Finance glossary

Note: This glossary focuses in particular on financial terms relevant to the UK

Government.
Accounting Officer
The senior official ultimately responsible for all spending of a government
department or arm's length body. The Accounting Officer for a government
department is usually the Permanent Secretary. The Accounting Officer must
personally sign off the Annual Report and Accounts of the body s/he has
responsibility for, and may be called to appear before a select committee to answer
questions on financial management.
Accounts Direction
A written document instructing officials how to prepare accounts.
Accruals Accounting
A method of recording expenditure as it is incurred (i.e. when the activity which
generates the costs arises), and income as it is earned, rather than when cash is paid
or received. This method of accounting is now used in the UK throughout the
public and private sectors (with the exception of very small charities and
businesses). In the public sector context it is also sometimes known as 'Resource'
accounting.UK Government Budgets (the DEL and AME limits) are also set in
accruals rather than cash terms, and although departments still have to forecast
cash movements, they are free to seek as high a cash requirement in their Estimates
as is necessary to support the accruals budgets allocated.
The principal advantage of accruals accounting over cash accounting (where cash
movements are all that is recorded) is that accruals accounting allows better
financial management and scrutiny by:
• matching expenditure in any period to revenues earned and obligations incurred
in that period; and
• matching the cost of assets to the period in which they are used or consumed, by
charging depreciation on them.
Administration budget
Budget limits controlling the resources set aside for the running costs (largely staff
and associated costs) of a government department, and which form part of its
Resource Departmental Expenditure Budget (DEL). Administration budgets are
ring-fenced budgets, set at the time of a Spending Review. The other part of the
Resource DEL, outside of the Administration Budget is referred to as programme
expenditure. If the department's administration budget is breached, the
department's accounts will be qualified by the auditor (see qualified accounts).
OGL
Crown copyright 2022
This publication is licensed under the terms of the Open Government Licence v3.0
except where otherwise stated. To view this licence, visit
nationalarchives.gov.uk/doc/open- government-licence/version/3.
Where we have identified any third party copyright information you will need to
obtain permission from the copyright holders concerned.
This publication is available at: www.gov.uk/official-documents.
Any enquiries regarding this publication should be sent to us at
[email protected]
ISBN: 978 1 911680 83 3
PU: 3121
Foreword
About this document

● This document updates the version published in 2007. Like the original, it
sets out the main principles for dealing with resources in UK public sector
organisations Some of the specifics, especially those in the annexes, relate to
England rather than the devolved administrations, which have their own
detailed rulebooks. But the same basic principles generally apply in all parts
of the UK public sector, with adjustments for context.
● The key themes also remain. They are the fiduciary duties of those handling
public resources to work to high standards of probity; and the need for the
public sector to work in harmony with parliament.
● While these principles are invariant, the advice in this document cannot
stand forever. The law, business practices, and public expectations all
change. So public sector organisations can and should innovate in carrying
out their responsibilities, using new technology and adopting good business
practice. Throughout parliament always expects the government and its
public servants to meet the ethical standards in this document and to operate
transparently.
● As before, the main text of the document is intended to be timeless. The
Treasury will revise the annexes from time to time as the need arises. All the
text is available freely on the gov.uk website.
● Above all, nothing in this document should discourage the application of
sheer common sense.
Chapter 1 Responsibilities
The relationship between the government, acting on behalf of the Crown, and
parliament, representing the public, is central to how public resources are
managed. Ministers implement government policies, and deliver public services,
through public servants; but are able to do so only where parliament grants the
right to raise, commit and spend resources. It falls to the Treasury to respect and
secure the rights of both government and parliament in this process.
1.1 Managing public money: principles
1.1.1 The principles for managing public resources run through many diverse
organisations delivering public services in the UK. The requirements for the
different kinds of body reflect their duties, responsibilities and public expectations.
The demanding standards expected of public services are set out in box 1.1.
Box 1.1: standards expected of all public services
honesty
impartiality
fairness
integrity
openness transparency
accountability accuracy
objectivity
reliability
carried out
in the spirit of, as well as to the letter of, the law
in the public interest
to high ethical standards achieving value for money
1.1.2 The principles in this handbook complement the guidance on good
governance in the Corporate Governance Code1applying to central government
departments. Some of the detail applies to England only, or just to departments of
state. There is separate guidance for the devolved administrations. Where
restrictions apply, they are identified.
1.1.3 Much of this document is about meeting the expectations of parliament.
These disciplines also deliver accountability to the general public, on whose behalf
parliament operates. The methods of delivery used should evolve as technology
permits. Public services should carry on their businesses and account for their
1 The Corporate Governance Code - see
https://www.gov.uk/government/publications/corporate-governance-code-for-
central- government-departments
stewardship of public resources in ways appropriate to their duties and context and
conducive to efficiency.
1.2 Ministers
1.2.1 In the absence of a written constitution, the powers used to deploy public
resources are a blend of common law, primary and secondary legislation,
parliamentary procedure, the duties of ministers, and other long-standing practices.
This mix may of course change from time to time.
1.2.2 As the Corporate Governance Code makes clear, the minister in charge of a
department is responsible for its policy and business as part of the broad sweep of
government policy determined in Cabinet. They:
•
determines the policies of the departmental group;
•
chairs the departmental board;
allocates responsibilities among the ministers in the department;
chooses which areas of business to delegate to officials, and on what conditions;
looks to the department's accounting officer (see chapter 3) to delegate within the
department to deliver the minister's decisions and to support the minister in making
policy decisions and handling public funds; and
also has general oversight of other bodies on whose behalf they may answer in
parliament, including the department's arms length bodies (ALBs).
1.2.3 The Ministerial Code2 requires ministers to heed the advice of their
accounting officers about the proper conduct of public business. See section 3.4 for
how the minister may direct the accounting officer to proceed with a policy if a
point of this kind cannot be resolved.
1.2.4 The minister in charge of a department may delegate defined areas of its
business, or of its parliamentary work, to their junior ministers. Ministers have
wide powers to make policies and to instruct officials.
1.2.5 Only ministers can propose legislation to parliament to raise public revenue
through taxation, or to use public funds to pursue their policy objectives. Specific
primary legislation is normally required to spend public funds (see section 2.1).
Similarly, taxes may be collected, and public funds may be drawn, only with
parliamentary authority; and only as parliament has authorised.
1.2.6 It is not normally acceptable for a private sector organisation to be granted
powers to raise taxes, nor to distribute their proceeds. Parliament expects these
responsibilities to fall to ministers, using public sector organisations.
1.2.7 The House of Commons (and not the House of Lords) enjoys the financial
privilege to make decisions on these matters.
2 https://www.gov.uk/government/publications/ministerial-code
1.3 Parliament
1.3.1 Parliament approves the legislation which empowers ministers to carry out
their policies. It also allows finance for services when it approves each year's
Estimates. See the Estimates Manual3 for more.
1.3.2 From time to time parliament may examine government activity. Select
committees examine policies, expenditure, administration and service delivery in
defined areas. The Committee of Public Accounts (PAC - see section 3.5)
examines financial accounts, scrutinises value for money and generally holds the
government and its public servants to account for the quality of their past
administration.
1.4 The Treasury
1.4.1 Parliament looks to the Treasury to make sure that:
departments use their powers only as it has intended; and
revenue is raised, and the resources so raised spent, only within the agreed limits.
1.4.2 Hence it falls to the Treasury to:
·
set the ground rules for the administration of public money; and
account to parliament for doing so.
1.4.3 This document sets out how the Treasury seeks to meet these parliamentary
expectations. The key requirements are regularity, propriety, value for money and
feasibility (see box 3.2). The Treasury:

● designs and runs the financial planning system4 and oversees the operation
of the agreed multiyear budgets to meet ministers' fiscal policy objectives;
● oversees the operation of the Estimates through which departments obtain
authority to spend year by year;
● sets the standards to which central government organisations publish annual
reports and accounts in the Financial Reporting Manual (FReM). This adapts
International Financial Reporting Standards (IFRS) to take account of the
public sector context;
● sets Accounts Directions for the different kinds of central government
organisations whose accounts are laid in parliament; and
● may also work through the Cabinet Office to set certain standards applicable
across central government, for example functional standards5.
3 https://www.gov.uk/government/publications/supply-estimates-guidance-manual
4 See the Consolidated Budgeting Guidance for more -
https://www.gov.uk/government/publications/consolidated-budgeting- guidance
5 See Functional Standards - GOV.UK (www.gov.uk).
1.5 Departments
1.5.1 Within the standards expected by parliament, and subject to the overall
control and direction of their ministers, departments have considerable freedom
about how they organise, direct and manage the resources at their disposal. It is for
the accounting officer in each department, acting within ministers' instructions, and
supported by their boards, to control and account for the department's business.
1.5.2 A departmental board, chaired by the senior minister, leads each department.
Boards can bring to bear skills and experiences from elsewhere in, and outside of,
the public sector (see section 4.1).
1.5.3 Within each department, there should be adequate delegations, controls and
reporting arrangements to provide assurance to the board, the accounting officer
and ultimately ministers about what is being achieved, to what standards and with
what effect. These arrangements should provide timely and prompt management
information to enable plans to be adjusted as necessary. Similarly ministers should
have enough evidence about the impact of their policies to decide whether to
continue, modify or end them. This is discussed further in chapter 4.
1.5.4 In supporting ministers, civil servants should provide politically impartial
advice. Should they be asked to carry out duties which appear incompatible with
this obligation, the accounting officer should take the matter up with the minister
concerned (see also the Civil Service Code?).
1.5.5 Departments often operate with and through a variety of partners to deliver
their ministers' policies. It is important that these relationships operate in the public
interest: see chapter 7.
1.6 The Comptroller and Auditor General
1.6.1 Supported by the National Audit Office (NAO), the Comptroller and Auditor
General (C&AG) operates independently to help parliament scrutinise how public
funds have been used in practice. Further information about the role of the NAO is
available on their websites and in annex 1.1.
1.6.2 The C&AG provides parliament with two sorts of audit:
financial audit of the accounts of departments and ALBS, covering:
assurance that accounts have been properly prepared and are free of material
misstatements9; and
confirmation that the underlying transactions have appropriate parliamentary
authority;
value for money reports assessing the economy, efficiency and effectiveness with
which public money has been deployed in selected areas of public business. A
programme of these reviews covers a variety
6 If there is a change of Accounting Officer in the course of the year, the
Accounting Officer in place at the year end takes responsibility for the whole year's
accounts, using assurances as necessary.
7 http://www.civilservice.gov.uk/about/values
8 The NAO website address is http://www.nao.org.uk
9 See Audit Practice Note 10 of the Audit Practices Board on the FRC website at
Http://www.frc.org.uk
of subjects over a period, taking account of the risks to value for money and
parliament's interests.
1.6.3 The C&AG has a general right to inspect the books of a wide variety of
public organisations to further these investigations. When the NAO investigates
any public sector organisation, it should get full cooperation in provision of papers
and other oversight. It is good practice to draw the NAO's attention to the
confidentiality of any sensitive documents provided in this process. It is then for
the independent C&AG to judge what material can be published in the public
interest.
1.6.4 In addition, the C&AG publishes other independent reports to parliament.
The PAC (see section 3.5) may hold hearings to examine evidence on any of these
reports and on other related matters.
Chapter 2
Use of Public Funds
This chapter explains the process for parliamentary authorisation of public
resources. Parliament consents in principle to the use of public funds through
legislation to enable specified policies. It then approves use of public resources to
carry out those policies year by year by approving Estimates. Only rarely can
lesser authority suffice. At the close of each financial year, parliament expects a
clear account of the use of the public funds it has authorised. Parliament expects
the Treasury to oversee the operation of these controls. The PAC may investigate
specific issues further.
Ministers have very broad powers to control and direct their
departments. In general, they may do anything that legislation does not prohibit or
limit, including using common law powers to administer their operations or
continue business as usual.
Ministers also need parliamentary authority for use of public funds before each
year's expenditure can take place. The full list of requirements is set out in box 2.1.
Box 2.1: requirements for use of public funds
·
budget cover in the collectively agreed multi-year budgets
with a few exceptions1, parliamentary authorisation for each year's drawdown of
funds through an Estimate, which is then approved as a Supply and Appropriation
Act (see section 2.2)
adequate Treasury consents (see section 2.3)
assurance that the proposed expenditure is regular and proper (section 2.4)
sufficient specific legal powers - though see section 2.5 for some limited
exceptions
2.1.1 The Treasury runs the control process because parliament expects the
Treasury to control public expenditure as part of fiscal policy. The primary means
through which the Treasury controls public expenditure is multi-year budgets,
agreed collectively at spending reviews. The Consolidated Budgeting Guidance
sets out the rules for their use. (See also chapter 4).
1 See section 5.3
2.2 Using the Estimate
2.2.1 The requirements in box 2.1 are to some extent interrelated. The accounting
officer of a department (see also chapter 3) is responsible for ensuring that:
2.2.2 the Estimate(s) presented to parliament for the department's annual
expenditure (consolidating its ALBs) are within the statutory powers and within
the government's expenditure plans; and
2.2.3 use of resources is within the ambit of the vote and consistent with the
Estimate(s)-
and must answer to parliament for stewardship of these responsibilities.
2.3 Treasury consents
2.3.1 Departments also need Treasury consent before undertaking expenditure or
making commitments which could lead to expenditure (see annex 2.1). Usually the
Treasury agrees some general approvals for each department subject to delegated
limits and/or exclusions.
2.3.2 Some common approaches to setting delegations are shown in box 2.2 and
are discussed further in annex 2.2. It is good practice to review delegations from
time to time to make sure that they remain up to date and appropriate. Delegations
can be tightened or loosened at reviews, depending on experience.
Box 2.2: examples of approaches to delegated authorities
objective criteria for exceptions requiring specific Treasury scrutiny or approval a
sampling mechanism to allow specimen cases to be examined
a lower limit above which certain kinds of projects must achieve specific consent
2.3.3 In turn departments should agree with each of their arm's length bodies
(ALBS - the public sector organisations they sponsor or finance) a similar set of
delegations appropriate to their business2 (see also chapter 7).
2.3.4 There is an important category of expenditure commitments for which the
Treasury cannot delegate responsibility. It is transactions which set precedents, are
novel, contentious or could cause repercussions elsewhere in the public sector. Box
2.3 gives examples. Treasury consent to such transactions should always be
obtained before proceeding, even if the amounts in question lie within the
delegated limits.
2 Delegations to ALBs should never be greater than the delegated limits agreed
between the Treasury and the sponsor department.
2.2 Using the Estimate
2.2.1 The requirements in box 2.1 are to some extent interrelated. The accounting
officer of a department (see also chapter 3) is responsible for ensuring that:
2.2.2 the Estimate(s) presented to parliament for the department's annual
expenditure (consolidating its ALBs) are within the statutory powers and within
the government's expenditure plans; and
2.2.3 use of resources is within the ambit of the vote and consistent with the
Estimate(s)-
and must answer to parliament for stewardship of these responsibilities.
2.3 Treasury consents
2.3.1 Departments also need Treasury consent before undertaking expenditure or
making commitments which could lead to expenditure (see annex 2.1). Usually the
Treasury agrees some general approvals for each department subject to delegated
limits and/or exclusions.
2.3.2 Some common approaches to setting delegations are shown in box 2.2 and
are discussed further in annex 2.2. It is good practice to review delegations from
time to time to make sure that they remain up to date and appropriate. Delegations
can be tightened or loosened at reviews, depending on experience.
Box 2.2: examples of approaches to delegated authorities
objective criteria for exceptions requiring specific Treasury scrutiny or approval a
sampling mechanism to allow specimen cases to be examined
a lower limit above which certain kinds of projects must achieve specific consent
2.3.3 In turn departments should agree with each of their arm's length bodies
(ALBS - the public sector organisations they sponsor or finance) a similar set of
delegations appropriate to their business2 (see also chapter 7).
2.3.4 There is an important category of expenditure commitments for which the
Treasury cannot delegate responsibility. It is transactions which set precedents, are
novel, contentious or could cause repercussions elsewhere in the public sector. Box
2.3 gives examples. Treasury consent to such transactions should always be
obtained before proceeding, even if the amounts in question lie within the
delegated limits.
2 Delegations to ALBs should never be greater than the delegated limits agreed
between the Treasury and the sponsor department.
Box 2.3: examples of transactions requiring explicit Treasury consent
•
extra statutory payments similar to but outside statutory schemes
•
ephemeral ex gratia payment schemes, eg payments to compensate for official
errors
special severance payments, eg compromise agreements in excess of contractual
commitments
non-standard payments in kind
unusual financial transactions, eg imposing lasting commitments or using tax
avoidance unusual schemes or policies using novel techniques
2.3.5 It is improper for a public sector organisation to spend or make commitments
outside the agreed delegations. The Treasury may subsequently agree to give
retrospective consent, but only if the expenditure in question would have been
agreed if permission had been sought at the right time.
2.3.6 Sometimes legislation calls for explicit Treasury consent, eg for large or
critical projects. There are also Whitehall wide controls on key progress points for
the very largest projects.3 In such cases it is unlawful to proceed without Treasury
consent - and Treasury consent cannot be given retrospectively.
2.4 Regularity and propriety
2.4.1 The concepts of regularity and propriety, fundamental to the right use of
public funds, are set out in box 2.4. The term regularity and propriety is often used
to convey the idea of probity and ethics in the use of public funds - that is,
delivering public sector values in the round, encompassing the qualities
summarised in box 1.1. Supporting this concept are the Seven Principles of Public
Life - the Nolan principles4 - which apply to the public sector at large. In striving
to meet these standards, central government departments should give a lead to the
partners with which they work.
Box 2.4: regularity and propriety
Regularity: compliant with the relevant legislation and wider legal principles such
as subsidy control and procurement law, delegated authorities and following the
guidance in this document. Propriety: meeting high standards of public conduct,
including robust governance and the relevant parliamentary expectations,
especially transparency.
2.4.2 Each departmental accounting officer should make sure that ministers in their
department appreciate:
the importance of operating with regularity and propriety; and
3 Through the Major Projects Authority,
[http://www.cabinetoffice.gov.uk/content/major-projects-authority), using powers
delegated by the Treasury
4 http://www.public-standards.gov.uk/
the need for efficiency, economy, effectiveness and prudence in the administration
of public resources, to secure value for public money5.
2.4.3 Should a minister seek a course of action which the accounting officer cannot
reconcile with any aspect of these requirements, they should seek instructions in
writing from the minister before proceeding (see chapter 3).
2.4.4 Should departments need to resolve an issue about regularity or propriety,
they should consult the relevant Treasury spending team. Similarly, ALBs should
consult their sponsor departments about such issues, and the department concerned
may in turn consult the Treasury.
2.4.5 Neither improper nor irregular expenditure achieves the standards that
parliament expects. So any such expenditure must be noted in the department's
annual report and accounts. If the discrepancy is material it can result in a
qualification to the accounts. When any expenditure of this kind comes to light, it
should be drawn to the attention of both the NAO and the Treasury. The immediate
follow up action is to identify the source of any systematic problems so that there
is no recurrence. The PAC may also call the accounting officer to explain the
matter at a public hearing.
2.5 Securing adequate legal authority
2.5.1 Parliament usually authorises spending on a specific policy or service by
approving bespoke legislation setting out in some detail how it should work. It is
not normally acceptable to use a royal charter as an alternative to primary
legislation, for this approach robs parliament of its expectations for control and
accountability. Departments should ensure that both they and their ALBs have
adequate legal cover for any specific actions they undertake.
2.5.2 The Treasury takes this requirement seriously. It is fundamental to the trust
and understanding between the government and parliament on which management
of the public finances is founded. In the Concordat of 1932 (see annex 2.3), the
Treasury undertook that departments would not spend without adequate legal
authority.
2.5.3 There are some general exceptions. These kinds of expenditure do not require
specific legislation in order to avoid burdening parliamentary time:
routine matters covered by common law (the main examples are in box 2.5);
a very limited range of Consolidated Fund Standing Services (see section 5.3);
2.5.4 Projects or services which are modest or temporary (see box 2.6). This
exception cannot be used to plug a gap in spending authority before specific
legislation for an ongoing service is passed. The temporary services derogation
only applies to initiatives lasting no more than two years in total, and it is therefore
important to note that this does not provide a two-year grace period for spending
on a new, ongoing service before specific legislation is required.
5
A more detailed description of value for money is at annex 4.4
Box 2.5: expenditure which may rely on a Supply and Appropriation Act
● routine administration costs: employment costs, rent, cleaning etc
● lease agreements, eg for photocopiers, lifts
● contractual obligations to purchase goods or services (eg where single year
contracts might be bad value)
● expenditure using prerogative powers such as defence of the realm and
international treaty obligations
In all the three cases in paragraph 2.5.3, departments may rely on the sole authority
of a Supply and Appropriation Act (the culmination of the Estimates process)
without the need for specific legal authority, provided that the other conditions in
box 2.1 are met.
Box 2.6: modest or temporary expenditure which may rely on a Supply and
Appropriation Act either services or initiatives lasting no more than two years, eg a
pilot study or one off intervention or expenditure of no more than £1.75m a year
(amount adjusted from time to time) provided that there is no specific legislation
covering these matters before parliament and existing statutory restrictions are
respected.
These conditions are demanding. Treasury consent is required before they may be
relied on.
2.6 New services
2.6.1 When ministers decide on a new activity, all the conditions in box 2.1 must
be met before it can begin. In practical terms this means that most significant new
policies which are intended to persist require specific primary legislation.
Sometimes ministers want to start early on a new policy which is intended to
continue but whose enabling legislation has not yet secured royal assent. It may be
possible to make limited preparation for delivery of the new service before royal
assent, but to do so it will usually be necessary to consider borrowing from the
Contingencies Fund (see annex 2.4). Access to this Fund is controlled by the
Treasury, subject to the conditions in box 2.7. Specific Treasury consent is always
required.
Box 2.7: conditions for access to the contingencies fund (see also annex 2.4)
● the proposed expenditure must be urgent and in the public interest, ie with
wider benefits to outweigh the convention of awaiting parliamentary
authority (political imperative is not enough)
● the relevant bill must have successfully passed second reading in the House
of Commons
● the legislation must be certain, or virtually certain, to pass into law with no
 substantive change in the near future, and usually within the financial year
● the department responsible must explain clearly to parliament what is to take
place, why, and by when matters should be placed on a normal footing.
Chapter 3 Accounting Officers
This chapter sets out the personal responsibilities of all accounting officers in
central government. Essentially accounting officers must be able to assure
parliament and the public of high standards of probity in the management of public
funds. This chapter is drawn to the attention of all accounting officers when they
are appointed.
3.1.1. Each organisation in central government - department, agency, trading fund,
NHS body, NDPB or arm's length body - must have an accounting officer. This
person is usually its senior official. The accounting officer in an organisation
should be supported by a board structured in line with the Corporate Governance
Code. 3.1.2. Formally the accounting officer in a public sector organisation is the
person who parliament calls to account for stewardship of its resources. The
standards the accounting officer is expected to deliver are summarised in box 3.1.
The equivalent senior business managers of other public sector organisations are
expected to deliver equivalent standards.
3.2 Appointment of accounting officers
3.2.1. The Treasury appoints the permanent head of each central government
department to be its accounting officer. Where there are several accounting officers
in a department, the permanent head is the principal accounting officer.
3.2.2. Within departments, the Treasury also appoints the chief executive of each
trading fund as its accounting officer.
3.2.3. In turn the principal accounting officer of each department normally
appoints the permanent heads:
● of its executive agencies, as agency accounting officers for their agencies;
and
● of other ALBs (including all NDPBs), as accounting officers for these
bodies; and
● at their discretion, additional accounting officers for defined part(s) of the
department's business.
3.2.4. In the case of appointment of principal accounting officers of departments
and accounting officers of trading funds, the relevant department should send a
draft letter of appointment directly to the Treasury Office of Accounts team via
[email protected] for the signature of the Treasury Permanent
Secretary. This should be done at least fourteen calendar days before the
accounting officer is due to take up their role.
3.2.5. In the case of appointment of an accounting officer for an arm's length body,
the body should liaise with its sponsoring department to arrange a letter of
appointment from the principal accounting officer. Again, this should be done at
least fourteen calendar days before the accounting officer is due to take up their
role. The private office of the principal accounting officer should then promptly
notify the TOA team.
3.2.6. These actions ensure that the register of accounting officers is kept up to date
and that appropriate training can be arranged.
3.2.7. If the timeframes above cannot be met, or in the event of a temporary gap
between the standing down of an accounting officer and the appointment of a new
accounting officer, the department should contact the TOA team to discuss the
appropriate mechanism to ensure accountability arrangements are maintained.
3.2.8. Template letters of appointment can be found on gov.uk. The TOA team is
happy to assist in the preparation of these letters.
3.3 Special responsibilities of accounting officers
Box 3.1: standards expected of the accounting officer's organisation
Acting within the authority of the minister(s) to whom they are responsible, the
accounting officer should ensure that the organisation, and any ALBs it sponsors,
operates effectively and to a high standard of probity. The organisation should:
governance
● have a governance structure which transmits, delegates, implements and
enforces decisions
● have trustworthy internal controls to safeguard, channel and record
resources as intended
● work cooperatively with partners in the public interest
● operate with propriety and regularity in all its transactions
● treat its customers and business counterparties fairly, honestly and with
integrity
● offer appropriate redress for failure to meet agreed customer standards
● give timely, transparent and realistic accounts of its business and decisions,
underpinning public confidence;
● decision-making
● support its ministers with clear, well-reasoned, timely and impartial advice
 ● make all its decisions in line with the strategy, aims and objectives of the
organisation set by ministers and/or in legislation
● take a balanced view of the organisation's approach to managing
opportunity and risk
● impose no more than proportionate and defensible burdens on business;
● financial management
● use its resources efficiently, economically and effectively, avoiding waste
and extravagance
● plan to use its resources on an affordable and sustainable path, within
agreed limits
● carry out procurement and project appraisal objectively and fairly, using
cost benefit analysis and generally seeking good value for the Exchequer as
a whole
● use management information systems to gain assurance about value for
money and the quality of delivery and so make timely adjustments
● avoid over defining detail and imposing undue compliance costs, either
internally or on its customers and stakeholders
● have practical documented arrangements for controlling or working in
partnership with other organisations, as appropriate
● use internal and external audit to improve its internal controls and
performance.
3.3.1. It is important that each accounting officer takes personal responsibility for
ensuring that the organisation they manage delivers the standards in box 3.1. In
particular, the accounting officer must personally sign: the accounts; the annual
report the governance statement (see annex 3.1); and having been satisfied that
they have been properly prepared to reflect the business of the organisation, must
personally approve: voted budget limits; and the associated Estimates
Memorandum.
3.3.2. The accounting officer of a corporate arm's length body should arrange for a
board member to sign the accounts as well as signing them himself or herself, if
(unusually) they are not a member of the board.
3.3.3. There are several other areas where accounting officers should take personal
responsibility.
·
Regularity and propriety (see box 2.4), including securing Treasury
approval for any expenditure outside the normal delegations or outside the
subheads of Estimates.
● Affordability and sustainability: respecting agreed budgets and avoiding
unaffordable longer term commitments, taking a proportionate view about
other demands for resources.
 ● Value for money: ensuring that the organisation's procurement, projects and
processes are systematically evaluated to provide confidence about
suitability, effectiveness, prudence, quality, good value judged for the
Exchequer as a whole, not just for the accounting officer's organisation (eg
using the Green Book1 to evaluate alternatives).
● Control: the accounting officer should personally approve and confirm their
agreement to all Cabinet Committee papers and major project or policy
initiatives before they proceed.
● Management of opportunity and risk to achieve the right balance
commensurate with the institution's business and risk appetite.
● Learning from experience, both using internal feedback (eg through
managing projects and programmes using techniques such as PRINCE2),
and from right across the public sector.
● Accounting accurately for the organisation's financial position and
transactions: to ensure that its published financial information is transparent
and up to date; and that the organisation's efficiency in the use of resources
is tracked and recorded.
3.3.4. In the case of principal accounting officers, these responsibilities apply to
the business of the whole departmental group.
3.4 Accounting officer assessments
3.4.1. Accounting officers should routinely scrutinise significant policy proposals
or plans to start or vary major projects and then assess whether they measure up to
the standards in box 3.2.
● Box 3.2: the standards expected for projects and proposals
● Regularity: the proposal has sufficient legal basis, parliamentary authority,
and Treasury authorisation; and is compatible with the agreed spending
budgets.
● Propriety: the proposal meets the high standards of public conduct and
relevant Parliamentary control procedures and expectations.
● Value for money: in comparison to alternative proposals or doing nothing,
the proposal delivers value for the Exchequer as a whole.
Feasibility: the proposal can be implemented accurately, sustainably, and to the
intended timetable.
3.4.2. A systematic written accounting officer assessment helps to ensure good
decision making and provides positive assurance that the four standards have been
properly considered.
1 https://www.gov.uk/government/collections/the-green-book-and-accompanying-
guidance-and-documents
3.4.3. An accounting officer assessment should be produced for projects or
programmes which form part of the Government Major Projects Portfolio (GMPP):
● alongside the request for the accounting officer's approval of the Outline
Business Case (or at the point when it enters the GMPP if this is later)
● at subsequent stages of the project if it departs from the four standards or
the agreed plan - including any contingency - in terms of costs, benefits,
timescales, or level of risk, which informed the accounting officer's previous
approval
● if the Senior Responsible Owner (SRO) of the project decides one is
merited at any other stage of the project
3.4.4. In addition, it is good practice to prepare an accounting officer assessment
for each novel and contentious transaction or proposal involving the use of public
funds. This may be particularly useful where it is not possible to produce a fully
developed business case, for example due to lack of time and/or data, or the risk
environment is higher than usual. The Treasury often asks spending departments
and organisations for such analyses before clearing them to proceed, as will the
National Audit Office (NAO) when conducting any review of the issue.
3.4.5. Beyond that, in many cases, the normal governance procedures, such as
production and approval of business cases, should provide sufficient assurance
against the accounting officer standards, without need for a bespoke accounting
officer assessment.
3.4.6. All draft accounting officer assessments must be signed off by the
organisation's senior officer for finance (usually Finance Director, Chief Financial
Officer or Director General for Finance) or alternate senior member of the finance
function within the department before being submitted to the Accounting Officer
for final sign off.
3.4.7. Whenever an accounting officer assessment is produced for a GMPP project,
a summary of the key points should also be prepared and published. Accounting
officers may also choose to publish similar information from assessments made in
other circumstances at their discretion.
3.4.8. Further guidance on producing and publishing accounting officer
assessments can be found in Accounting Officer Assessments: guidance.2
3.5 Working with other organisations
3.5.1. It often makes sense for two or more departments to work together to deliver
public services. In such circumstances, each accounting officer remains personally
responsible for the resources of their own organisation. It is good practice for
participating bodies to document their respective responsibilities, for example by
way of a memorandum of understanding.
3.5.2. It may also be the case that, in assessing a project or proposal, the
accounting officer will want to draw on expertise from another department or
public body. Where this happens, the accounting officer may ask the organisation
to provide written assurances of the robustness of the analysis and any underlying
2 www.gov.uk/government/publications/accounting-officer-assessments
methodology. However, the ultimate judgement in each case lies with the
accounting officer personally.
3.6 Directions
3.6.1. The accounting officer cannot simply accept the minister's aims or policy
without examination. Each departmental accounting officer should take care to
bring to the attention of their minister(s) any conflict between the minister's
instructions and the standards set out in box 3.2.
3.6.2. Where a departmental accounting officer determines that a proposal does not
meet one or more of these standards, the best next step is to consider whether the
policy or proposed course of action can be modified to make it fit. If not, and the
minister decides it is nevertheless appropriate to continue with the proposal, the
accounting officer should ask their senior minister for a formal written direction to
proceed. An oral direction should be confirmed promptly in writing.
3.6.3. Before finalising a direction request, it is good practice for accounting
officers to discuss the matter with the Treasury. Often, by their nature, issues that
might call for a ministerial direction are novel, contentious, or repercussive, and
therefore require explicit Treasury consent. Where this is the case, Treasury
consent should be obtained before the direction request is finalised.
3.6.4. As always, the ultimate judgement in each case must lie with the accounting
officer personally. The acid test is whether the accounting officer could justify the
proposed activity if asked to defend it.
3.6.5. There is no set form for requesting a direction, though the accounting officer
should be specific about their nature and the standard or standards that is/are not
satisfied.
3.6.6. When a direction is made, the Accounting Officer should:
follow the minster's direction without further ado
● promptly copy the direction request, the direction and other papers the
accounting officer considers relevant to the Comptroller and Auditor
General and the Treasury Officer of Accounts
● unless it is in the public interest that the matter is kept confidential, arrange
for the direction request and direction itself to be published on the GOV.UK
website promptly, notifying the chairs of the PAC and the relevant
departmental select committee as soon as this occurs
● where confidentiality is required, in addition to copying to the Comptroller
and Auditor General and the Treasury Officer of Accounts as usual, share
the direction request and the direction with the chairs of the PAC and the
relevant departmental select committee, along with an explanation of when
 they expect the need for confidentiality to fall away and publication to take
place
● if asked, explain the minister's course of action - this respects ministers'
rights to frank advice, while protecting the quality of internal debate.
3.6.7. A direction on regularity or propriety ground does not change that position
- that is it does not make the action regular or proper. It is important to note that a
direction does not permit unlawful action and does not protect against a court
finding unlawfulness.
3.7 Public Accounts Committee
3.7.1. The PAC may hold public hearings on the accounts of central government
organisations laid in parliament (see section 1.6). In practice most PAC hearings
focus on NAO value for money studies. The NAO seeks to agree the text of these
reports with the accounting officer(s) concerned so there is a clear undisputed
evidence base for PAC scrutiny.
3.7.2. When a hearing is scheduled, the PAC normally invites the accounting
officer(s) of the relevant institution(s) to attend as witness(es). An accounting
officer may be accompanied by appropriate officials. Where it is appropriate, and
the PAC agrees, an accounting officer may send a substitute. The PAC may also
invite other witnesses who may not be public servants to give insight into the
background of the subject in hand.
3.7.3. In answering questions, the accounting officer should take responsibility for
the organisation's business, even if it was delegated or if the events in question
happened before they were appointed accounting officer. In response to specific
PAC or Select Committee requests, previous accounting officers may also attend
relevant PAC hearings. Recalls of this kind should be assessed case by case,
depending on the circumstances. They are acceptable if the business in issue was
recent, and where the former accounting officer has had an opportunity to
comment before publication on any NAO report which the PAC is to investigate.
3.7.4. The PAC expects witnesses to give clear, accurate and complete evidence. If
evidence is sensitive, witnesses may ask to give it in private. Witnesses may offer
supplementary notes if the information sought is not to hand at the meeting. Any
such notes should be provided within one week unless the PAC is willing to grant
an extension. They should do so without delay.
3.7.5. The TOA (or an alternate) attends all PAC hearings. This enables the PAC to
explore any more general issues arising out of the hearing.
3.7.6. The evidence given by accounting officers at public hearings often feeds into
reports published by the PAC. These reports detail its findings, conclusions and
recommendations.
3.7.7. For each PAC report, the government responds to recommendations by
means of Treasury Minutes presented to Parliament by a Treasury minister,
indicating those the government accepts and those it does not accept. For those it
accepts, Treasury Minutes will include target implementation dates. For those it
does not accept, they will set out reasons for non-acceptance.
3.7.8. In addition, government departments and organisations are required to report
twice annually to Parliament on progress in implementing Committee
recommendations accepted by government. Treasury Minute Progress Reports are
used for this purpose.
3.7.9. The PAC expects the government to respond promptly and transparently
through both the initial Treasury Minute and subsequent Progress Reports.
Accounting officers should ensure the internal clearance processes within their
organisation are arranged to fit with deadlines for responses.
3.7.10. In addition, if a department determines it is necessary to revise the target
date for implementing an agreed recommendation, the accounting officer should
write immediately to the PAC, copied to the Treasury Officer of Accounts, and
provide a detailed explanation for the deferral. Departments should not leave
notification of the delay in implementation until the publication of the next
Treasury Minutes Progress Report.
3.8 When the accounting officer is not available
3.8.1. Each public sector organisation must have an accounting officer available
for advice or decision as necessary at short notice. When the accounting officer is
absent and cannot readily be contacted, another senior official should deputise.
3.8.2. If a significant absence is planned, the principal accounting officer may
invite the Treasury to appoint a temporary acting accounting officer.
3.8.3. In these circumstances, a temporary acting accounting officer stands in the
shoes of the principal accounting officer. They are not acting on behalf of the
Principal Accounting Officer but are personally responsible to Parliament in their
own right. Their decisions are not subject to ratification by the principal accounting
officer and their role should only be activated if the principal accounting officer is
unable to fulfil their obligations. To all intents and purposes the temporary acting
accounting officer replaces the principal accounting officer.
3.8.4. A similar logic can also apply for an accounting officer in an arm's length
body (ALB), whereby the arrangement must be agreed and formalised between the
department and the ALB.
3.9 Conflicts of interest
3.9.1. Sometimes an accounting officer faces an actual or potential conflict of
interest. There must be no doubt that the accounting officer meets the standards
described in box 3.1 without divided loyalties. Possible ways of managing this
issue include:

● for a minor conflict, declaring the conflict and arranging for someone other
than the accounting officer to make a decision on the issue(s) in question
● for a significant but temporary conflict, inviting the Treasury (or the
sponsor department, as the case may be) to appoint an interim accounting
officer for the period of the conflict of interest
 ● for serious and lasting conflicts, resignation.
3.10 Arm's length bodies
3.10.1. The responsibilities of accounting officers in departments and in arm's
length bodies (ALBs) are essentially similar. Accounting officers in ALBs must
also
take account of their special responsibilities and powers. In particular, they must
respect the legislation (or equivalent) establishing the organisation and terms of the
framework document agreed with the sponsor department. See chapter 7 for more.
3.10.2. The framework document (or equivalent) agreed between an ALB and its
sponsor always provides for the sponsor department to exercise meaningful
oversight of the ALB's strategy and performance, pay arrangements and/or major
financial transactions, eg by monthly returns, standard delegations and exception
reporting. The sponsor department's accounts consolidate those of its ALBS so its
accounting officer must be satisfied that the consolidated accounts are accurate and
not misleading.
3.10.3. Overall, the accounting officer of a sponsor department should make
arrangements to satisfy himself or herself that that the ALB has systems adequate
to meet the standards in box 3.1. Similarly, the accounting officer of an ALB with
a subsidiary should have meaningful oversight of the subsidiary. It is not
acceptable to establish ALBS, or subsidiaries to ALBs, in order to avoid or weaken
parliamentary scrutiny.
3.10.4. Exceptionally, the accounting officer of a sponsor department may need to
intervene if an ALB drifts significantly off track, eg if its budget is threatened, its
systems are badly defective or it falls into disrepute. This may include replacing
some or all of the leaders of the ALB, possibly even its accounting officer.
3.10.5. There are sensitivities about the role of the accounting officer in an ALB
which is governed by an independent fiduciary board, eg a charity or company.
The ALB's accounting officer, who will normally be a member of the board, must
take care that their personal legal responsibilities do not conflict with their duties
as a board member. In particular, the accounting officer should vote against any
proposal which appears to cause such a conflict; it is not sufficient to abstain.
3.10.6. Moreover, if the chair or board of such an ALB is contemplating a course
of action that is inconsistent with the standards in box 3.1, then the accounting
officer should follow the procedure set out in the organisation's framework
document. This process is similar to what happens in departments (see section 3.6),
but will be tailored to reflect the position of the organisation's board, which is often
appointed under statute.
3.11 In the round
3.11.1. It is not realistic to set firm rules for every aspect of the business with
which an accounting officer may deal. Sometimes the accounting officer may need
to take a principled decision on the facts in circumstances with no precedents.
Should that happen, the accounting officer should be guided by the standards in
box 3.1 in assessing whether there is a case for seeking a direction for any of the
factors in box 3.2. It is essential that accounting officers seek good outcomes for
the Exchequer as a whole, respecting the key principles of transparency and
parliamentary approval for management of public resources.
3.11.2. In addition, there may be occasions where it is necessary to respond
urgently to events, reducing the time available for analysis and requiring the
accounting officer to make an assessment. In such circumstances, all available
options may carry more uncertainty and more risk than would be acceptable in
more normal times.
Here, in assessing value for money and feasibility, the accounting officer must
assess the relative merits and costs of alternatives (including doing nothing).
3.11.3. Sometimes, it is possible to do no more than identify the scale of the
problem to be tackled and then examine why the proposed action should both be
effective and have tolerable cost. Wherever proposals or projects are taken
forward, accounting officer should identify and assess risks, and design and
operate the most effective risk treatment activities (including controls) possible in
the time available. 3.11.4. The Treasury stands ready to help accounting officers
think such issues through.
Chapter 4
Governance and Management
Public sector organisations should have good quality internal governance and
sound financial management. Appropriate delegation of responsibilities and
effective mechanisms for internal reporting should ensure that performance can be
kept on track. Good practice should be followed in procuring and managing
resources and assets; hiring and managing staff; and deterring waste, fraud and
other malpractice. Central government departments have some specific
responsibilities for reporting, including to parliament.
4.1.1 Each public sector organisation should establish governance arrangements
appropriate to its business, scale and culture. The structure should combine
efficient decision making with accountability and transparency.
4.1.2 In doing so, central government departments should be guided by the
Corporate Governance Code3. Each public sector organisation needs clear
leadership, normally provided by a board. Box 4.1 sets out best practice for
departmental boards.
Box 4.1: best practice for boards in central government departments
chaired by the department's most senior minister, with junior ministers as members
comparable numbers of official and non-executive members, including a lead non-
executive and a professionally qualified finance director (see annex 4.1)
meeting at least quarterly
sets the department's strategy to implement ministers' policy decisions leads the
department's business and determines its culture
ensures good management of the department's resources – financial, assets, people
decides risk appetite and monitors emerging threats and opportunities
steers performance to keep it on track using regularly updated information about
progress
keeps an overview of its ALBs' activities
4.1.3 It is good practice for ALBS to use similar principles. In many ALBs some
structural features, such as board composition, derive from statute but considerable
discretion may remain. In some organisations it is usual, or found valuable, for the
board to include members with designated responsibility or expertise, eg for
regional affairs or for specialist professional skills.
4.1.4 In order to carry out its responsibilities each board needs to decide, and
document, how it will operate. Box 4.2 outlines the key decisions. It is not
3 https://www.gov.uk/government/publications/corporate-governance-code-for-
central-government-departmentsfor both the code and the good practice guidance
exhaustive. Once agreed, the working rules should be reviewed from time to time
to keep them relevant. Boards should challenge themselves to improve their
working methods, so that their processes can achieve and maintain good modern
business practice.
Box 4.2: key decisions for boards
● mission and objectives
● delegations and arrangements for reporting performance
● procedures and processes for business decision making
● scrutiny, challenge and control of significant policies, initiatives and projects
● risk appetite and risk control procedures, eg maintaining and reviewing a
risk register
● control and management of associated ALBS and other partnerships
● arrangements for refreshing the board
● arrangements for reviewing the board's own performance
● accountability - to the general public, to staff and other stakeholders (see
section 4.13)
● how the insights of non-executives can be harnessed
● how often the board's working rules will be reviewed
4.2 Working methods
4.2.1 The accounting officer of each organisation is accountable to parliament for
the quality of the administration that they leads. The administrative standards
expected are set out in the Civil Service Code4 and the Ombudsman's Principles of
Public Administration5. They allow considerable flexibility to fit with each
organisation's obligations and culture. It is against these standards that failure to
deliver is assessed.
4.2.2 Another fundamental concept is the Treasury's leadership position in
managing public expenditure, and setting the rules under which departments and
their ALBS should deploy the assets, people and other resources under their
control. In turn each public sector organisation should have robust and effective
systems for their internal management. Box 4.3 outlines the key decisions each
organisation needs to make.
4.2.3 To help the Treasury carry out this task properly:
departments should provide the Treasury with accurate and timely
information about in-year developments - their expenditure,
performance against objectives and evolution of risk (eg serious unforeseen events
or discovery of fraud);
ALBs should provide their sponsor departments with similar information; and
4 http://www.civilservice.gov.uk/about/values
5 http://www.ombudsman.org.uk/improving-public-service/ombudsmansprinciples
the established mechanisms for controlling and reporting public
expenditure, including Treasury support or approval where necessary, should be
respected.
4.2.4 In particular, departments should consult the Treasury (and ALBs their
sponsor departments) at an early stage about proposals to undertake unusual
transactions or financing techniques. This applies especially to any transactions
which may have wider implications elsewhere in the public sector (see paragraph
2.3.4 and box 2.3). 4.2.5 Working with the accounting officer, the finance director
of each public sector organisation has special responsibility for seeing that the
standards described in this chapter are respected. Annex 4.1.sets this out in more
detail.
Box 4.3: essentials of effective internal decision making
choice
● ·
● active management of the portfolio of risks and opportunities
● appraisal of alternative courses of action using the techniques in the Green
Book, and including assessment of feasibility to achieve value for money
● where appropriate, use of models (see annex 4.2) or pilot studies to provide
evidence on which to make decisions among policy or project choices
● active steering of initiatives, eg reviews to take stock at critical points of
projects
● operation
● appropriate internal delegations, with a single senior responsible officer
(SRO) for each significant project or initiative, and a single senior person
leading each end to end process
● prompt, regular and meaningful management information on costs
(including unit costs), efficiency, quality and performance against targets to
track progress and value for money
● proportionate administration and enforcement mechanisms, without
unnecessary complexity
● use of feedback from internal and external audit and elsewhere to improve
performance regular risk monitoring, to track performance and experience
and make adjustments in response
● afterwards
● mechanisms to evaluate policy, project and programme outputs and
outcomes, including whether to continue, adjust or end any continuing
activities arrangements to draw out and propagate lessons from experience
4.3 Opportunity and risk
4.3.1 Embedded in each public sector organisation's internal systems there should
be arrangements for recognising, tracking and managing its opportunities and risks.
Each organisation's governing body should make a considered choice about its
desired risk appetite, taking account of its legal obligations, ministers' policy
decisions, its business objectives, and public expectations of what it should deliver.
This can mean that different organisations take different approaches to the same
opportunities or risks.
4.3.2 There should be a regular discipline of reappraising the opportunities and
risks facing the organisation since both alter with time and circumstances, as
indeed may the chosen responses. This process should avoid excessive caution,
since it can be as damaging as unsuitable risk taking. The assessment should
normally include:
● maintaining a risk register, covering identified risks and contingent risks
from horizon scanning;
● reputational risks, since poor performance could undermine the credibility,
and ultimately the creditworthiness, of the Exchequer as a whole;
● consideration of the dangers of maintaining the status quo;
● plans for disaster recovery;
● appraisal of end to end risks in critical processes and other significant
activities.
4.3.3 In making decisions about how to manage and control opportunity and risk,
audit evidence and other assurance processes can usefully inform choice. Audit,
including internal audit, can provide specific, objective and well-informed
assurance and insight to help an organisation evaluate its effectiveness in achieving
its objectives. It is good practice for the audit committee to advise the governing
board of a public sector organisation on its key decisions on governance and
managing opportunities and risks. It is also a good discipline for this process to
include evaluating progress in implementing PAC recommendations, where they
have been accepted.
4.3.4 In turn the board should support the accounting officer in drawing up the
governance statement, which forms part of each organisation's annual accounts.
See annex 3.1. Further guidance about managing risks is in annex 4.3 and the
Orange Book.
4.4 Insurance
4.4.1 In the private sector risk is often managed by taking out insurance. In central
government it is generally not good value for money to do so. This is because the
public sector has a wide and diverse asset portfolio; a reliable income through its
ability to raise revenue through taxation; and access to borrowed funds more
cheaply than any in the private sector. In addition commercial providers of
insurance also have to meet their own costs and profit margins. Hence the public
purse is uniquely able to finance restitution of damaged assets or deal with other
risks, even very large ones. If the government insured risk, public services would
cost more. 4.4.2 However, there are some limited circumstances in which it is
appropriate for public sector organisations to insure. They include legal
obligations, and occasions
6 Eg ALBs should insure vehicles where the Road Traffic Act requires it
where commercial insurance would provide value for money. Further information
about insurance generally is in annex 4.4.
4.5 Control of public expenditure
4.5.1 The Treasury coordinates a system through which departments are allocated
budget control totals for their public expenditure. Each department's allocation
covers its own spending and that of its associated ALBS. Within the agreed totals,
it has considerable discretion over setting priorities to deliver the public services
for which it is responsible.
4.5.2 Each public sector organisation should run efficient systems for managing
payments (see box 4.4). It should also keep its use of public resources within the
agreed budgets, take the limits into account when entering into commitments, and
generally ensure that its spending profile is sustainable.
4.5.3 Any major project, programme or initiative should be led by a senior
responsible owner (SRO). It is good practice to aim for continuity in such
appointments.
Box 4.4: essentials of systems for committing and paying funds

● Selection of projects after appraisal of the alternatives (see the Green Book),
including the central clearance processes for larger commitments.
● Open competition to select suppliers from a diverse range, preferably
specifying outcomes rather than specific products, to achieve value for
money (see annexes 4.6 and 4.7).
● Where feasible, procurement through multi-purchaser arrangements, shared
services and/or standard contracts to drive down prices.
● Effective internal controls to authorise acquisition of goods or services
(including vetting new suppliers), within any legal constraints.
● Separation of authorisation and payment, with appropriate controls,
including validation and recording, at each step to provide a clear audit trail.
● Checks that the goods or services acquired have been supplied in accordance
with the relevant contract(s) or agreement(s) before paying for them.
● Payment terms chosen or negotiated to provide good value.
● Accurate payment of invoices: once and on time, avoiding lateness penalties
(see annex 4.8).
● A balance of preventive and detective controls to tackle and deter fraud,
corruption and other malpractice (see annex 4.9).
● Integrated systems to generate automatic audit trails which can be used to
generate accounts and which both internal and external auditors can readily
check.
 ● Periodic reviews to benefit from experience, improve value for money or to
implement developments in good practice.
7 Eg where private sector contractors take out single-site insurance policies
because they are cheaper than each individual party
insuring themselves separately.
8 See annex 4.5.
4.6 Receipts
4.6.1 Public sector organisations should have arrangements for identifying,
collecting and recording all amounts due to them promptly and in full. Outstanding
amounts should be followed up diligently. Key features of internal systems of
control are suggested in box 4.5.
4.6.2 Public sector organisations should take care to track and enforce debts
promptly. The presumption should be in favour of recovery unless it is uneconomic
to do so.
Box 4.5: essential features of systems for collecting sums due

● Adequate records to enable claims to be made and pursued in full. Routines

to prevent unauthorised deletions and amendments to claims.
● Credit management systems to manage and pursue amounts outstanding.
Controls to prevent diversion of funds and other frauds.
● Clear lines of responsibility for making decisions about pressing claims
increasingly more firmly, and for deciding on any abatement or
abandonment of claims which may be merited.
● Arrangements for deciding upon and reporting any write-offs (see annex
4.10). Audit trails which can readily be checked and reported upon both
internally and externally.
4.7 Non-standard financial transactions
4.7.1 From time to time public sector organisations may find it makes sense to
carry out transactions outside the usual planned range, eg:
● write-offs of unrecoverable debts or overpayments;
● recognising losses of stocks or other assets;
● long term loans or gifts of assets.
4.7.2 In each case it is important to deal with the issue in the public interest, with
due regard for probity and value for money. Annexes 4.10 to 4.12 set out what is
expected when such transactions take place in central government, including
notifying parliament.
4.7.3 Where an organisation discovers an underpayment, the deficit should be
made good as soon as is practicable and in full. If there has been a lapse of time,
for example caused by legal action to establish the correct position, it may be
appropriate to consider paying interest, depending on the nature of the commitment
to the payee and taking into account the reputation of the organisation and value
for money for the Exchequer as a whole (see also section 4.11).
4.7.4 Similarly, public sector organisations may have reason to carry out current
transactions which would not normally be planned for. These might be:
● extra contractual payments to service providers;
 ● extra-statutory payments to claimants (where a similar statutory scheme
exists);
● ex gratia payments to customers (where no established scheme exists);
or
● severance payments to employees leaving before retirement or before the
end of their contract and involving payments above what the relevant
pension scheme allows.
4.7.5 Again it is important that these payments are made in the public interest,
objectively and without favouritism. The disciplines parliament expects of central
government entities are set out in annex 4.13, which explains the notification
procedure to be followed for larger one-off transactions of this kind. The steps to
be considered when setting up statutory or extra-statutory compensation schemes
are discussed in annex 4.14.
4.8 Unusual circumstances
4.8.1 Sometimes public sector organisations face dilemmas in meeting their
commitments. They may have a legal or business obligation which would be
uneconomic or inappropriate to carry out assiduously to the letter. In such cases it
can be justifiable to seek a pragmatic, just and transparent alternative approach,
appropriately reported to parliament in the organisation's annual accounts. One-off
schemes of this kind are always novel and so require Treasury approval, not least
because they may also require legislation or have to rest on the authority of a
Supply and Appropriation Act (see section 2.5). Box 4.6 suggests precedented
examples.
Box 4.6: examples of one-off pragmatic schemes
● A court ruling could mean that a public sector organisation owed each of a
large number of people a very small sum of money. The cost of setting up
and operating an accurate payment scheme might exceed the total amount
due. The organisation could instead make a one-off payment of equivalent
value to a charity representing the recipient group.
● A dispute with a contractor might conclude that the contractor owed a public
sector organisation an amount too big for it to meet in a single year while
staying solvent. The customer might instead agree more favourable payment
terms, with appropriate safeguards, if this arrangement provides better value
for money.
4.9 Staff
4.9.1 Each public sector organisation should have sufficient staff with the skills
and expertise to manage its business efficiently and effectively. The span of skills
required should match the organisation's objectives, responsibilities and resources,
balancing professional, practical or operational skills and policy makers, and
recognising the value of each discipline. Succession and disaster planning should
ensure that the organisation can cope robustly with changes in the resources
available, including unforeseen disruption.
4.9.2 Public sector organisations should seek to be fair, honest and considerate
employers. Some desirable characteristics are suggested in box 4.7.
Box 4.7: public sector organisations as good employers

● selection designed to value and make good use of talent and potential of all
kinds fairness, integrity, honesty, impartiality and objectivity
● professionalism in the relevant disciplines, always including finance
● arrangements to make sure that staff are loaded cost effectively
● management techniques balancing incentives to improve and disciplines for
poor performance
● diversity valued and personal privacy respected
● mechanisms to support efficient working practices, both normally and under
pressure arrangements for whistleblowers to identify problems privately
without repercussions.
● 4.9.3 Similarly public sector employers have a right to expect good
standards of conduct from their employees. The qualities and standards
expected of civil servants are set out in the Civil Service Code. Other public
sector employees should strive for similar standards, appropriate to their
context.
4.10 Assets
4.10.1 All public sector organisations own or use a range of assets. Each
organisation needs to devise an appropriate asset management strategy to define
how it acquires, maintains, tracks, deploys and disposes of the various kinds of
assets it uses. Annex 4.15 discusses how to set up and use such a strategy.
4.10.2 It is good practice for public sector organisations to take stock of their assets
from time to time and consider afresh whether they are being used efficiently and
deliver value for public funds. If there is irreducible spare capacity there may be
scope to use part of it for other government activities, or to exploit it commercially
for non-statutory business.
4.11 Standards of service
4.11.1 Poor quality public services are not acceptable. Public sector organisations
should define what their customers, business counterparties and other stakeholders
can expect of them.
4.11.2 Standards can be expressed in a number of ways. Examples include
guidelines (eg response times), targets (eg take-up rates) or a collection of
customer rights in a charter. Even where standards are not set explicitly, they may
sometimes be inferred from the way the provider organisation carries out its
responsibilities; so it is normally better to express them directly.
4.11.3 Whatever standards are set, they should be defined in a measurable way,
with plans for recording performance, so that delivery can be readily gauged. It is
good practice to use customer feedback, including from complaints, to reassess
from time to time whether standards or their proxies (milestones, targets,
outcomes) remain appropriate and meaningful.
4.11.4 Where public sector organisations fail to meet their standards, or where they
fall short of reasonable behaviour, it may be appropriate to consider offering
remedies. These can take a variety of forms, including apologies, restitution (eg
supplying a missing licence) or, in more serious cases, financial payments.
Decisions about financial remedies - which should not be offered routinely -
should include taking account of the legal rights of the other party or parties and
the impact on the organisation's future business.
4.11.5 Any such payments, whether statutory or ex gratia, should follow good
practice (see section 4.13). Since schemes of financial redress often set precedents
or have implications elsewhere, they should be cleared with the Treasury before
commitments are made, just as with any other public expenditure out of the normal
pattern (see sections 2.1 to 2.4).
4.12 Complaints
4.12.1 Those public sector organisations which deal with customers directly should
strive to achieve clear, accurate and reliable standards for the products and services
they provide. It is good practice to arrange for complaints about performance to be
reviewed by an independent organisation such as an ombudsman.
4.12.2 Often such review processes are statutory. The activities of central
government departments and the NHS are open to review by the PHSO9, whose
Principles of Good Complaints Handling10 sets out generic advice on complaints
handling and administration of redress (see also annex 4.14). After investigation of
cases of specific complaint, the PHSO can rule on whether injustice or hardship
can be attributed to maladministration or service failure, and may recommend
remedies, either for individual cases or for groups of similar cases. If departments
decline to follow the PHSO's advice, they should lay a memorandum in parliament
explaining why.
4.13 Transparency
4.13.1 All public sector organisations should operate as openly as is compatible
with the requirements of their business. In line with the statutory public rights11,
they should make available timely information about their services, standards and
performance. This material should strike a careful balance between protecting
confidentiality and open disclosure in the public interest.
4.13.2 All public sector organisations should adopt a publication scheme routinely
offering information about the organisation's activities. They should also publish
regular information about their plans, performance and use of public resources.
4.13.3 The published information should be in sufficient detail, and be sufficiently
regular, to enable users and other stakeholders to hold the organisation and its
ministers to account. Benchmarks can help local users to evaluate local
performance more easily.
4.13.4 The primary document of record for central government departments is the
report and accounts, which should consolidate information about the relevant
ALBs. It should include a governance statement (see annex 3.1).
9 http://www.ombudsman.org.uk/
10 http://www.ombudsman.org.uk/improving-public-
service/ombudsmansprinciples
11 Eg Freedom of information act 2000, Data protection act 1998, Environment
information regulations 2004 and the Re-use of public sector information
regulations 2005.
4.13.5 In addition, the Treasury is responsible for publishing certain aggregate
information about use of public resources, for example Whole of Government
Accounts (WGA) consolidating all central and local government organisations'
accounts and comparisons of outturn with budgets. The Office for National
Statistics (ONS) also uses input from data gathered by the Treasury to publish the
national accounts.
4.13.6 In certain areas of public business it is also important or desirable to provide
adequate public access to physical assets. Unnecessary or disproportionate
restrictions should be avoided. Managed properly, this can be a valuable
mechanism to promote inclusion and enhance public accountability.
4.14 Dealing with initiatives
4.14.1 Public sector organisations need to integrate all the advice in this handbook
when introducing new policies or planning projects. Each is unique and will need
bespoke treatment. The checklist in box 4.8 brings the different factors together. It
applies directly to central government organisations but the principles will be of
value elsewhere.
Box 4.8: factors to consider when planning policies or projects
design
● Has the proposal been evaluated against alternative options, including doing
nothing? • Should there be pilot testing before full roll out?
● Are the controls agreed and documented clearly? Have the risks and
opportunities been considered systematically? Is the change process resilient
to shocks? What contingencies might arise?
● Is the intended intervention proportionate to the identified need?
● What standards should be achieved? How will performance be tracked and
assessed? Could the proposal be simplified without loss of function?
● If partner(s) are involved, is the allocation of responsibilities appropriate?
● Will the proposal be efficient, effective and offer good value for money?
● Is the policy sustainable in the broadest sense? Should it have a sunset
clause?
● Does the planned activity meet high standards of probity, integrity and
honesty?
● Will the proposal deliver the desired outcome to time and cost?
● Does the accounting officer assess the initiative as compatible with the
public sector standards?
control
● What prior agreement is required, if any?
● How will internal governance and delegation work? Will it be effective? Is
it transparent? Should there be an SRO?
● Is there adequate legislation? If not, what is needed to make the action
lawful?
● How will the proposal be financed? Is there budget and Estimate cover? Is it
appropriate to charge to help finance the service? Are charges set within the
law?
● Is the proposed action within the department's delegated authorities?
● What financial techniques will be used to manage rollout, implementation
and operation?
● Are project and programme management techniques likely to be useful?
● How will the intended new arrangements be monitored and efficiency
measured?
● How will feedback be used to improve outcomes?
● Does the design inhibit misuse and counter fraud? What safeguards are
needed?
● Has the risk of fraud been assessed to help inform policy or project design?
● How will the associated risks be tracked and the responses adjusted?
 ● What intervention will be possible if things go off track?
● Would it be possible to recover from a disaster promptly?
accountability
● How should parliament be told of the proposal and kept informed of
progress?
● What targets will be used? Are they sufficiently stretching?
● Is public access called for? How?
● Is the policy or service fair and impartial?
● Will its administration be open, transparent and accessible?
● Should there be customer standards? How are complaints used to improve
performance?
● Should there be arrangements for redress after poor delivery?
● Is enforcement required? If so, is it proportionate?
● Is an appeal mechanism needed?
● Is regulation called for?
learning lessons
● What audit arrangements (internal and external) are intended?
● What information about the activity will be published? How and how often?
When and how will the policy or project be evaluated to assess its cost and
benefits and to
determine whether it should continue, be adjusted, replaced or ceased?
Chapter 5 Funding
This chapter explores the means by which central government organisations may
obtain funds in order to finance public expenditure. The Treasury operates
disciplines to respect parliament's concern to prevent unauthorised expenditure.
5.1.1 Most public expenditure is financed from centrally agreed multi-year budgets
administered by the Treasury, which oversees departments' use of their budget
allocations. In the main, departments have considerable discretion about how they
distribute these budget allocations, which are expressed net of relevant income.
The main source of receipts to be netted off is fees and charges (see chapter 6).
5.1.2 The Treasury oversees and directs the rules that departments should respect
in managing their budgets. Departments are expected to live within their
allocations for each financial year, with some limited exceptions, eg for certain
demand led services. The budgeting framework is explained in the Consolidated
Budgeting Guidance, which is refreshed each year.
5.2 Grants
5.2.1 Each central government department decides how much of its budget
provision it should cascade to its ALBs in each year of the multi-year agreement.
Departments may pay them grants (for specific purposes) and grants-in-aid
(unspecific support) to finance their spending; though it is the net spending of the
ALB that scores in the departmental budget. Annex 5.1 explains more about grants.
5.2.2 Budgets and Estimates plan net spending and include all spending of ALBs
however it is financed. In general it is sensible to consider arrangements for
protecting the Exchequer interest through clawback of specific grants should the
purposes for which they are agreed not materialise (annex 5.2).
5.3 Estimates
5.3.1 The multiyear departmental budgets agreed collectively among ministers do
not of themselves confer authority to spend or commit resources. Parliamentary
agreement, usually through the Supply Estimate process, is also essential (see box
2.1).
5.3.2 Departmental Estimates are put to parliament covering one financial year at a
time, in the spring. Each covers the net expenditure of a department and its ALBs
(ie all spending in budgets and any voted spend outside of budgets). For the year
ahead, the provision sought should be taut and realistic, without padding. The
Supply and Estimates Guidance Manual has more detail.
5.3.3 Before the summer recess, the provision sought in the Estimate is formally
authorised in a Supply and Appropriation Act, which sets net expenditure limits for
the year. The Act is then the legal authority for public expenditure within the ambit
of the Estimate. The ambit itemises a specific range of permitted activities and
income streams for the year.
5.3.4 Within a financial year, there is some scope for transferring (through
virement) provision from one section or subhead to another within any of the
control limits in the same Estimate. There is scope for adjusting Estimate provision
through a Supplementary Estimate late in the year if circumstances change. A
Supplementary Estimate should show all movements between sections, even if
they would otherwise have been dealt with through virement.
5.3.5 Departmental Select Committees may examine departmental witnesses on the
plans contained in Estimates. Usually such hearings take place after Estimates are
laid in parliament but before they are voted into law.
5.3.6 If there is underspending against Estimate provision in one year, it cannot
automatically be carried forward to a later year. If a department wants to spend
resources it did not consume in a previous year, it needs Treasury approval and
must also obtain fresh parliamentary authority to spend in the year(s) concerned.
5.3.7 Like budgets, Estimates are set net of income. But parliament needs to be
made aware of receipts since Estimates authorise gross expenditure, normally
using statutory powers. Annex 5.3 explains more about of types of receipt. Chapter
6 contains guidance about setting and adjusting fees and charges.
5.3.8 Occasionally an Estimate sets a negative limit for permitted resources. This
happens if income is expected to exceed the relevant gross expenditure. Similarly a
Supplementary Estimate can be negative if provision for spending is to fall within
a given year.
5.3.9 A department's Estimate for a year includes all spending within its agreed
budget for that year, as well as any voted non-budget spending. Not all of this
amount requires voted parliamentary approval since some items, such as
Consolidated Fund Standing Services, are paid direct from the Consolidated Fund.
Hence only the voted parts of the Estimate requiring parliamentary approval appear
in the Supply and Appropriation Act. Of course the disciplines on public funds
(box 3.1) apply to all the activities described in the Estimate and accounts whether
within the Act or not.
5.4 Excess Votes
5.4.1 Accounting officers have an important role in overseeing the integrity of the
Estimates for which they are responsible. In particular, accounting officers are
responsible for ensuring that Estimates are in good order (see section 2.2).
5.4.2 The Treasury presents parliament each year with a Statement of Excesses to
request retrospective authority for any unauthorised resources consumed above the
relevant limits or outside the ambit of the Estimate. Parliament takes these excesses
seriously. The PAC or departmental select committee may call witnesses to
account in person or ask for a written explanation.
5.4.3 The Statement of Excesses includes two kinds of excess:
 ● spending above the amount provided in an Estimate; and
● irregular expenditure outside the ambit, eg on an unauthorised service.
5.4.4 Parliament usually regards the latter as particularly unsatisfactory because it
means that the department concerned has flouted parliament's intentions12 and
may have defective systems of control. The auditor may identify such excesses as
spending not covered by statutory powers, even if the total amount spent does not
exceed the voted limit.
5.4.5 Expenditure in excess of provision on an activity agreed by parliament is also
to be avoided since the authority of a Supply and Appropriation Act is just as
essential as specific statutory authority (box 2.1). It is possible, with Treasury
agreement, to raise the amount in an Estimate during the course of the year in a
Supplementary. But otherwise accounting officers should reduce, reprioritise or
postpone use of resources to keep within the provision parliament has agreed for
the year.
5.5 Commitments
5.5.1 Parliament is not bound 13 to honour ministers' commitments unless and
until there are statutory powers to meet them and it authorises public funds to
finance them (through an Estimate) in a given year. This discipline is especially
important when ministers plan a new service.
5.5.2 Because commitments can evolve into spending, they should always be
scrutinised and appraised as stringently as proposals for consumption (box 4.8 may
help). Some departments may agree with the Treasury blanket authority for defined
and limited ranges of non-statutory commitments, eg indemnities for board
members and commitments taken on the normal course of business. All other non
statutory commitments are novel, contentious or repercussive, so Treasury
approval is always essential before they are undertaken.
5.5.3 Public sector organisations should give parliament prompt and timely notice
of any significant new commitments, whether using existing statutory powers or to
be honoured through future legislation. Non statutory contingent liabilities (above
a specified threshold) should always be notified in this way. The process is set out
in annex 5.4.
12 le has breached the Concordat - see annex 2.3
13 Under the Concordat
Box 5.1: contingent liabilities: notifying parliament
● Parliament should be notified of uncertain liabilities in a meaningful way
without spurious accuracy. This should be done by Ministerial Statement
and departmental Minutes to the House of Commons, drawn directly to the
attention of the chairs of the PAC and relevant departmental committee.
● If a contingent liability affects several departments but cannot confidently be
allocated among them, the relevant ministers should inform parliament in a
pragmatic way. A single statement may well suffice.
● If, exceptionally, a new liability needs to remain confidential, the minister
should inform the chairs of the relevant select committee and the PAC; then
inform parliament openly when the need for confidentiality lifts.
● Ministers should inform parliament if an ALB assumes a contingent liability
which it could not absorb within its own resources, since the risk ultimately
lies with the sponsor department's budget.
5.5.4 The general rule is to err on the side of caution in keeping parliament
informed of emerging contingent liabilities. It is impossible to generalise about
every possible set of circumstances but some guidance is in box 5.1.
5.6 Tax
5.6.1 Public sector organisations should not engage in, or connive at, tax evasion,
tax avoidance or tax planning. If a public sector organisation were to obtain
financial advantage by moderating the tax paid by a contractor, supplier or other
counterparty, it would usually mean that the Exchequer as a whole would be worse
off - thus conflicting with the accounting officer's duties (section 3.3). Thus
artificial tax avoidance schemes should normally be rejected. It should be standard
practice to consult HMRC14 about transactions involving non-standard approaches
to tax before going ahead.
5.6.2 There is of course no problem with using tax advisers to help meet normal
legitimate requirements of carrying on public business. These include
administration of VAT, PAYE and NICs, where expert help can be useful and
efficient.
5.6.3 Proposals to create new taxes in order to assign their proceeds to new
spending proposals are rarely acceptable. Decisions on tax are for Treasury
ministers, who are reluctant to compromise their future fiscal freedom to make
decisions.
5.7 Public dividend capital
5.7.1 Certain public sector businesses, notably trading funds and certain Health
Trusts, are set up with public dividend capital (PDC) in lieu of equity. Like equity,
PDC should be serviced, though not necessarily at a constant rate.
5.7.2 PDC is not a soft option. In view of the risk it carries, it should deliver a rate
of return comparable to commercial equity investments carrying a similar level of
risk. There is scope for the return to vary to reflect market conditions and
investment
14 HMRC customer relationship manager or customer co-ordinator
patterns; but persistent underperformance against the agreed rate of return should
not be tolerated.
5.7.3 A department needs specific statutory power to issue PDC, together with
supply cover to pay it out of the Consolidated Fund. Sometimes instead of a
specific issue of PDC, the legislation establishing (or financially reconstructing) a
public sector business deems an issue of PDC to the new business. Dividends on
PDC, and any repayments of PDC, are paid to the sponsor department of the
business.
5.7.4 Further information about the use of PDC can be found in Consolidated
Budgeting guidance.15
5.8 Borrowing by public sector organisations
5.8.1 Some public sector organisations, eg certain trading funds, are partly
financed through loans provided through the sponsor department's Estimate; or
from the National Loans Fund (NLF). In these cases Treasury consent and specific
legal powers are always required. Limits and other conditions are common. See
annex 5.5 for
more.
5.8.2 NLF and Voted loans can only be made if there is reasonable expectation that
the loan will be serviced and repaid promptly. Similarly, when ALBS borrow, their
sponsor departments explicitly stand behind them and so should scrutinise
borrowers' creditworthiness, not just relying on their track records, in order to
satisfy themselves that such loans are sound. For NLF loans, if timely repayment
could not realistically be expected, the loan would be unlawful.
5.8.3 Should a department become aware of concerns about the security of
outstanding loans (either its own or an ALB's), it should warn the Treasury
promptly and consider what action it can take to reduce or otherwise mitigate any
potential loss. If a loan becomes irrecoverable, remedial treatment should be
agreed with the Treasury and then notified to parliament.
5.8.4 The NLF cannot make a loss. So the interest rates charged on NLF loans,
whether fixed or variable, must be higher than the rates at which the NLF could
raise funds for a similar period. Early repayment is sometimes possible, eg if the
borrower has windfall receipts, but never simply to refinance on terms more
favourable to the borrower because a fee is charged to match the Exchequer costs
when a loan ends early. This is because the NLF finances the amount outstanding
using money market instruments sold at the time the loan was made, and must
continue to service those instruments. So the Exchequer as a whole would make a
loss if the NLF offered cheaper replacement loans.
5.8.5 While NLF loans are repaid to the NLF, voted loans are repaid to the
Consolidated Fund. The treatment of repayments and interest payments in
Estimates and accounts is discussed in the Consolidated Budgeting Guidance, the
Estimate Manual and the FREM. The Treasury accounts for NLF transactions in
the NLF's accounts. Any proposed write-offs must be notified to parliament after
obtaining Treasury agreement: see annex 5.5
15 https://www.gov.uk/government/publications/consolidated-budgeting-guidance-
2021-to-2022
5.9 External borrowing
5.9.1 Public sector organisations may borrow from private sector sources only if
the transaction delivers better value for money for the Exchequer as a whole.
Because non-government lenders face higher costs, in practice it is usually difficult
to satisfy this condition unless efficiency gains arise in the delivery of a project (eg
PFI). Treasury agreement to any such borrowing, including by ALBS, is also
essential. Nevertheless it can sometimes be expedient for public sector bodies to
borrow short term, for example by overdraft.
5.9.2 When a sponsor department's ALB borrows, the department should normally
arrange to guarantee the loan to secure a fine rate. This is not always possible, eg
when a guarantee would rank as a state aid (see annex 4.7). A department which
guarantees a loan normally16 needs a specific statutory power as well as Estimate
provision. On exceptional occasions temporary non-statutory loans may be
possible. 5.9.3 The case for a guarantee should be scrutinised as thoroughly as if
indeed a loan were made. Since guarantees always entail entering into contingent
liabilities, parliament must be notified when a loan guarantee is given, using the
reporting procedures in annex 5.4.
5.9.4 Occasionally there is a case for an ALB to borrow in foreign currency in its
own name rather than the government's. Because this can affect the credit standing
of the government as a sovereign borrower, and may well cost more, it is essential
to consult the Treasury beforehand. The same principles apply to the borrowing of
any bodies, such as subsidiaries, for which a department's ALBS are responsible.
5.10 Multiple sources of funding
5.10.1 Sometimes public sector organisations derive funding from more than one
source. Examples of funding other than voted funds include national insurance
contributions (which are dedicated to the National Insurance Fund), lottery funding
and charitable funding. All of these alternatives usually come with specific
conditions attached.
5.10.2 Organisations in this position should segregate and account separately for
the different streams of funding so that they can apply the relevant terms and
conditions to each. In particular, where a source of funding is designated to a
particular purpose, it is rarely appropriate to use another instead. In those
circumstances switching is novel and contentious and thus requires Treasury
approval.
5.10.3 When there is doubt about how to handle multiple streams of funding, it is
good practice to consult the Treasury.
5.11 Cash management
5.11.1 The various organisations in central government together handle very large
flows of public funds. At the end of each working day, the Exchequer must either
borrow from the money market or place funds on deposit with the money market,
16 The Concordat applies here in just the same way as to spending - see annex 2.3
depending on the net position reached after balancing outflows to finance
expenditure against inflows from taxes and other sources.
5.11.2 So there is considerable advantage to be gained for the Exchequer as a
whole by minimising this net position. In practice this means gathering balances
together at the end of each working day. In aggregate all these accounts make up
the Exchequer Pyramid, managed by the Treasury. Most funds are held with the
Government Banking Service.
5.11.3 It is essential for central government organisations to minimise the balances
in their own accounts with commercial banks. Were each to retain a significant
sum in its own account with such banks, the amount of net government borrowing
outstanding on any given day would be appreciably higher, adding to interest costs
and hence worsening the fiscal balance.
5.11.4 Each central government organisation should establish a policy for its use of
banking services. See annex 5.6 for guidance. Sponsor departments should also
make sure that their ALBS are aware of the importance of managing this aspect of
their business efficiently and effectively (see box 7.2).
5.12 Other financing techniques
5.12.1 Depending on its circumstances, purposes and risk profile, a public sector
organisation may consider using financial instruments provided by the commercial
markets. Among these techniques are foreign currency transactions and various
hedging instruments designed to control or limit business risks, for example those
arising out of known requirements for specific future purchases of market priced
commodities. Mundane possibilities are use of credit or debit cards, in order to
secure faster settlements.
5.12.2 As with making decisions about other policies and projects, an organisation
considering using unfamiliar financing techniques should evaluate them carefully,
especially to assess value for money. The checklists in boxes 4.5 and 4.6 have
reminders of factors that may need to be considered. As such transaction(s) are
almost always novel, contentious or repercussive, it is essential to consult the
Treasury.
5.12.3 Any organisation using a new or non-standard technique should ensure that
it has the competence to manage, control and track its use and any resulting
financial exposures, which may vary with time. In particular, departments should
consult the Treasury before using derivatives for the first time (and ALBs their
sponsoring departments).
5.12.4 When assessing an unfamiliar financing technique, it is important to
remember that providers of finance and complex financial instruments intend to
profit from their business. And providers' costs of finance are always inferior to the
UK government's cost of borrowing. So it is usually right to be cautious about any
novel techniques. The Treasury will always refuse proposals to speculate. Offers
which appear too good to be true usually are.
5.12.5 As with managing other business, parliament may ask accounting officers to
justify any decisions about use of financial transactions, especially if with
hindsight they have not achieved good value for money.
6.2.2 This approach is simply intended to make sure that the government neither
profits at the expense of consumers nor makes a loss for taxpayers to subsidise. It
requires honesty about the policy objectives and rigorous transparency in the
public interest.
6.2.3 As elsewhere, organisations supplying public services should always seek to
control their costs so that public money is used efficiently and effectively. The
impact of lower costs should normally be passed on to consumers in lower charges.
Success in reducing costs is no excuse for avoiding the principles in this guidance.
6.2.4 This chapter applies to all fees and charges set by ministers and by an
extensive range of public bodies: departments, trading funds, NDPBs, the NHS,
non- devolved services in Scotland, Wales and Northern Ireland, and most public
corporations. Departments should be able to satisfy themselves that their ALBs can
deliver the financial objectives for the services they charge for. This chapter also
applies when one public organisation supplies another with goods or services; and
to certain statutory local authority charges set by ministers.
6.3 Setting a charge: standard practice
6.3.1 When a charge for a public service is to be made, it is normally necessary to
rely on powers in primary legislation. The legislation should be designed so that
ministers decide, or have significant influence over, both the structure of the
charge and its level. It is common to frame primary legislation in general terms,
using secondary legislation to settle detail.
6.3.2 Treasury consent is required for all proposals to extend or vary charging
schemes. This holds even if the primary legislation does not call for it, or the
delegated authorities within which the organisation operates would otherwise allow
it.
6.3.3 It is sometimes possible to rely on secondary legislation rather than primary
to determine charges:
an order under $56 of the Finance Act 1973;
restructuring of charges can sometimes be achieved by an order under s102 of the
Finance (no 2) Act 1987 (see box 6.1).
Box 6.1: restructuring charges using S.102
● A s102 order can extend or vary powers in existing primary legislation.
● It can permit restructuring by specifying factors to be taken into account
when setting fees.
● Explicit prior Treasury consent is always essential.
But
● A s102 order cannot create a power for new charges where no primary
legislation exists.
● Nor can it lift restrictions in (or in any other way undermine) primary
legislation. Parliament is usually sceptical because s102 substitutes
secondary for primary legislation.
6.3.4 When deciding the level of a charge, it is important to define:.
● the range(s) of services for which a charge is to be made;
● how any categories of service are to be differentiated, if at all, in setting
charges.
6.3.5 The standard approach is that the same charge should apply to all users of a
defined category of service, so recovering full costs for that category of service.
Different charges may be set for objectively different categories of service costing
different amounts to provide. Box 6.2 shows how this can work.
Box 6.2: how different charges can apply to different categories of service
Different categories could be recognised by:
● distinguishing supply differences, eg in person, by post or online
● priorities, eg where a quicker service costs more
● quality, eg charging more for a premium service with more features
● recognising structural differences, where it costs more to supply some
consumers.
6.3.6 However, different groups of customers should not be charged different
amounts for a service costing the same, eg charging firms more than individuals.
Similarly, cross subsidies are not standard practice, eg charging large businesses
more than small ones where the cost of supply is the same.
6.3.7 Charges within and among central government organisations should normally
also be at full cost, including the standard cost of capital. Any different approach
would cause one party to make a profit or loss not planned in budgets agreed by
ministers collectively; while the customer organisation(s) would conversely face
charges higher or lower than full costs. A number of objectionable consequences
might flow from this. For instance, a question of state aid could arise; or private
sector consumers of the customer organisation might be charged distorted fees.
6.3.8 Shared services (box 6.3) are a special case of charging within the public
sector.
Box 6.3: shared services
It is often possible to make economies of scale by arranging for several public
service organisations to join together to deliver services cheaper, eg by using their
joint purchasing power. One organisation supplies the other(s). Since all the parties
should lower their costs, the accounting officer of each organisation should have
no difficulty in recognising improved value for money for the Exchequer as a
whole and so justify going ahead.
Public sector organisations supplying (or improving) shared services should
consult the Treasury at an early stage of planning. Typically supplier organisations
face the cost of setting up provision on a larger scale than they need for their own
use. As with setting up any new service, plans in budgets should amortise initial
costs so that they can be recovered over an appropriate period from the start of the
service. More detail on shared services is in section 7.5.
It is not acceptable for supplier organisations to plan to profit from, or subsidise,
supply to customer organisations in the public sector. Nor is it acceptable for
accounting officers to resist shared services just because the impact on their own
organisation is not perceived to be favourable.
6.4 Setting a charge: non-standard approaches
6.4.1 Ministers' policy objectives for a service where a charge is levied may not fit
the standard model in section 6.3. In such cases it may be possible to deliver the
policy objective in another way. Some ways of doing this are described below.
Explicit Treasury consent, and often formal legal authority, is always required for
such variations. It is desirable to consult the Treasury at an early stage to make
sure that the intended strategy can be delivered.
Charging below cost
6.4.2 Where ministers decide to charge less than full cost, there should be an
agreed plan to achieve full cost recovery within a reasonable period. Each case
needs to be evaluated on its merits and obtain Treasury clearance. If the subsidy is
intended to last, this decision should be documented and periodically reconsidered.
Charging above cost
6.4.3 ONS normally classifies charges higher than the cost of provision, or not
clearly related to a service to the charge payer, as taxes. Such charges always call
for explicit ministerial decision as well as specific statutory authority. The
Treasury does not automatically allow departments to budget for net expenditure
associated with above cost charges. Netting off, or netting off up to full costs, may
be agreed in certain instances, considering each case on its merits.
6.4.4 Sometimes when a change of this kind is classified as a tax, departments also
propose to assign its revenue. The Treasury always treat such proposals with
caution (see 5.6.3).
Cross subsidies
6.4.5 Cross subsidies always involve a mixture of overcharging and undercharging,
even if the net effect is to recover full costs for the service as a whole. So cross
subsidised charges are normally classified as taxes. They always call for explicit
ministerial decision and parliamentary approval through either primary legislation
or a s102 order.
Information services
6.4.6 In the public interest, information may be provided free or at low charge.
This approach recognises the value of helping the general public obtain the data
they require to function in the modern world. There are some exceptions - see
annex 6.2. 6.5 Levies
6.5.1 Compulsory levies, eg payments for licences awarded by statutory regulators,
or duties to finance industry specific research foundations, are normally classified
as taxation. Such levies may be justified in the wider public interest, not because
they provide a direct beneficial service to those who pay them. Depending on the
circumstances, the Treasury may allow regulators to retain the fees charged if this
approach is efficient and in the public interest.
6.5.2 As with other fees and charges, levies should be designed to recover full
costs. If the legislation permits, the charge can cover the costs of the statutory
body, eg a
regulator could recover the cost of registration to provide a licence and of
associated supervision. It may be appropriate to charge different levies to different
kinds of licensees, depending on the cost of providing different kinds of licences
(see box 6.2).
6.6 Commercial services
6.6.1 Some public sector services are discretionary, ie no statute underpins them.
Services of this kind are often supplied into competitive markets, though
sometimes the public sector supplier has a monopoly or other natural advantage.
6.6.2 Charges for these services should be set at a commercial rate. The rate should
deliver a commercial return on the use of the public resources deployed in
supplying the service. So the financial target should be in line with market practice,
using a risk weighted rate of return on capital relevant to the sector concerned. The
rate of return used in pricing calculations for sales into commercial markets should
be:
for sales into commercial markets, in line with competitors' assessment of their
business risk, rising to higher rates for more risky activities; or
where a public sector body supplies another, or operates in a market without
competitors, the standard rate for the cost of capital (see annex 6.1).
6.6.3 If a publicly provided commercial service does not deliver its target rate of
return, outstanding deficits should be recovered, eg by adjusting charges. Any
objective short of achieving the target rate of return calls for ministerial agreement,
and should be cleared with the Treasury. But discretionary services should never
undermine the supplier organisation's public duties, including its financial
objective(s).
6.6.4 It is important for public suppliers of commercial services to respect
competition law. Otherwise public services using resources acquired with public
funds might disturb or distort the fair operation of the market, especially where the
public sector provider might be in a dominant position: see annex 6.3.
6.7 Disclosure
6.7.1 It is important that parliament is fully informed about use of charges. Each
year the annual report of the charging organisation should give:
● the amounts charged
● full costs and unit costs
● total income received
● the nature and extent of any subsidies and/or overcharging
● the financial objectives and how far they have been met.
6.7.2 To keep parliament properly informed, Estimates should display details of
expected income from charges. The Estimates Manual explains how the controls
work.
6.7.3 The FREM sets out the information public sector organisations should
publish in their accounts. It should include analysis of income.
6.8 Taking stock
6.8.1 As with any other use of public resources, it is important to monitor
performance so that the undertaking can be adjusted as necessary to stay on track.
It is good practice to review the service routinely at least once a year, to check, and
if appropriate revise, the charging level. At intervals, a more fundamental review is
usually appropriate, eg on a timetable compatible with the dynamics of the service.
Box 6.4 suggests some issues to examine.
Box 6.4: reviewing a public service for which a charge is made
● Is it still right for a public sector body to use public resources to supply the
service? Are there any related services for which there might be a case for
charging?
● Does the business structure still make sense? Are the assets used for the
service adequate?
● How can efficiency and effectiveness be improved so that charges can be
lower or offer better value?
● Is the financial objective right?
● For a statutory (or other public sector) service, if full costs are not recovered,
why not?
● For a commercial service, does the target rate of return still reflect market
rates?
● Is it still appropriate to net off against costs any agreed charges above cost?
● Is there scope to secure economies of scale by developing a shared service?
● What developments might change the business climate?
● Do any discretionary services remain a good fit for the business model and
wider objectives?
● Should any underused assets be redeployed, used to make a commercial
return, or sold?
● Would another business model (eg licensing, contracting out, privatising) be
better?
Chapter 7
Working with others
It often makes sense for public sector organisations to work with partners to deliver
public services. This chapter outlines how sponsor departments should keep track
of their ALBs, and where necessary control their activities. It is important that the
public interest and the need to keep parliament informed are given priority in
setting up and operating these relationships.
7.1 The case for working in partnership
7.1.1 Public sector organisations may be able to deliver public services more
successfully if they work with another body. Central government departments may
find it advantageous to delegate certain functions to ALBs that can be free to
concentrate on them without conflict of interest. Or it may be helpful to harness the
expertise of a commercial or civil society sector organisation with skills and
leverage not available to the public sector.
7.1.2 Any such relationship inevitably entails tensions as well as opportunities. The
autonomy of each organisation needs to be buttressed by sufficient accountability
to give parliament and the public confidence that public resources are used wisely.
7.1.3 It can be important that an ALB is demonstrably independent. This in itself
does not determine the ALB's form or structure. Independence is achieved by
specifying how the ALB is to operate. Functional independence is compatible with
financial oversight by the ALB's parent department and with accountability.
7.1.4 It is generally helpful to deal with any potential conflicts head on by deciding
at the outset how the relationship(s) between the parties should work. The key
issues to tackle are set out in box 7.1.
Box 7.1: Issues for partnerships with public sector members
● The decision to engage with a partner should rest on evaluation of a business
case assessed against a number of alternatives, including doing nothing.
● Conflicts of interest should be identified so that handling strategies can be
agreed, eg by establishing early warning processes or safeguards.
● other.
● The cultural fit of the partners should be close enough to give each
confidence to trust the
● Accountability for use of public funds should not be weakened.
● The terms of engagement, including governance, should be documented in a
framework agreement or equivalent (see box 7.2).
7.2 Setting up new arm's length bodies
7.2.1 When a sponsor department sets up a new ALB, the nature of the new body
should be decided early in the process. It is sensible for the functions of the new
body to help determine this choice. Annex 7.1 offers advice and sources of
guidance on setting up a new ALB and compares the characteristics of agencies,
non- departmental public bodies (NDPBs) and non-ministerial departments
(NMDs). Departments should consult the Treasury and the Cabinet Office about
making the choice.
7.2.2 In general, each new ALB should have a specific purpose, distinct from its
parent department. There should be clear perceived advantage in establishing a
new organisation, such as separating implementation from policy making;
demonstrating the integrity of independent assessment; establishing a specialist
identity for a professional skill; or introducing a measure of commercial discipline.
It is sensible to be sceptical about setting up a new ALB, since it will often add to
costs.
7.2.3 ALBS cannot be given authority to make decisions proper to ministers, nor to
perform functions proper to sponsor departments. Only rarely is a non-ministerial
department the right choice as NMDs have limited accountability to parliament2.
Nor is it acceptable to use a royal charter to establish a public sector body since
such arrangements deny parliament control and accountability.
7.2.4 A sponsor department cannot relinquish all responsibility for the business of
its ALBS by delegation. It should have oversight arrangements appropriate to the
importance, quality and range of the ALB's business. Normally new, large,
experimental or innovative ALBS need more attention from the sponsor than
established or small ALBs doing familiar or low risk business. And the sponsor
department always needs sufficient reserve powers to reconstitute the management
of each ALB should events require it (see section 3.8). .
7.2.5 The sponsor department should plan carefully to make sure that its oversight
arrangements and the internal governance of any new ALB are designed to work
together harmoniously without unnecessary intrusion. The ALB also needs
effective internal controls and budgetary discipline so that it can live within its
budget allocation and deliver its objectives. And the sponsor department must have
sufficient assurance to be able to consolidate its ALBs' accounts with its own. 7.2.6
There is a good deal of flexibility about form and structure. It may be expedient,
for example, to set up an organisation which is eventually to be sold as a
Companies Act company. Or certain NDPBS may operate most effectively when
constituted as charities. Mutual structures can also be attractive. Innovation often
makes sense. The standard models are all capable of a good deal of customisation.
7.2.7 If the PAC decides to investigate an ALB, the accounting officers of both the
ALB and its sponsor department should expect to be called as witnesses. The PAC
will seek to be satisfied that the sponsor's oversight is adequate.
7.3 What to clarify
7.3.1 When documenting an agreement with a partner, public sector organisations
should analyse the relationship and consider how it might evolve. The framework
document (or equivalent) should then be kept up to date as the partnership
develops. Box 7.2 contains terms which should always be considered for inclusion.
The list is not exhaustive.
2 The sponsor department also has less control as each NMD has its own budget,
Estimate and annual accounts. So if a ministerial department transfers work to an
NMD, there is a greater risk of excess votes in each.
Box 7.2: framework terms for partnership agreements
purpose
● The aims of the relationship and its working remit.
● Its standards, key objectives and targets.
governance and accountability
● The legal relationship, including any financial or other limits.
● Any statutory requirements relating to the functions of the partnership.
● The governance of any ALB: its board structure, how its members are
appointed (and disappointed). How the partnership should work, eg regular
meetings of senior people.
● The extent to which any department is responsible to parliament for the
conduct of a partner (essential for partnerships between departments and
ALBs).
● Any other important features of the sponsorship role of the public sector
partner, eg acting as intelligent shareholder or consulting third parties.
● How any relationships with departments other than the sponsor should
operate.
● Any arrangements for regular reporting on performance to the public and/or
parliament.
● Plans for any evolution (eg into a mutual) after a period of ALB status.
● Any arrangements for successor activity, eg establishing similar partnerships
elsewhere.
decision making
● How strategic decisions about the future of the partnership will be made,
with timetable, terms for intervention, break points, dispute resolution
procedures, termination process.
● How the chain of responsibility should work, eg stewardship reporting,
keeping track of efficiency, risk assessment, project appraisal, management
of interdependencies. How the partnership will identify, manage and track
opportunities and risks.
● The status of the staff; and how they are to be hired, managed and
remunerated. How any professional input (eg medical, scientific) is to be
managed and quality assured.
● Arrangements for taking stock of performance and learning lessons from it.
Arrangements for intervention when necessary.
financial management
● The financial relationship of the partners, eg:
● Any founding capital (including assets, goods, financial sums or other
valuables) Any periodic grants and their terms
● How the partnership's corporate plan and annual target(s) are to be agreed
● How asset management and capital projects are to be decided and managed
How cashflow is to be managed, and current expenditure financed
● The distribution of income and profit flows
● Any financial targets, eg Return on capital employed (roce)
● How any charges to customers or users are to be set
● Any agreed limits on the partnership's business.
● Monitoring, financial reporting, regular liaison and any other tracking
arrangements.
● Internal and external audit arrangements, with any relevant accounts
directions.
● Arrangements for consolidation of accounts (essential for ALBs)
7.3.2 In framing founding documentation, the partners should adopt a
proportionate approach. Parliament expects that public funds will be used in a way
that gives reasonable assurance that public resources will be used to deliver the
intended objectives.
7.3.3 In this process the aim should be to put the accounting officers of the parties
in a position to take a well informed view on the current status of the relationship,
enabling timely adjustments to be made as necessary. It is good practice to develop
structured arrangements for regular dialogue between the parties to avoid
misunderstandings and surprises.
7.3.4 Further advice about framework documents is in annex 7.2. It is important
that such documents fit the business to which they relate (rather than following
precedent or copying a standard model).
7.4 Agencies
7.4.1 Each agency is either part of a central government department or a
department in its own right. Agencies are intended to bring professionalism and
customer focus to the management and delivery of central government services,
operating with a degree of independence from the centre of their home
departments. Some are also trading funds (see section 7.8).
7.4.2 Each agency is established with a framework document on the lines sketched
out in box 7.2. With the exception of those agencies which are trading funds (see
section 7.8), they are normally funded through public expenditure supplied by
Estimates. Departments should consult the Treasury and Cabinet Office about the
preparation of their framework documents.
7.5 Departments working together
7.5.1 To promote better delivery and enhance efficiency, departments often find it
useful to work with other government departments (or ALBs). This can make sense
where responsibilities overlap, or both operate in the same geographical areas or
with the same client groups - arrangements loosely categorised as joined up
government. Such arrangements can offer opportunities for departments to reduce
costs overall while each partner plays to its strengths.
7.5.2 Such relationships can be constituted in a number of different ways. Some
models are sketched in box 7.3. The list is not exhaustive.
Box 7.3: examples of joined up activities in central government
● one partner can act as lead provider selling services (such as IT, HR, finance
functions) to other(s) as customers, operating under service level
agreement(s)
● cost sharing arrangements for common services (eg in a single building),
allocated in line with an indicator such as numbers of staff employed or
areas of office space occupied
● joint procurement using a collaborative protocol
● a joint venture project with its own governance, eg an agency or wholly
owned company, selling services to a number of organisations, some or all
of which may be public sector
● an outsourced service, delivering to several public sector customers
7.5.3 Shared services often need funding to set up infrastructure, eg to procure IT.
This could be agreed in a spending review, or customers could buy in to the
partnership by transferring budget provision to the lead provider. Each of the
accounting officers involved should be satisfied that the project offers value for
money for the Exchequer as a whole. The provider's charges should be at cost,
following the standard fees and charges rules (see chapter 6).
7.5.4 In any joint activity, there must be a single accounting officer so that the lines
of responsibility are clear. If the PAC decides to investigate, the accounting
officers of each of the participants should expect to be summoned as witnesses.
7.6 Non-departmental public bodies
7.6.1 Non-departmental public bodies (NDPBs) may take a number of legal forms,
including corporates and charities. Most executive NDPBS have a bespoke
structure set out in legislation or its equivalent (eg a Royal Charter3). This may
specify in some detail what task(s) the NDPB is to perform, what its powers are,
and how it should be financed. Sometimes primary legislation contains powers for
secondary legislation to set or vary the detail of the NDPB's structure. Annex 7.1
has links to more about NDPBs.
7.6.2 Each NDPB is a special purpose body charged with responsibility for part of
the process of government. Each has a sponsor department with general oversight
of its activity. The sponsor department's report and accounts consolidates its
NDPBS' financial performance.
7.6.3 NDPBS show considerable variety of structures and working methods, with
scope for innovation and customisation. Some NDPBS may also need to work with
other organisations as well as with their sponsor. All this should be documented in
the framework document (see annex 7.2).
7.6.4 NDPBs' sources of finance vary according to their constitution and function.
Box 7.4 shows the main options available.
3 This route is no longer used - see Section 2.5.
 ● Box 7.4: sources of finance for NDPBS
● specific conditional grant(s) from the sponsor department (and/or other
departments) general (less conditional) grant-in-aid from the sponsor
department
● income from charges for any goods or services the NDPB may sell
● income from other dedicated sources, eg lottery funding
● public dividend capital
7.6.5 In practice NDPBS always operate with some independence and are not
under day-to-day ministerial control. Nevertheless, ministers are ultimately
accountable to parliament for NDPBs' efficiency and effectiveness. This is because
ministers: are responsible for NDPBs' founding legislation; have influence over
NDPBs' strategic direction; (usually) appoint their boards; and retain the ultimate
sanction of winding up unsatisfactory NDPBs.
7.7 Public corporations
7.7.1 Some departments own controlling shareholdings in public corporations or
Companies Act companies, perhaps (but not necessarily) as a step toward disposal.
Public corporations' powers are usually defined in statute; but otherwise all the
disciplines of corporate legislation apply. UKGI, which specialises in strategic
management of corporates, may be a good way of managing departments'
responsibilities as shareholders.
7.7.2 Sponsor departments should define any contractual relationship with a
corporate in a framework document adapted to suit the corporate context while
delivering public sector disciplines. The financial performance expected should
give the shareholder department a fair return on the public funds invested in the
business. Box 7.5 offers suggestions. This approach may also be appropriate for a
trading fund, especially if it is to become a Companies Act company in time. 7.7.3
A shareholder department may also use a company it owns as a contractor or
supplier of goods or services. It is a good discipline to separate decisions about the
company's commercial performance from its contractual commitments, so avoiding
confusion about objectives. So there should be clear arm's length contracts between
the company and its customer departments defining the customer-supplier
relationship(s).