key context for this review is that the NAO is a professional services organisation. As such, its financial and managerial systems
are relatively simple. The Maturity Model is a flexible tool that allows the evaluation of the financial maturity of an organisation in the
specific context of that organisation.
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Level 3
Level 4
Level 2
Level 5
Level 1
Leading edge financial management in place that enables the organisation to anticipate challenges and optimize performance
Professional financial management in place that allows the organisation to cope in challenging times
Financial management processes are in place that are adequate in a stable environment
Basic financial management processes in place
Some financial management processes in place but they are inadequate
The Model sets out the definitions for each
level across a variety of dimensions and allows
the identification of a score of 1 to 5. The
evaluator needs to take into account the
context of that organisation. So for some of the
dimensions, for example, a score of 5 would
require real-time financial information. In
certain organisations this would be needed to
maintain financial control, but in others, and
the NAO is an example of this, it would be
inappropriate to have financial systems of that
complexity in operation.
So in the sections that follow we use the Model
to evaluate the performance of the NAO
against the sixteen dimensions. For each we
comment on whether there is room for
improvement given the needs of the NAO or
whether the NAO is at the most appropriate
level, given that it is a professional services
organisation.
Summary of Findings
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Aspiration Evidence Level
A culture of
collective
responsibility
The Board and the Leadership team are strongly aligned and focused on the delivery of a high
performing organisation. There is challenge, although the evidence of NED challenge could be
improved through the keeping of more detailed records of Board discussions 4 / 5
High quality
systems of internal
control, governance
and risk
management
Systems of internal control and governance are generally strong. The culture is one of caution and
we would judge the risk appetite to be relatively low. Whilst moving to a risk-taking culture would
not be appropriate to the type of organisation that the NAO is, the taking of informed risks that
seek to improve the performance of the organisation should be welcomed, so as to liberate a
culture of innovation.
The Risk Register is up-to-date and monitored regularly by the Board.
4
Strong financial
management
capability
The Board and leadership team has a great deal of experience, with high calibre people who have
worked in senior positions in public and private sectors. The skills and capabilities of managers
are improving but there is still a way to go to ensure that the desired culture of strong financial
management is shared by every member of the NAO. The finance function has the appropriate
blend of skills.
To attain an even higher score the NAO needs to improve the depth of skills in its managers. The
leadership given by the Board gives confidence that this is attainable.
4
Programmes for
training and
continuous
professional
development
Some budget managers and staff feel that there is a need to enhance training and support. In
striving for high utilisation and performance, it is possible that some of the needs and aspirations
of staff are not being fully met and there is room to improve in this area.
Senior management and the Board see the development of people as a key target.
3 / 4
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Aspiration Evidence Level
Financial planning
and monitoring
information is fully
integrated
The NAO has a clear approach to strategic planning and this is fully aligned to the financial
planning process. The financial planning horizon is three year and the focus is largely internal,
but given the context of the NAO this is appropriate.
Therefore, we judge that the NAO is at level 4 which is the highest level appropriate given the
context of the organisation.
4
Robust financial
planning systems
Systems are appropriate for the context of the NAO. The NAO is not a complex organisation
financially, and the systems provide the information appropriate to the need.
In terms of the maturity model, the NAO is at level 3 and that is appropriate to the type and
context of the organisation
3
Financial
information
supports the
business
Given the type of organisation that the NAO is, financial information is relatively straight forward
and levels 4 and 5 of the maturity model apply more to complex organisations with the potential
for significant financial volatility.
Hence the score of 3 represents an appropriate level for the NAO, since information systems are
fit for purpose.
3
Wide
understanding of
expenditure and
cost drivers
The cost drivers of the NAO are relatively straightforward. At a Board level there is a high level of
understanding of these drivers. At a local level, there is a sizeable majority where there is a good
understanding, but a significant minority who stated that they do not understand the expenditure
and cost drivers.
Through the ongoing work to improve financial awareness, the NAO will improve its rating in this
area.
2 / 3
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Aspiration Evidence Level
Wide
understanding of
income streams
and pricing
The Board and Leadership Team understand the relationship between income and costs and the
reports enable this to be monitored and tracked. The survey information shows that whilst the
majority of people receive information, understand the position and what is expected of them and
feel listened to, there is still a sizeable minority who do not.
In more complex organisations there would need to be a more sophisticated understanding of
future income trends and the factors influencing that income, however in the context of the NAO
the relationship is relatively simple and the reports are appropriate to that relationship.
3
Costs and benefits
of investments are
evaluated and
understood
The NAO is a relatively straight forward organisation. The majority of the costs are staff and so
financial management is about achieving the right balance of staff, skills, experience and
therefore cost, to meet the needs of the audits being delivered.
Skills in the appraisal of capital projects is therefore less crucial, however improving the skills of
the managers in this area would help their general approach to financial management and the
adoption of best practice techniques
2 / 3
Financial
information is of a
high quality,
accurate and timely
The general level of awareness of budgets and the need for good financial management is
strong. The Board and the Leadership team are clear on the importance of this task and the
information they receive appears to be of a good quality, accurate and timely.
There would be little gained by moving to real-time information as the current information is
appropriate to the context of the organisation.
4
Financial and non-
financial indicators
are appropriate
There is good use of financial and other information to manage the business. The Board and
Leadership team consider other matters, such as enablers to the running of the business (time
sheet completion, data capture) and follow up on non-compliance. 4
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Aspiration Evidence Level
High quality
financial
management and
operational
systems in place
Financial information is fit for purpose. The drill-down capability and the skills of managers to
interrogate information could be enhanced further - the data warehouse under development will
offer users the ability to access the information they need. These are matters that need to be
taken forward as part of the organisational training programme.
3 / 4
Reports are
tailored to
individual needs
Reports are generally suitable for the purpose intended. However, as the maturity of the
organisation develops, and as the demands for financial information increase in line with the
pressures flowing from cost reduction, there is a need to improve the sophistication and
“usability” of financial reporting, for example, to increase the level of predictive reporting.
This will be about improving skills in finance (training users and designing new standard reports)
and in users developing the capability to better interrogate information and write their own
reports.
3
Reports are timely Information is timely in the context of the NAO. Real time information and weekly information
would be unnecessary and costly. Controlling costs is largely about the payroll and so the key is
to ensure that the right balance of skills and costs are recruited and retained to enable the
delivery of high quality audits within budget. Complex financial systems are not required for this
task.
So the assessment of level 3 is appropriate for the NAO.
3
Reports are clear
and concise
We found the reports to be clear and concise. Through interviews and the questionnaire it was
apparent that the majority of users understood the information and received the reports they
received. The extent and requirement for external reporting is limited so a score of 4 is the most
appropriate score for the NAO. 4
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Key Conclusions
Our key conclusions are set out below. In bold type we repeat the objectives we were set by the Audit Committee and against
each we report our high level conclusions:
Establish whether the goals set out in the NAO strategy with regard to financial management are widely understood
by all managers with responsibility for the management of resources. We find that there is a good level of
understanding and that the NAO is doing well in this area. There is, however, still a sizeable minority of staff who say that
they do not get the information they need and do not appear to fully understand the NAO costing model. From the evidence
we reviewed, information is sent to all managers and staff and so we conclude that management need to identify the group
of managers who are struggling, and provide them with additional support to ensure that they are equipped to meet their
responsibilities.
Test the extent to which the principles of good financial management are consistently applied across all Areas of
the NAO. Applying the Maturity Model we found that financial management is consistently applied across the organisation.
Financial management is coordinated centrally and systems and processes are common throughout. However, evidence on
compliance with information requirements shows that some parts of the business comply to a greater extent than others.
Assess whether the information provided to senior management is appropriate, accurate and informative. There is
satisfaction from the Board that they receive the information they need. The approach is to empower the leadership team to
manage the business, and only intervene when things go wrong. There is a high level of confidence from the Board about
the leadership team. Generally the survey showed that there is satisfaction from managers and staff in the organisation
about the information they receive, although there are still some gaps to plug.
Assess whether the NAO is setting appropriate budgets, controlling costs, testing for value for money from
outsourcing and recovering costs through fees. The NAO has achieved financial targets in all the last three years
reviewed and at a corporate level all costs are recovered. Income is generated for c20% of costs thus reducing the gross
estimate requirement.
Advise on whether financial information is used appropriately to drive and inform strategic decision making across
the organisation. The NAO is not a complex organisation and so whilst the use of financial information is relatively
simplistic, the approach is appropriate to the context of the NAO. There is evidence that information is used by the Board, the
Leadership team and the organisation to manage its affairs. Improving the quality of data for the supporting KPIs will help the
NAO further improve in this area.
2 - Summary of Recommendations
Number Recommendation Management Response
Responsible Manager
and Timescale for
Implementation
Finance Governance and Leadership
1
Board minutes need to be more detailed to include questions posed
and responses received in order to provide evidence of appropriate
challenge and scrutiny.
We will ensure that Board minutes fully
reflect the nature of the discussion, the
specific challenges raised and the
responses, including details of any action
required.
Head of Governance
June 2012
2
An action log should be included within the explanatory notes to the
NAO Dashboard presented to the Board which shows progress
against previous actions to date.
Accepted. We will include an action log with
the Dashboard each month.
Head of Finance
June 2012
3 An action log should be created to support the risk report which details
progress against all actions and their due date.
The new format risk report introduced for the
2012-13 financial year will include a column
setting out actions in hand to address each
risk. Any further actions required will be
recorded in the formal actions log of the
Leadership Team and Board meetings.
Head of Governance
June 2012
4
All budget holders should be involved in the identification of risks
relevant to their area. All budget holders should be aware of the area‟s
risk register and how this links in to the corporate risk register.
Plans are in place to incorporate risk
assessments into performance reports
against area accountability statements.
Head of Governance
September 2012
5
A review should be undertaken to identify the type of financial
management training that budget holders and other staff need and,
subject to the availability of funds, additional training should be
provided.
Accepted. Finance and HR teams will
develop a formal, structured financial
management training programme.
Head of Finance
Head of Training
31 December 2012
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2 - Summary of Recommendations
Number Recommendation Management Response
Responsible Manager
and Timescale for
Implementation
Finance Governance and Leadership
6
Financial Management should be fully integrated into budget holder‟s
personal objectives and performance monitored to emphasize its
importance in the management of operations of the NAO.
Our 2012-13 Financial Management
Guidance clearly states the key
responsibilities of all staff and in particular,
principal budget holders, Directors and
Managers. We are currently reviewing our
staff appraisal guidance and will ensure that
this also includes guidance for appraising
performance in respect of financial
management.
Director of HR
31 December 2012
7
The evaluation form on the bid template should be further expanded
to include a version control with responses between finance and
budget holders being recorded up until the budget is approved or
errors have been resolved. This will provide a) transparency in the
budget setting process, b) accountability of the budget holder in that
they have been involved in the process, and c) a learning tool to
understand mistakes or to track significant changes to budgets.
The bid templates are locked down on a date
agreed with budget holders. This means that
only Finance are able to make changes
subsequently and we have used the
functionality within our current electronic data
records management system to record a
summary of changes made. It is however
possible to include a more detailed record and
we will ensure that we do this from the next
planning round. We will also review the
lessons learned to inform the following year‟s
planning process.
Head of Finance
November 2012
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Summary of Recommendations, continued
Number Recommendation Management Response
Responsible Manager
and Timescale for
Implementation
Financial Planning
8
Significant cash flow and balance sheet movements are unlikely,
however should these occur they should be reported to the Board in the
month that they occur.
We monitor cash flow movements very
closely each month and in particular
during the last two months of the financial
year. Any significant movements on the
balance sheet would be related to the
building which is revalued annually. We
will report any significant issues to the
Leadership Team and Board should they
arise.
Head of Finance
June 2012
Finance for Decision Making
9
The Board should consider whether the collection and review of
benchmarking information from other professional accountancy practices
would assist the on-going financial management of the NAO.
Accepted. We will ensure that this is
included in the Board Programme and
consider the possibility of starting this
process with benchmarking the NAO
against RSM Tenon.
Head of Governance
October 2012
10
A clear line of reporting and accountability should be defined in the terms
of reference between the Core Team and Project Board and improved
clarity in the objectives of the Project Board and the Core Team should
be agreed.
Accepted. We will review the terms of
reference and add further clarity in terms
of roles and responsibilities where
appropriate.
Head of Programme
Office
July 2012
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Summary of Recommendations, continued
Number Recommendation Management Response
Responsible Manager
and Timescale for
Implementation
Financial Monitoring and Forecasting
11 The practice of making manual changes to the monthly financial
statements reported to the Board and AAG should be eliminated.
Changes are only made if there are clear omissions
from management information systems. The ongoing
business intelligence project, which will fully automate
business reporting, will eliminate the need or ability to
make changes. Any omissions will be separately
reported once the project is complete.
Head of Finance
October 2012
12 Periodic performance reports should highlight red and amber rated
performance detailing appropriate reasons and mitigating actions.
Accepted. We will incorporate these
recommendations into our review of the content and
format of the performance reports.
Head of Strategy
October 2012
13
Budget holders and managers should be „performance managed‟ to
review errors in the data uploaded into the system in order to deter
inaccuracy and improve the consistency. The quality of job setups should
be disclosed and a set minimum expectation agreed.
We will be reviewing the accuracy and consistency of
information and reporting omissions to budget holders
and managers on a monthly basis.
Head of Finance
September 2012
14
NAO should review the accessibility and quality of financial management
guidance and policies and should provide additional focused training to
all budget holders to further raise awareness and understanding of their
roles.
We are currently reviewing the NAO Finance Manual
to reflect the provisions of the Budget Responsibility
and National Audit Act 2011 and to make it easier to
use and understand. The review will include all
subsidiary guidance and policies. For training, see
response to recommendation 5 above.
Head of Finance
July 2012
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3.1 Background
The NAO Strategy for 2011-12 to 2013-14 sets out three key goals with regard to the development of a public sector service
improvement ethos: developing and applying the NAO‟s knowledge; increasing the influence of the NAO; and delivering high
performance.
In order to deliver against this strategy it is important that the financial management arrangements in place across the NAO are of
the highest standard. Financial management contributes to all aspects of the NAO Strategy, but particularly the delivery of high
performance. In the strategy document approved by the Public Accounts Commission in November 2010 it is stated that “…there
is still much to do to create the dynamic, high-performing organisation that would add maximum value to our clients and to
Parliament. We must continue to reduce our costs, and we propose to cut these by a further 15 percent of the coming three years”.
This ambition will only be achieved with a strong culture of financial management, and with high quality financial information
informing decision making.
This Value For Money review assesses the current situation with regard to the provision and use of financial management
information and makes practical suggestions to management on how to improve both the quality of the information and the way it
is used by the Board, Committees and management. As part of this review consideration is given to the extent to which the NAO is
budgeting effectively and controlling its costs. At a high level, the review tests whether the NAO is recovering all costs.
To make this assessment and to allow the development of helpful, practical recommendations, the work approaches the task both
from the perspective of the quality and timeliness of the financial information provided and the extent to which this is used
appropriately by management.
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3 – Scope & Approach
In undertaking this review we have adopted the principles of NAO‟s financial management maturity model. Our evidence
emanated from three key sources:
Structured interviews with key people such as Board members, Non-Executives, senior managers, finance staff, management
information systems staff, Internal Audit, Human Resources (Training Lead), Head of Programme Office & Enterprise Architect
and Head of Strategy.
Review of key documents including board finance reports, board minutes, budgeting and forecasting working papers, project
documentation, management accounts, annual accounts, performance reporting, risk reports, internal audit reports, strategic
planning documents and the finance manual.
We issued web-enabled questionnaires to three groups of employees, all budget holders, finance staff and remaining
employees excluding trainees. A 100% response rate was received from finance staff, 49% of all budget holders responded (18
out of 37) and 45% of all employees (266 responses from c600 employees, excluding trainees, finance staff and budget
holders). (NB. From here on reference to „all employees‟ questionnaire results will mean all employees excluding trainees,
finance staff and budget holders).
Hence we have been able to collect some very rich data for this study. The results are shown in Pie Charts with data from all staff
in purple, data from Budget Managers in lighter blue and data from Finance Staff in darker blue.
This information is reported after applying the Financial Management Maturity Model, in five key sections:
Financial governance and leadership;
Financial Planning;
Finance for Decision-Making;
Financial Monitoring and Forecasting; and
Financial and Performance Reporting.
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3.2 Approach
4.1 About the NAO
The National Audit Office assist Parliament in holding the Government to account for the way it utilises public money. They scrutinise
central government departments and bodies spending of public money and thereby safeguard the interest of taxpayers.
The NAO audit the financial statements of all government departments and a wide range of other public bodies, and conduct value for
money reviews, which look at how government projects, programmes and initiatives have been implemented and recommend how they
can improve.
The National Audit Office is headed by the Comptroller and Auditor General, an officer of the House of Commons appointed to carry out
the external audit of central government departments, executive agencies and other public bodies including public sector companies. The
Comptroller and Auditor General is wholly independent of government..
Funding and Distribution of Resources
The NAO receive their budget directly from Parliament through the approval of the Supply Estimate from the Public Accounts Commission
(PAC), a House of Commons Committee. The majority of this resource is used to employ c880 staff, outsource parts of the financial audit
and value for money work, and provide the infrastructure and support necessary to operate the organisation effectively.
The Definition of Financial Management
In our on-line questionnaire we asked respondents to define „Financial Management‟. There were a large number who took the time to
respond, and the results are captured in Appendix A. This analysis demonstrates that there is a wide range of opinion on the definitions of
financial management amongst those in the accountancy profession.
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4 – Background and Governance
Source: National Audit Office Annual Report 2010/11
4.2 Distribution of
resource
The diagram depicts how the
NAO resource was focused on
each area of government in the
year to 31st March 2011. Work
is distributed across different
areas which reflects:
The number of accounts
audited;
The relative amount of public
expenditure and revenue;
The complexity and risk
associated with each area;
and
Issues of particular interest
to PAC.
The size of each circle in the
diagram indicates the total cost
of NAO work in that area,
including financial audit, value
for money and performance
improvement work.
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Governance
FY11 was the first full year in which the NAO Board operated in its current form, following the agreement of improved government
arrangements by the PAC in 2009. The NAO Board is comprised of a majority of non-executive members and is supported by the Audit
Committee and Remuneration Committee. Both committees consist of solely non-executive members.
The Leadership Team support the Comptroller and Auditor General by providing executive management and governance to the
operations and delivery of the NAO. The Leadership Team is chaired by the Comptroller and Auditor General and attended by the Chief
Operating Officer and four Assistant Auditors General. The Leadership Team meet monthly and are supported by two committees, the
Operational Capability Committee and the Audit Practice and Quality Committee.
The Operational Capability Committee has delegated authority to deliver the appropriate resources, infrastructure and human capital to
achieve the NAO‟s business objectives. The Audit Practice and Quality Committee operate to review the comprehensiveness, reliability
and integrity of the framework supporting the technical quality of the NAO‟s audit work.
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5.1 NAO Board and Leadership Team
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Key Findings and Issues:
The past few years have been a period of significant challenge for the NAO. More recently, as austerity measures have started to bite,
resources have become far more heavily constrained. Consequently the NAO has been going through a cultural change, moving from an
organisation with a principal aim to deliver audits, to one where this objective has to be married with the need to reduce costs.
Our findings are that the NAO is responding well to this challenge. The Board stand full square behind the leadership team in the delivery of
the strategy and they back the desire to „practice what we preach‟ in utilising resources wisely. Through interviews with members of the
Board it was evident to us that there is a culture of collective responsibility and an appropriate level of delegation of financial management
responsibilities to the executive team.
As the NAO makes its transition from an organisation with relatively few financial challenges to one with real pressures, management are
trying to get greater ownership of budgets and responsibilities on the part of the Audit Directors. Our survey demonstrates significant
commitment and buy-in to this strategy by NAO staff, although there is still some way to go as evidenced (detailed in section 8.2 of this
report) by the poor response by some Audit Directors to information required for input into the financial management systems. As a result
of the greater independence of the Comptroller & Auditor General as compared to most comparable organisations, the Board dynamic is
different. That said, the Board appears to operate effectively and the NAO Board recognises that it has an assurance role, with the
leadership team being empowered to make decisions.
The leadership team are trying to respond positively to this agenda, for example, there was a need to speed up the audit process given
tighter audit timetable and the expected impact of the Olympics. As a result, a five point plan was created and applied which included zero
based budgets. This was overseen by the Leadership Team and reported to the NAO Board.
In addition, following from our discussions with members of the Board and Leadership Team, we note that both groups take their financial
management responsibilities seriously. The Board reviews financial performance and risk monthly, and the NEDs feel that they have the
right level of information. They recognise that in the financial sense, the NAO is not a complex business and therefore the level of
information and scrutiny is appropriate. The NAO strategy is reviewed annually and financial issues are included within this review.
5 – Financial Governance & Leadership
5.2 Board Meetings and Finance Board Papers
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Key Findings and Issues:
Finance reports are provided and discussed at each board meeting. From our review of these documents which were presented to the
Board and the Leadership Team, we note that they hold sufficient detail for appropriate challenge and scrutiny.
The NAO dashboard details actual performance against target for the agreed twenty-two key performance indicators (KPIs). The
explanatory notes support the NAO dashboard by providing reasons for red or amber rated KPIs and other issues and risks with supporting
actions. The documents used for reporting are easy to understand and follow and provide a snapshot and summary of the NAO‟s
performance against its strategic objectives. However, we identified that in some instances actions recorded in the explanatory notes
continued to be reported as an action in the following month (e.g. 2.7 Correspondence KPI). However there is no action log on the
explanatory notes to show progress to date on actions and this would be an important discipline to allow the capture of actions and a tool to
aid in the monitoring of compliance.
Through review of the minutes we note that the Board reviews the finance papers . The minutes are not very detailed in terms of the extent
of challenge, however NEDs were able to give tangible examples of challenges they had raised, and executives felt that challenge was
robust, but appropriately supportive. Such detailed challenge information was only recorded in the board minutes during the review of the
budget and estimate for the year. From review of the Leadership Team meeting minutes we note that appropriate discussion and challenge
is recorded of the NAO dashboard and explanatory notes. Hence we conclude that the Board minutes summarise the discussions and so
going forward it is important that fuller minutes are agreed that demonstrate the areas of challenge, the response by management and the
agreed resolutions.
We note that actions are recorded in the Board and Leadership Team minutes and progress is reviewed against these actions at the start of
each meeting.
Recommendations and Suggestions:
Board minutes need to be more detailed to include questions posed and responses received surrounding the NAO dashboard and
explanatory notes, in order to provide evidence of appropriate challenge and scrutiny.
An action log to be included within the explanatory notes which shows progress against previous actions to date.
5.3 Financial Information received by employees
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Key Findings and Issues:
A large amount of information is made available to budget
managers, including the finance manual, procedure notes for
completing budget and forecast templates, business plan
guidance setting out the responsibilities of managers, and there is
an established help line and web site with frequently asked
questions. Employees have access to the finance manual, are
notified of changes to procedures and all financial information is
published on the intranet.
However, as shown in the chart opposite, over a third said that
they never receive information and views were mixed and varied
from those who said that they do receive it, in terms of the
frequency.
In terms of Budget Managers, over 80% consider the information
they receive to be relevant. Importantly, a half recognised that the
challenge they receive on their financial performance is helpful or
very helpful, with only 6% finding it unhelpful. These are good
results for any organisation and indicate that the balance between
challenge and support is broadly appropriate.
Recommendations and Suggestions:
Management should identify those budget holders who state
that they do not receive financial information and updates from
the Board / Executive Team and explain to them the meaning
of the information that is routinely sent out.
5.4 Internal Controls and Risk Management
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Key Findings and Issues:
Policies and Procedures:
Our review found that policies and procedures are widely circulated to
Budget Managers and all employees through the intranet – see previous
section. We found that records are maintained of receipt and agreement to
key documents. The NAO Finance Manual covers the majority of the
financial policies and procedures which is available to all employees through
the intranet and subsequent procedures are provided by the Finance
Department as required. However, the vast majority of managers said that
they are aware of these policies – although it was concerning that 6% said
they were „unaware‟ of the financial management policies. Furthermore, only
half stated that they are made aware when polices are reviewed.
Over two thirds of managers felt that the NAO welcomes their challenge of
policies and 40% of all employees, a very good result indicating that most
staff feel able to speak out when they need to.
Recommendations and Suggestions:
Policies and Procedures:
Management should identify those employees and managers who state that
they are unaware of all their responsibilities and remind them of the policies
and procedures in place across the NAO that they have already
acknowledged and accepted.
Given that only half of managers felt that they are notified each time a
policy is updates, there is a need for management to consider the
communication concerning policy updates
5.4 Internal Controls and Risk Management
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Key Findings and Issues:
Risk Management:
Risk Management is recorded and reported through the organisational and individual area /
project risk register, and supporting monthly and detailed quarterly risk reports are
presented to the Board.
We reviewed the Risk Register and Risk Reports of the NAO and consider that they are
sufficiently detailed. They include risks surrounding external and business strategy . All risks
are RAG rated with supporting actions, including an identified risk owner. Although actions
are recorded on the documents, progress against these actions is not recorded and not
included as part of the report to the Leadership Team and the Board. An action log would
ensure that the appropriate focus is given to this task.
Our questionnaire results identified that 72% of budget holders were aware of the risk
management strategy, with 39% saying they were unaware of the business risks within the
risk register, and only 50% stating they did contribute to the identification of risks. 78%
stated that they were not aware of an area risk register.
Internal audit reports surrounding financial management as reported to the Audit Committee
during 2011 showed that adequate controls are in place to mitigate risks. The annual internal
audit reports for FY11 addressed that the NAO had „satisfactory risk management, control
and governance arrangements that provide reasonable, but not absolute assurance
regarding delivery of its strategic outcomes and business objectives.‟
Recommendations and Suggestions:
Risk Management:
An action log should be created to support the risk report which details progress against
all actions and their due date.
We recommend that all budget holders are involved in the identification of risks relevant
to their area and these are incorporated within the area and corporate risk register. All
budget holders should be aware of the area‟s risk register and how this links in to the
corporate risk register.
5.5 Finance Skills
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Key Findings and Issues:
The NAO has four non-executive members on the Board and a non-executive Chairman.
There is a high quota of qualified accountants and all have extensive financial, business or
legal backgrounds. Together this represents a high and impressive level of financial
expertise and a far higher proportion of qualified accountants than in most of your clients.
This is a strength in terms of financial management, but could be seen as a problem if this
resulted in the Board wanting to get into too much detail or spending too much time on
financial matters, at the expense of other items on the agenda. However we found that the
approach is a sensible one of empowering the executives to manage the finances of the
organisation, whilst reserving the right to intervene on matters by exception, where this
would be necessary.
The financial management team of the NAO consists of nine members of staff covering c852
employees, thus one member of finance staff for every c94 employees. 63% of the financial
management team of the NAO hold professional qualifications. The financial management
team have a background in audit and come through from the audit department of the NAO
either on secondment of transfer and therefore a fully sound in the requirements of financial
management.
83% of budget managers hold professional qualification, with two thirds of Budget Managers
said that they are „extremely‟ or „very‟ confident in dealing with financial information,
indicating that the majority have had the support and training they need to do the job. Only
6% said that they were only a „little comfortable‟ and so it is this minority that management
needs to focus on to improve their skills and confidence.
In our view the financial management team and majority of the budget managers have the
capabilities and skills required to undertake their financial management responsibilities.
5.6 Financial Management Training
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Key Findings and Issues:
Financial Management training is provided to all staff as part of their induction
course. In addition, financial management seminars are held and financial system
training is also provided, although only circa a third of directors and managers
have attended the financial management seminars to date. Frequently asked
questions are published on the intranet and updated following seminars. A recent
new approach to provide training on financial systems has been adopted whereby
„champions‟ are created across the NAO and training is provided to these people
to cascade the information across their areas. This is a positive initiative and
management should be encouraged to press on with its implementation.
In addition, there are several personal development courses (including some on
financial management) available through the intranet provided by the Human
Resources (HR) team to which employees can book themselves on to. External
training can be attended following the approval of the employee‟s line manager
and HR. Further qualifications can also be gained through presentation of a
business case to the HR team who assess the need for the qualification and
authorise the training with the employee‟s line manager.
There are more than half the managers who have not received training on
financial management in the past year – although there were opportunities for
them to do so. Half say they want some training. More concerning, only a third say
that financial management is properly integrated into their personal performance
plan and this is a matter that does need attention.
The NAO financial management team are either qualified accountants or
undertaking their accountancy exams. The qualified accountants attended
courses based on the need, which is assessed by the Head of Finance and
authorised accordingly. In addition, the financial management team have access
to the general staff personal development courses as mentioned above.
5.6 Financial Management Training
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Key Findings and Issues continued:
54% of employees felt that the NAO creates opportunities and
incentives to drive continuous improvement. Responses showed that
all in all there was an appreciation of the NAO‟s drive for better and
more efficient working processes through review and assessment of
work completed. It was felt that to enable this goal to be met the NAO
should seek to provide sufficient training courses and seminars for its
staff. 75% of finance felt that they are supported by the NAO to obtain
further financial management qualifications.
The NAO already provides extensive training and in a cash
constrained environment, there are limitations to how far this can be
expanded. Our view is that training to ensure core skills is already in
place and therefore additional support should be considered and then
provided if resources allow. It is vital that financial management
responsibilities are fully articulated and monitored through personal
performance targets.
Recommendations and Suggestions:
A review should be undertaken to identify the type of financial
management training that budget holders require and, subject to
the availability of funds, management should seek to address that
need.
Financial Management should be fully integrated into budget
holder‟s personal performance objectives to emphasize its
importance in the management of operations of the NAO.
• The overall strategy which includes the inbuilt 15% savings across the 3 years
• The strategic plan is developed through the use of financial models with a starting point of last years performance and incorporating adjustments.
• Reviewed by the Head of Finance, Director General of Finance, Leadership Team and the Board.
3 Year Strategy,
Approved by TPAC in December
• The estimate identified in the strategy is confirmed through a detailed planning process.
• Bids from each principal budget holder are gathered through their completion of a standard template, identifying the budget they require for the year. All bids are reviewed and scrutinised and re-iterated until a final version is agreed.
• All bids are automatically consolidated and reviewed in line with the strategy and estimate to ensure they are in line with expectations. A Corporate Delivery Budget is approved on this basis.
Financial Year Estimate & Budgets
Approved by TPAC in March
• The Corporate Delivery Budget is input in RMS by 30th April following approval at the end of March.
Input of Corporate Delivery Budget
April
• The Corporate Delivery Budget is revisited in September. All principal budget holders are required to input budget information directly into RMS.
• This is reviewed and scrutinised by the finance staff until a final forecast is agreed.
• All forecasts are presented for approval by the Board and consolidated to create a Revised Corporate Delivery Budget, in line with the approved estimate. This is then presented to the Board for approval.
Income and Expenditure Review
September / December
6.1 The budget setting and financial planning process
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6 – Financial Planning
6.2 Strategic & Business Planning Process
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Key Findings and Issues:
The NAO‟s strategy focuses on three strategic objectives:
1. Developing and applying our knowledge;
2. Increasing our influence; and
3. Delivering high performance.
All surrounding the requirement to improve public service.
The Business Plan supports the strategy by detailing the use of the workforce, technology,
infrastructure, including financials to achieve the corporate objectives.
Each area is required to complete an Area Accountability Statement (AAS) which briefly outlines their overall budget, which is based on the
government department family audited and other cross cutting audit areas. The AAS supports the business plan by defining the results each
area is aiming for, and the specific outputs to be delivered. They include high level income and expenditure budgets on a per audit / value for
money review basis. There are also sufficient non-financial objectives including stakeholder analysis.
We note that training and guidance is provided to all budget holders on the process of how to complete templates and a financial
management team helpline is available for all to access. As shown in the diagram on the previous page, this process takes place over
several months, and yet 11% of Budget Managers thought it occurred within two months of the start of the year.
In September a review of the budget is undertaken to identify forecast income and expenditure and the budget is revised as a result.
Our questionnaire responses show that all budget holders confirm that they are involved in the budget setting process. 78% of budget
holders state they are able to scrutinise their budget before final board agreement, with 17% stating they are not. In addition, 89% of
budget holders believe the budget setting process begins over 3 months before the following financial year, yet there are still 5% who
believe it begins only 2 – 3 weeks before the following financial year.
75% of finance staff stated the budget setting process is reviewed annually, with 13% stating when required so.
Recommendations and Suggestions:
Management should identify the minority of Budget Holders who state that they are unaware of the budget setting process and
timetable and ensure that they are aware of their responsibilities.
6.3 Systems of financial planning
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Recommendations and Suggestions:
The evaluation form on the bid templates is further expanded to
include a version control with responses between finance and
budget holders being recorded up until the budget is approved or
errors have been resolved. This will provide a) transparency in
the budget setting process, b) accountability of the budget holder
in that they have been involved in the process, and c) a learning
tool to understand mistakes or to track significant changes to
budgets.
Key Findings and Issues:
From our review of the financial planning documentation known as the budget setting process we noted the following issues:
The budget values are said to always round to the nearest £‟000 with a £500 de-minimis. This has the risk of missing budget if there a
significant number of individual expenditure items within this margin.
The briefing document indicates that the budgets are not agreed until 30th April yet from our discussions we are aware that it is agreed by
31st March and uploaded on the system by 30th April, therefore revision of the document for clarity is required.
The bid template that budget holders are required to complete is well structured as it allows the assessment of a budget bid by an Area.
Evidence viewed shows scrutiny of the bids is undertaken and responses are recorded through the evaluation form. We note that there is
also feedback and clarification of the information e.g. loss making bids and increases in costs over previous years. This demonstrates
involvement of service delivery staff in budget setting and a two-way process. However, there is no record of any responses or the outcomes
surrounding scrutiny and feedback of bids to understand how the issues were resolved.
Our questionnaire responses show that all budget holders are aware of their financial forecasts and are involved in setting their forecasts. In
addition, all budget holders say that they notify finance when they are underspent in order for funds to be allocated elsewhere, however our
responses from finance staff showed that 25% felt that this was the case always, whereas 63% believed they were only notified sometimes.
6.4 Coverage of financial planning
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Key Findings and Issues:
All forecasts are purely Income and Expenditure based, but as part of the Estimate, the balance sheet and cash flow forecast is
produced for each year. This is reviewed by the Director of Finance and Head of Finance. The Leadership Team view the finalised
estimate. The final Estimate goes to the Board for approval and the minutes record that this is approved.
A monthly cash flow forecast has been recently introduced. This builds in the capital expenditure that is based on the annual estimate
and approval process, however this was still in its early stages of development and is work in progress.
The monthly Board report does not include this cash flow or balance sheet information. Whilst it is appropriate that these matters are
dealt with by the executive, there should be a formal process so that the full Board is notified of any major swings or issues to the
balance sheet or the cash flow. We recommend that this is achieved by way of an exception report, rather than cluttering up the
financial report with additional appendices that will show only minor movements, month-to-month. However, it is good practice for the
Board to review both cash flow and balance sheet periodically, as this process of challenge can be helpful to ensure that management
continues to track movements of a regular basis.
Recommendations and Suggestions:
Significant cash flow and balance sheet movements should be included and reported as exceptions as part of the monthly Board
report.
7.1 Understanding of Income Expenditure
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Key Findings and Issues:
The Assistant Auditors General (AAG) reports that are provided to each AAG on a monthly basis
detail summarised information on expenditure. This is provided by finance staff for review and
decision making purposes. These reports consist of a Business Report and supporting Annexes.
They comprise the following detail:
A portfolio NAO dashboard per the KPIs of the NAO, which compares NAO overall performance
to that of the AAG portfolio, indicating differences in RAG ratings.
Provides detail on target versus actual performance for all areas of work.
The annexes to the business report provide detailed listings of transactions which link into the
summary data within the business reports.
The NAO dashboard and explanatory notes are updated monthly, to show Income and Expenditure
actual versus target as part of the NAO KPIs performance review.
Through interviews we were satisfied that the leadership team and the Board understand the
expenditure drivers of the NAO. However, less than half of Budget Managers said that they
understand the costing methods used. Whilst the majority of managers were confident that all
staffing costs were fully reflected in their budgets, 11% were not. Given the information that we
have examined that is provided to managers, this is a surprising result and so management needs
to establish whether this is because there is a lack of understanding of how to reconcile staffing
levels in the budget or because there is a concern that staffing costs are omitted.
Recommendations and Suggestions:
Management should identify those budget holders who state they are unaware of costing
methods used by the NAO and support them to ensure that they are equipped to fulfill their
responsibilities.
Management should identify those budget holders who state they are unsure whether their
budgets include all staff costs and complete a reconciliation to ensure that all staff costs are
included in the correct budget
7 – Finance for Decision Making
7.1 Understanding of Income and Expenditure, continued
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Key Findings and Issues:
As a resource driven organisation there are some areas of work where the NAO
generate income. In FY11 the NAO generated £20.2m income which was £0.7m
higher than the FY11 Estimate, and represented c21% of the gross estimate
resource (£96.1m).
Income along with expenditure as discussed in section 7.1 previously, is reported to
the Board on a monthly basis and the details are provided within the monthly AAG
reports.
Benchmarking is not regularly used in managing the business, although we accept
that this is more applicable to organisations operating in a competitive environment.
That said, the NAO has a lot in common with professional accountancy practices in
terms of levels of utilisation of staff, inputs to complete audits and staff pay levels,
and the Board should consider whether benchmarking information would be
beneficial in the financial management of the NAO going forward.
The NAO monitor their income against costs through their AAG reports and overall
monitoring is undertaking by the financial management team when they review the
information on the system and question the budget manager. High level review is
undertaken at leadership level through review of the NAO Business Reports.
Recommendations and Suggestions:
The Board should consider whether the collection and review of benchmarking
information from other professional accountancy practices would assist the on-
going financial management of the NAO
7.3 Investment Appraisal and Project Management Process
Key Findings and
Issues:
The NAO have a
Programme Office
(PO) which covers
internal change
improvement projects
that are primarily IT
based. We discussed
the process with the
Head of Programme
Office and Enterprise
Architecture which is
noted in the diagram
opposite:
Projects are identified as part of the annual business planning process, where opportunities are identified and project outlines are created.
Project proposals are then created which depict high level estimates of resources and solutions. These are collated together and a bid is placed for the budget to be provided to the
individual areas.
All project proposals are ranked by the PO using criteria set based on
strategic fit, improvement in services and internal efficiency, risks of
completion and other factors are also considered.
These ranked project proposals are then presented and discussed with Directors, where projects are then
prioritised, and the capacity to deliver the projects are reviewed.
Following an agreed ranking a Portfolio Deliverable Plan is created.
Each project in the Portfolio Deliverable Plan is assessed for feasibility to justify the business
case produced. The business case production is created by the project
managers with support of the business analyst of the PO.
The PO undertake a peer review of the business case using a standard
template of evaluation.
The final approval level of projects is based on the financial value of the
project over its lifetime. Director General of Finance approves
projects under £250k and above £250k is approved by the Chief
Operating Officer.
The PO effectively recommend projects to the Director General of
Finance and Chief Operating Officer for approval. Both of whom have the
support of the PO Core Team, Leadership Team and Operational Capability Committee to assist in
making the decision.
Where projects are non-compliance based then a post benefit analysis is
done on project closure.
Confidential
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7.3 Investment Appraisal and Project Management Process
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Key Findings and Issues:
The PO have tailored the Prince2 Project Management methodology to fit the NAO.
This has involved the use of project lifecycles, standard gateway reviews and NAO
dashboard reporting on progress to date. The NAO dashboard reporting approach is
populated by the Head of Programme Office and Enterprise Architecture through the
collation of information from various sources. Through the collation of this data the
consolidated NAO dashboard report is produced monthly and reviewed by project
managers for accuracy before being presented to the Operational Capability
Committee (OCC) and the Programme Office Board (POB) who review progress and
deal with any issues.
We reviewed the PO terms of reference and noted the following issues:
It is unclear whether the Programme Core Team and Board deliver the projects of
work on the Programme Board for business change delivery.
There is no clear link between the POB and the Programme Core Team for
reporting lines and governance structure.
The Core Team‟s terms of reference do not set out clearly their objectives.
We reviewed the Programme Office consolidated NAO dashboard and noted that:
There is no split of budgets between capital investment and revenue expenditure,
to depict what has been capitalised.
There are no supporting data numbers to the bar charts in section 2 for
transparency of values.
The projects that are red or amber rated are not highlighted within the NAO
dashboard with their supporting mitigating actions.
We selected a sample of project documentation for review from the project portfolio
documentation and noted they were sufficiently detailed and provided detailed
information of expected project costs, and options appraisals. Our questionnaire
results show that a significant majority of budget holders were aware of the PO and
22% had utilised the PO to secure funding.
Recommendations and Suggestions:
Programme Office terms of reference:
A clear line of reporting and accountability should
be defined in the terms of reference between the
Core Team and Project Board and improved
clarity in the objectives of the Project Board and
the Core Team should be agreed
7.4 Outsourcing
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Key Findings and Issues:
As part of the work undertaken by the NAO some work has to be outsourced as required. The NAO outsource work to their framework
partners, but only those who have been assessed under the procurement policy and arrangements of the NAO. Framework partners are
chosen in line with the NAO‟s procurement policy which states the following:
“The NAO should seek innovation and value for money, including identifying cost reduction opportunities, in what and how
they buy, encouraging collaboration, including the use of public sector Framework Agreements where possible.”
The Central Procurement Team (CPT) is responsible for providing support and best practice advice on procurement activities, as follows:
Above £25,000 - CPT must be involved in the tender evaluation panel, management of the procurement exercise and all contact with
suppliers.
Below £25,000 – Advice should be sought from CPT on a case by case basis.
Buying decisions in the NAO are made jointly by business areas and procurement staff, and the CPT must confirm on the „Request for
Approval to Award Contract Form‟ that appropriate procurement strategies and processes, which include up to date professional
procurement practices, have been followed.
The NAO‟s Procurement Strategy details a robust tendering and approval process.
8.1 Financial Monitoring
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As already reported, financial
monitoring is exercised through a
monthly review of the NAO
Dashboard.
The tables opposite show the
Statement of Comprehensive Net
Expenditure for the last three years
and the Comparison of Outturn with
Estimate for FY11.
The NAO has managed within the
Estimate across this strategic
period.
Source: National Audit Office Annual Report 2010/11 & 2009/10
Statement of Comprehensive Net Expenditure
FY11 FY10 FY09
£000s £000s £000s
Administation Costs
Staff Costs 57,432 57,770 55,171
Other administrations costs 35,050 57,026 67,922
Gross administation costs 92,482 114,796 123,093
Operating Income (20,235) (19,896) (19,966)
Net Operating Cost 72,247 94,900 103,127
Other comprehensive expenditure
Net gain on revaluation of property, plant and equipment (3,261) (32,813)
Total comprehensive expenditure 68,986 62,087 103,127
Comparison of Outturn with Estimate FY11
Estimate Forecast Outturn
Saving
against
Estimate
Saving
against
Forecast
£000s £000s £000s £000s £000s
Gross Resource requirement 96,100 93,600 92,578 3,522 1,022
Income (19,500) (19,500) (19,500)
Net resource requirement 76,600 74,100 73,078 3,522 1,022
Capital Expenditure 1,430 1,430 1,345 85 85
Net Cash requirement 75,443 68,165 7,278
8 – Financial Monitoring and Forecasting
8.2 Quality, accuracy and timeliness of financial management and forecasting information
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Key Findings and Issues:
From discussions we were informed that producing the monthly financial monitoring reports (AAG Business Reports and Annexes and the NAO
dashboard) takes a working week . This is because reports cannot be created automatically from the system. Once data is downloaded from
the system this is then reconciled to confirm accuracy of the information to be reported. This data cleansing exercise takes time due incorrect
coding on the system, or not incorporating all costs of the job, or timesheets not being completed on time, etc. Therefore, data downloads are
manually adjusted following review before information can be consolidated and reports created. All reports are reviewed prior to submission.
We have concerns over these manual adjustments as this could lead to errors in reporting.
As a result of our discussions we obtained reports from the NAO identifying the level of errors and non-compliance by managers in recording
complete information on the RMS. The goal is to reduce manual data cleansing and increase the accuracy of all information extracted from
RMS system to facilitate the appropriate analysis.
We analysed the data on the total number of jobs with missing information (either target dates, budget data or income quotes) across the
months and then split by area. This shows the following:
Jobs with missing information range from 14% - 25% of total jobs of the NAO.
There was a peak in missing information in December 2011 and January 2012, although this has subsequently dropped in February 2012.
The highest area where the proportion of jobs are missing information are WGA , VFM and Performance Improvement. The Other Financial
Audit Outputs significantly increased the proportion of missing information from May 2011 with 8.8% to February 2011 to 61.1
8.2 Quality, accuracy and timeliness of financial management and forecasting information
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Key Findings and Issues:
4questionnaire responses show that financial
information received is deemed to be relevant
by a significant majority . 56% of budget
holders feel that the financial information is
accurate but there are still 44% that do not
despite the time spent by finance staff on
reviewing and data cleansing the information
downloaded, as mentioned previously. Yet
only 61% stated the information reflects
accurately their understanding of their Area‟s
performance.
50% of finance staff stated that errors
identified in financial information are
corrected and resolved within the day or week
of identification.
Recommendations and Suggestions:
The practice of making manual changes to
the monthly reports to the Board and AAG
should be eliminated.
8.3 Coverage of financial and non-financial indicators of performance
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Key Findings and Issues:
Performance against the six strategic performance
indicators are reported to the Board each quarter.
These are detailed in the opposite table with the
latest reported position.
On each Area Accountability Statement (AAS), key
performance indicators are identified which are
reviewed and challenged by the AAG responsible.
Every four months a review of the performance
against the Area KPIs is undertaken and a report
compiled by the AAG for their portfolio, which they
self-assess and RAG rate. This self-assessment
combined with the information in the table opposite
is used by the Head of Strategy to populate and
create the Performance Report presented to the
Board.
From this, it is noted that the majority of the
information used to report on is qualitative rather
than a mixture of qualitative and quantitative. Given
the nature of the audits, we conclude that this is an
appropriate approach.
Source: National
Audit Office
Performance
Report Sept 11 –
Nov 11
8.3 Coverage of financial and non-financial indicators of performance
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Key Findings and Issues
The performance reports detail qualitative findings supported by
RAG rated status pie charts for each KPI. However the RAG pie
charts do not summarise what criteria are being measured to
assess the performance measures. In addition, red and amber
rated performance is not discussed within the reports to highlight
reasons and mitigating actions.
This self-assessment information is useful, however there is a
concern that there is no independent review, and perhaps an
external assessment on an annual basis would strengthen the
analysis.
83% of budget holders have their Area‟s performance assessed
against financial and non-financial criteria. The vast majority
(89%) believe that the non-financial criteria used to measure
performance are appropriate.
Recommendations and Suggestions:
Periodic performance reports should highlight red and amber
rated performance detailing appropriate reasons and
mitigating actions.
8.4 Financial management and operational performance management systems
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Key Findings and Issues
There are three different systems used for financial management as follows:
RMS – logs timesheet and expenses information by job, for which each Principal Budget Holder and manager are responsible to
review.
PARIS – is the NAO‟s finance system.
RAS – provides level of staff utilisation analysis which is undertaken by the Human Resources department.
All the financial reports prepared utilise information from the above sources. All reports created are saved on to the KeyStone system of
the NAO to which every employee has access to view. In addition, all NAO employees are able to view standard reports from RMS in
order to review job performance which they can run themselves. The finance team provide data analysis following the data cleansing. All
reports prepared by finance are emailed to their users as they are non-standard reports and cannot be automatically downloaded by users
themselves due to the manual adjustments undertaken, as noted in section 8.2, if this was corrected then the reports produced by the
system would be more robust.
As shown in section 8.2, there are a high number of audits with some data fields missing – c20%. The next stage in the development of
the NAO‟s financial management reporting needs to be to improve on the quality of these non-financial performance indicators, and the
importance of this task needs to be emphasized through the inclusion of this as a target for managers that is monitored through the
appraisal process.
Recommendations and Suggestions:
Budget holders and managers should be „performance managed‟ to review errors in the data uploaded into the system in order to deter
inaccuracy and the consistency of the quality of job setups should be disclosed and a set minimum expectation agreed.
9.1 Relevant and Understandable Finance Information / Reports
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Key Findings and Issues
At the start of the year the Leadership Team performance measures are agreed. Based on
this, the finance team meet with the Directors General and agree the format of reports to be
provided to them and those presented to the Board. A formal meeting with all Audit Directors
and Finance is held in April where a draft copy of the reports to be prepared are discussed
and agreed. Triggers are identified and agreed for each performance measure where upon
reaching this the finance team will alert the Director of being close to breaching the measure.
Our questionnaire results show that:
83% of budget holders state the financial information they receive is tailored for their
area‟s needs;
Only 22% of budget holders request additional information, with 75% of such requests are
believed to be adhered to by the finance department; and
Only 11% of budget holders stated they are consulted on changes to the content of the
financial information, with 83% stating they are not.
Financial information and reports are provided on a monthly basis to budget holders. 61% of
budget holders stated this is received at the same time each month and with sufficient time
to take action prior to the end of the following month upon any discrepancies or variances, as
required.
78% of budget holders felt that the information received was understandable or very
understandable. 61% of budget holders require the assistance of finance staff to understand
the content of the financial information sometimes with only 5% stating they require
assistance always.
Recommendations and Suggestions:
Management should identify those Budget Managers who say that they do not understand
their financial reports and put in place a programme of support to ensure they are capable
of fulfilling their obligations as budget managers.
9 – Financial and Performance Reporting
10
Appendices APPENDIX A: What NAO budget holders think financial management is…
APPENDIX B: NAO‟s Financial Management Maturity Model – Level Scoring
APPENDIX C: User guide graphs in the report
Appendix A: What NAO
budget holders think
financial management is…
Stewardship and
oversight of the
budget and spend
against it.
Clear understanding and effective
monitoring of budgets, expenditure
and forecasts.
Using quality, up-to-date
data to make informed
decisions about the
management of resources.
Proper preparation of budgets and accurate
and regular forecasting of outturns,
including anticipation of new costs
Clarity about the types of expenditure one
is responsible for - accurate data, regularly
updated - clear presentation - forums where
decisions can be made on the back of the
information - the ability (levers, etc.) to drive
through the consequences of decisions
Making best use of financial resources
in securing the organisation's objectives
- including securing VFM, ensuring
propriety and transparent and
meaningful reporting.
Using business generated information to
monitor progress against agreed objectives,
and making informed decisions to direct
future work
Setting and implementing the framework for
ensuring tight management of deliveries in
line with the NAO's financial management
approach.
Making best
corporate use of
the resources
allocated to me
Delivery of work/projects within an agreed budget -
therefore, setting, monitoring and pro-actively
managing budgets for each piece of work, and for
the area as a whole.
Management of all aspects of
resources and finance/funding for
business operations, including at
operational and strategic level.
The effective management of
resources to deliver outcomes in
support of the NAO's objectives - also
understanding not only the in year
budget impact, but the impact on
working capital too. FM can also, if
handled properly support things like
wider operational efficiency.
Having relevant, timely, useful and accurate
information to help inform appropriate
decision making, monitor targets and help
ensure that objectives are delivered.
Feeding in to the annual budget setting process;
managing the finances on my area in year
(income - through audit fee recoveries and
expenditure - t&s; contractors and staff) across
the full portfolio of work covered by my PBH
responsibilities and being held accountable for
any significant variances both in year and at the
year end. And drawing any significant concerns
to the attention of my line manager and the
central Finance team.
Deciding on the most cost-effective deployment of
resources and monitoring delivery of work against
resource utilisation, adjusting where necessary, and
accounting for the final performance. Understanding
the financial consequences of decisions and acting
appropriately.
APPENDIX B: NAO’s Financial Management Maturity Model – Level Scoring
Confidential
46
Practice Awareness Outcome
Level
Five
The organisation has in place financial
management practises that are leading
edge and allow it to anticipate both
challenges and key opportunities, in
order to optimise its performance.
The organisation places an emphasis
on continually striving for excellence in
financial management and seeks
opportunities to improve which are
inventive and might sometimes be
radical.
The organisation anticipates and responds to the challenge
of changing circumstances and looks ahead to anticipate
significant events. It delivers programmes to time, cost and
planned level of quality, with very few exceptions. It seeks
efficiencies and improves the services it delivers while
optimising potential increases in costs. There is a
sophisticated understanding of the organisation‟s cost base
in terms of understanding the key drivers of different
services and products.
Level
Four
The organisation has in place
professional financial management
practices which enable it to cope
effectively in challenging times and will
identify some opportunities to improve
its performance.
The organisation continually reviews
its financial management processes
and makes improvements to build
upon and develop the current methods.
The organisation responds to challenge in good times and
looks ahead to anticipate most significant impacts. Most
programmes are delivered to time, cost and planned level
of quality. It understands the impact of change on the costs
and performance of different programmes and is able to
deliver cost efficiency programmes.
Level
Three
The organisation has in place financial
management practices that are
adequate in supporting the business
under stable circumstances, and
enable it to develop but will not be
sufficient in challenging times.
The organisation will try to improve
financial management as a result of
responding to the need for change as
opposed to engaging in a continued
drive for improvement. It may be
shocked into significant change by
crisis.
The organisation manages well when the environment is
familiar and stable. It may be significantly challenged by
unforeseen events, or by machinery of government
changes or new initiatives. Programmes are not always
delivered to time, cost and planned level of quality due to
difficulties in anticipating and responding to risks in a timely
manner. The organisation will achieve cost reduction
through a combination of efficiency programmes and
budget cutting.
APPENDIX B: NAO’s Financial Management Maturity Model – Level Scoring
Confidential
47
Practice Awareness Outcome
Level
Two
The organisation has in place financial
management practices that are basic
and allow it to function on a day to day
basis but do not support the
organisation to develop.
The organisation has some awareness
that it needs to improve its financial
management but does not actively do
so. Improvements are rarely made.
The organisation is aware of a number of issues with the
current financial management processes, which have been
highlighted by sources such as external and internal audit.
It becomes aware of potential overspends too late to be
able to bring them back into line. Some of the major
projects are regularly over time and cost and are of less
than expected quality. The organisation reacts to reductions
in funding by budget cutting due to a lack of understanding
of the impact of changes on the costs and performance of
programmes.
Level
One
The organisation has some financial
management practices in place but
they are inadequate in that there are
many gaps which affect the day to day
running of the organisation.
The organisation has little awareness
of the need to improve financial
management and makes very little
effort to make changes.
The organisation receives funding and spends it with little
awareness of how to drive improvements in efficiency or of
the results it may obtain from the expenditure. Budgets are
frequently over-spent with limited understanding of the
casual factors and no remedial action planned. Projects
frequently overrun in costs and time and the intended
benefits (if they are defined) are often not delivered. It may
have major project failures, and is a risk at a risk of
suffering from fraud.
APPENDIX C: User guide graphs in the report
Confidential
48
The questionnaire results within this report come from three different sources: all budget holders; finance staff ;and remaining employees
excluding trainees. A 100% response rate was received from finance staff, 49% of all budget holder responded (18 out of 37) and we
received 266 responses from all employees (excluding trainees, finance staff and budget holders).
Each questionnaire had the following number of questions which included various parts to questions, sixty nine questions for budget
holders, thirty seven questions for finance staff and seventeen questions for all staff.
The questionnaire responses were analysed at those depicting sufficient and relevant information have been included within this report. All
responses will be made available on request.
Each group have their different colour graphs as follows: teal for budget holders, navy blue for finance staff and purple for all employees.
The graphs follow the standard dark to light profile per the legends names.