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Gillian Fawcett-8525

By Gillian Fawcett, head of public sector, ACCA

The consequences of the 2008 financial crisis continue to play out and have led governments across the globe to reassess the delivery of public services in an age of prolonged austerity.

However, the outlook in the accountancy sector remains positive with developments showing that the profession is coming up with innovative solutions to meet the needs of public financial management.

ACCA’s recent paper Breaking out: public audit in a post-crash world shows that efforts are being put forth by numerous governments around the world to address the challenges surrounding public audit.

Contributors from Scotland to Bhutan, Australia to Jamaica, offer their perspectives on what has worked, what could be improved and what should be considered in this important area going forward.

The reports’ contributors highlighted certain areas of best practice and different approaches such as in Canada, where chief audit executives are now required to hold an internal audit designation. They also have a direct and exclusive reporting relationship with the deputy minister in their department. This change, quite early on, demonstrates the strategic role accountants are playing.

All the essays highlighted the importance of early intervention in saving money on big projects, particularly where governments outsource public services. Important lessons can, and should be, learnt from the crisis; there was clearly a systemic failure in both the private sector and the public sector to properly account for risk, and more must be done to account for this in the future.

All the contributors were in agreement that better financial reporting and risk management results in better decision making.

ACCA will be hosting a roundtable discussion at the end of April to look at these issues. Being held at the Palace of Westminster, the event will feature participation from the Rt. Hon Margaret Hodge MP, who will offer her insights about what Government should be doing to ensure public finances are not only properly managed, but that the right systems are in place to avoid costly mistakes.

Some of the key questions to be considered at the event will include: Are short-term cost saving exercises storing up long-term failures in accountability? Is there a case for auditors to be involved much earlier on in significant public procurement projects, particularly when considering the National Audit Office estimates the UK central government spends £40bn with third parties, if so what needs to change? Should private companies undergo the same audit rigor as their public sector counterparts? And, considering the increasing fragmentation of public service delivery, are there enough checks and balances in the system for parliament to follow the money?

Radical change is taking place across the UK government and public sector. In part it is being driven by the need to recover the public finances, an objective shared by all major political parties. As spending is set to fall by more than one fifth in real terms from 2009/10 to 2017/18, we must ensure resources are allocated to scrutiny. The government must take bold decisions about where to allocate funding therefore, resources for proper scrutiny must be a priority.

What this publication demonstrates is that despite the varying systems, there is a DNA which runs through all parliamentary public account committees and audit systems.

Five years on from the crash, there are positive conversations about how we can achieve more with less.

By Jigmi Rinzin, Parliamentarian, Bhutan

While Bhutan has a very good monetary and financial mechanism in place, we have only just started on the evaluation front when it comes to public financial management.

It is important to mention that this is not a unique position for Bhutan. The entire South Asian region is undergoing a shift when it comes to evaluation. This offers the countries within the region a unique opportunity.

Being a member of the National Council, a view of the House of Parliament in Bhutan allows me a unique perspective. I look at the roles of parliamentarians beyond legislation.

I am a member of Parliamentarians’ Forum on Development Evaluation (PFDE) with colleagues from other South Asian countries. We collectively aim to provide enabling environments in our respective countries.

In Bhutan, I’m a member of the Evaluation Association of Bhutan (EAB) where we work towards facilitating the practitioners, evaluators and other stakeholders involved in monitoring and evaluation for effective and efficient conduct of their roles and responsibilities.

A National Council Member’s foremost mandate, besides legislation, is to review performance of governments, NGOs, civil society and other bodies critical to the functioning of the state machinery. When you have a duty to review state functionaries, monetary evaluation ends up having a great deal of relevance.

Bhutan has a designated office: a division under our Gross National Happiness (GNH) Commission (Bhutan’s Planning Commission) called the Research and Evaluation Division. This Division is the centre-coordinating agency for monitoring and evaluation in the country.

Since the implementation of the National Monitoring Evaluating System in 2006, the Royal Government of Bhutan has been working on developing the policy for this subject matter. There is a need for a comprehensive policy on evaluation to ensure transparency and accountability in public sector development projects.

As a parliamentarian, I play a role in ensuring the right policies are in place that provides the necessary enabling environments. Although this might sound broad, what it means in practice is ensuring that we concentrate on developing a complete and whole evaluation culture and system within Bhutan, which at the moment is something that needs to be worked on.

To go even further, Bhutan will need to work harder towards the application of international standards in order to strengthen decision-making, management and accountability. Implementing such standards can be achieved through development reforms.

Effective public financial management (PFM) can only be achieved through better quality accounting and public audit processes.

In Bhutan, we have the Royal Institute of Management (RIM) which provides high-level training in professional development for management and growth in the country. RIM provides formal MBAs, postgraduate certificates and diplomas.

Formed in 2010, Accounting & Auditing Standards Board of Bhutan (AASBB) is involved in spearheading the development of Bhutan Accounting Standards (BAS) and Bhutanese Standards on Auditing (BSA).

ACCA is a body that could provide substantial support to the Bhutan accounting profession. Adopting ACCA public sector programmes for local conditions could provide a path for sustained and improved training. ACCA could explore collaborating with the RIM and AASBB.

When it comes to the subject of corruption, Transparency International’s index of perception of corruption for 2013 placed Bhutan in 31st position among 177 nations and 1st in the South Asia region. For a new democracy, this ranking is impressive.

Our arrangements for audit and legislative accountability has played a key part in allowing Bhutan to rank the highest among South Asian nations when it comes to the perception of corruption.

Bhutan’s Public Accounts Committee (PAC) serves to reinforce our democratic culture by reiterating on principles of good governance, accountability, transparency and the public debate.

PAC members are chosen on the basis of their reputation for their integrity. The PAC is seen to add value to the audit reports through scrutiny of government performance. It reviews them, questions witnesses, examines facts and figures, gathers and sifts evidence, makes recommendations and conducts follow-up on their implementation.

These measures play a crucial part in creating a sound system and culture without which would translate to an increasingly difficult road ahead when it comes to continuing the Kingdom of Bhutan’s healthy track record of transparency.

Bhutan has achieved a lot in a little time and the challenge now is to sustain momentum in combating corruption and consolidating democratic culture in the country.

Through the PAC and other Committees, Parliament must go beyond financial scrutiny to assure every programme initiated by the government brings maximum value for money.

David Walker, co editor of Breaking Out, is contributing editor at the Guardian

Public audit is breaking out. Its core task remains independent assurance that precious public money is spent lawfully and effectively. But the ‘in and out’ or ‘injection’ model for audit is no longer enough. Auditors are assuming a wider responsibility, bringing them closer to executive management.

In the different countries of the UK, as with Australia, Canada and emergent Kenya and Jamaica, auditors no longer report and run. Securing value for public spending increasingly demands their sustained presence. They are having to intervene earlier in financial decisions then stay to follow up, checking recommendations have been adopted.

This expanded role results from the crash and – in many countries – enforced austerity in public finance. Parliamentarians demand more assurance that the funds they vote for are buying the services intended. Media and civil society, mistrustful of politicians, turn to auditors as a check-and-fail safe. Permanent secretaries and agency heads enlist auditors to expand executive capacity.

The picture painted by contributors to Breaking Out, ACCA’s new collection of essays from leading public auditors, isn’t uniform. Political circumstances and the autonomy of audit institutions vary. Within the UK, devolution, and in Scotland’s debate about independence, has opened unprecedented vistas for auditor generals to survey wider landscapes, looking at financial viability decades ahead and – sometimes quizzically – at lines of demarcation between local and central government and between adjacent agencies and departments.

John Doyle, the auditor general of the Australian state of Victoria, says auditors must go beyond the traditional sweeper-up role and take a more muscular role, assuming joint responsibility with managers and parliamentarians for improving public sector performance. The view from Canada sees audit as a ‘real time’ contributor to effective spending decisions by civil servants – it should be an extra administrative resource.

Intervene earlier in the processes by which money is allocated to departments, says Amyas Morse, the Westminster parliament’s comptroller and auditor general, and problems can be nipped in the bud. Providing assurance earlier in the life cycle of a project can limit the impact of administrative failures, preventing them from snowballing.

So audit should be peering ‘upstream’ at how decisions are made within government departments and agencies. It must also look ‘downstream’ to how services are delivered. Downstream lie contractors and the increasing proportion of public services that are outsourced to private firms. Auditors are supposed to ‘follow the money’ – Professor Ron Hodges of Birmingham University and ACCA’s head of public sector, Gillian Fawcett, argue: the trail leads to auditors examining the performance of firms such as Serco and G4S. Private sector auditors are responsible for their accounts, but the work they do for the public sector – and what they are paid for it – are matters for public auditors.

But not all auditors welcome the new expansiveness. Marcine Waterman, controller of audit at the Audit Commission – the English government agency that is now being wound up – says auditors are not improvement advisers. They can hold a mirror up to a public body that is not performing, but must intervene sparingly and modestly.

What happens, asks John Muwanga, drawing on his experience as Uganda’s auditor general, when public demand for better services lands on the auditors’ desks. He is worried by the ‘expectation gap’ between what auditors can do and what the public thinks they must do.

And yet public auditors are not going to escape fiscal fate. As long as money is tight – and austerity looks set to last, compounded in the UK and across the European Union by the health and social care pressures of ageing – public and parliaments will demand more value for money. Short of an administrative revolution in which general managers themselves suddenly acquire new financial competence, the services of public auditors are going to be in high and growing demand.

By Steve Rudaini, PR manager, ACCA

This is ACCA’s response to the UK Autumn Statement 2013:

The UK Economy

Manos Schizas, ACCA Senior Economic Analyst, said: “Unlike previous Budgets and Autumn Statements, or PBRs, this Statement is aimed squarely at high-street businesses with plans for slow, steady or no growth. There is an irony in how talk of ‘rebalancing’ the UK economy has disappeared now. Growth is now once again meant to be fuelled by consumption, retail spending, and housing rather than by investment.”

Sarah Hathaway, head of ACCA UK, said: “Businesses, now more than ever, are looking for long-term, sustainable measures that extend beyond the term of Parliament or government. Quick fix, sugar-coated initiatives are not what the City and the wider UK business community are looking for and create uncertainty at a time when UK plc is looking to build on firmer ground. While many announcements in the Autumn Statement are favourable to businesses, their life span and breadth of impact will be critical for the economy. This sentiment is true for other government policies, for example apprenticeship funding, so that businesses have the foundations of both finance and skills in place to grow.

“The Bank of England has shown its understanding of businesses needs for certainty, first through its introduction of forward guidance and, just last week, its decision to make the Funding for Lending Scheme a business initiative rather than the home loan vehicle it had become. Businesses need that level of certainty about the long-term from the Treasury as well as from Threadneedle Street.”

Small and Medium Sized Business

Rosana Mirkovic, ACCA Head of SME Policy, said: “The Government has moved away from the previous focus of encouraging growth in the more dynamic SMEs towards supporting smaller enterprises through business rate inflation caps and a further promise of reforms on this front in 2017. Various measures announced for supporting the bricks-and-mortar high-street businesses show a welcome move back to supporting the smallest and micro businesses. However, braver decisions could have been made – business rates reform has been put off for 2017, when it is clear from previous, recent budgets that the system was just not designed to take spikes in inflation into account.

“Reducing National Insurance contributions for young people could help small businesses, however, whether this is aimed at helping SMEs or get young people off benefits is an important distinction. SMEs in the UK are calling for a more skilled workforce, not an unskilled one.”

Taxation and State Retirement Age

Chas Roy-Chowdhury, ACCA’s Head of Taxation, said: “Families across Britain will need to look in detail at what the Autumn Statement means for them. The married persons tax allowance is a welcome move in principle, but not everyone benefits. In having an allowance restricted to those who are basic rate taxpayers creates an even more complex tax regime as well as confusion around couples who eventually become higher rate taxpayers. It should be possible for all taxpayers living with a partner to benefit from the allowance.

“There is logic in the government increasing the state retirement age to 68 by the mid-2030s, as people live longer, but at the same time families looking to save for retirement are being penalised. The annual pension contribution limit is set to drop from £50K to £40K and the total value of the pot people can have will also drop by quarter of a million pounds from next April, so those trying to be frugal and not be dependent on the state are being squeezed.

“ACCA welcomes the decision to exempt HMRC from further budget cuts. It is vital that it is properly resourced to keep the tax system running, and help give staff the promised crackdown on those who try to evade or exploit that system. However, ‘no further cuts’ actually means cuts in real terms, making life difficult for HMRC. The Government wants to tighten tax collection, but it needs to invest in HMRC to achieve it.”

The key points from the Autumn Statement can be found here

The live tweets from ACCA can be found at @ACCATaxation @ACCA_SME @ACCA_UK and @ACCANews

By Gillian Fawcett, head of public sector, ACCA

In the 2013 Budget, George Osborne told parliament that he intended to “introduce a new limit” on Annual Managed Expenditure (AME) that would “bring real control to areas of public spending that had been out of control” yet do so in a way “that allows the automatic stabilisers to operate.”

Therefore, it was no surprise the chancellor used the June 2013 Spending Review to announce reforms to AME and reign in the ‘out of control’ element of public sector spending.

AME currently stands at £350bn (€408.7bn, $533.4bn) and accounts for almost half of the government’s annual expenditure. While the chancellor has made the first tentative steps towards tightening the purse strings on AME, there is still much more to be done to make this part of public finance more accountable.

The measures announced include a cap on certain elements of AME, including tax credits, welfare benefits and a temperature test for the winter fuel allowance of pensioner’s living abroad. The chancellor also announced that he would be expanding the role of the Office for Budget Responsibility (OBR) to monitor AME spending and issue a warning when the government is reaching the agreed limit.

Consequences

While this is a welcome move, he failed to offer further detail on the consequences of this limit being breached.

Given the demand-led nature of AME and the right of every UK citizen and some non UK nationals living in the UK, to claim benefits and a state pension, it seems unlikely that there will be a hard cut off point.

As a result, regular breaches seem likely, much like in other areas of the public sector where targets are routinely missed.

In order to reduce the cost of the UK’s welfare system in the long-term, the chancellor needs to take a structural look at AME expenditure and the drivers behind every expense.

A future focus on investing in preventative services is the best way to achieve long-term savings and this can only come from understanding local demographics and implementing measures to tackle the AME cost drivers in each local authority.

On a more strategic level, there should be greater emphasis on the costs of life, from cradle to the grave in all areas of public spending, which is something the government has struggled with for many years.

Emulating the US and Australia?

The UK would benefit from longer term fiscal strategies, similar to the US and Australia, where fiscal policy is planned out 50-75 years ahead. AME would also benefit from this kind of future planning.

In addition to capping AME, the chancellor could have explored the possibility of devolving some AME spending decisions to government departments or local authorities. They would then be responsible for spending these AME budgets in the way that they feel is most appropriate for their local area – making AME a more accountable part of public expenditure. Currently there is no accountability or scrutiny of AME, despite its high expenditure.

AME was originally introduced to control public expenditure and avoid arbitrarily cutting public services. However, over the years, that purpose appears to have been lost and AME spending has spiralled out of control.

It is encouraging to see that the chancellor is making the moves to manage this unaccountable and expensive section of the public purse. But he may have missed a golden opportunity to once and for all take a radical approach to AME.

Only time will tell if the changes made in the 2013 Spending Review go far enough to amount a long term reform.

This post was first published in International Business Times, July 2013