Archives For Public Sector

By Manj Kalar, ACCA’s Head of Public Sector

The momentous decision that was taken by the UK on 23 June to leave the EU will no doubt reverberate for a number of years. Dismantling all the legislation, government funding frameworks developed over 40 years will take quite some time to fully unravel.

It will call for the public sector to use all their expertise and skills and develop many new ones to achieve a successful transition. Some of the key areas where there will be an impact are outlined below:

Change in focus?

Over the last 6 years the key focus has been austerity so that a public spending surplus would be achieved by 2020. A tough Spending Review settlement was agreed by the public sector, providing certainty over funding over the next 4 years continuing the efficiency agenda to 2020.

Many leading economists including the influential Institute for Fiscal Studies were questioning whether the ongoing scale of cuts to government spending could be achieved before the result under two weeks ago. After the result it became a whole lot more difficult: Government lost its triple A rating. Why does this matter? Although the UK government has net liabilities over £2 trillion per the latest UK Whole of Government Accounts; it has, by and large, maintained the triple A rating which has translated to lowest level of interest payable on government borrowing. The Office for Budget Responsibility’s ready reckoner suggests that in general a 1 percentage point increase in both gilt rates and short rates in each of the next five years would increase central government debt interest spending in 2019–20 by £5.3 billion (in 2019–20 terms). This will make achieving the agreed public sector spending reductions even more difficult.

EU funding

In 2015 the UK Government paid £13bn to the EU budget which is net £5bn of the instant rebate; the EU spending in the UK was £4.5bn; so the net contribution was £8.5bn. Therefore, in theory, there will be additional funding available for the many demands including:

Cost of dismantling EU legislation and Regulation

EU funding has been channelled to support many areas of spend across the UK. For example support for agriculture through DEFRA. Farmers receive funding through the Common Agricultural Policy (CAP), In 2015, UK farmers received almost €3.1bn (£2.4bn) in direct payments, according to the NFU. There is no doubt that similar levels of funding or potentially more will be sought to supplement what they will no longer receive from the EU. It may surprise some to note that one of the biggest recipients of the CAP funding is the National Trust (almost £12 million in 2015). Similarly those receiving support as a result of the Common Fisheries Policy will be seeking the same assurances and/or relaxation on fishing quotas. UK has 16% of total EU fish processing jobs, the highest of any EU country. These may be easier to identify and potential solution for a way forward. However, there are many other areas where unravelling the web of EU funding may not be so easy.

Take for instance the significant sums provided for regional development funding and infrastructure investment such as road networks and rail. European Investment Bank loan investments in the UK economy came to €29 billion over the 5 year period 2011-2015. This was €7.8 billion in 2015:  energy projects accounted for 24% of total investments, while transport and water claimed 22% and 21% respectively. In Northern Ireland funding has been negotiated to support the development of the road network. The Northern Powerhouse was going to receive funding to supplement government investment in bringing the high speed 3 rail network and in London the cross rail project (£1bn) linking the west of London to the east of the UK. Some of these are underway and funding has been committed and others negotiated. A departure from the EU will require all of these to be assessed. Will the projects underway continue? One would assume so. But what does this mean for those in the discussion phase? Given changes in interest rates payable this will change the original business cases for the infrastructure investment.

Another significant area is the cost of dismantling the legislation. The number of Acts of parliament and statutory instruments over the last 43 or 44 years that refer to EU legislation will all need to be reviewed and potentially amended.  This raises potential capacity issues as it will require more legal experts to consider what elements of EU directives and regulations should be retained in UK law. The number of lawyers across government have fallen as the public sector has contracted by 15% since 2010 as a result of civil service reform and meeting the spending review efficiency targets. The civil service is now smaller than at any time since the end of WW2 and stands at 406,140 according to the latest figures available. This is before the Parliamentary timetable to considered legislative changes is considered. This will impact on the timing of legislative changes and the impact on Parliament’s capacity to consider and debate issues unrelated to the impact of the EU referendum.


Linked to foreign travel is the EU passport. Questions that will need to be addressed include will a new UK passport be required? What about the EU passports in circulation? Will there be a period of grace before these are withdrawn or will there be a cliff edge cut off point? One has only to think back to the summer 2014 when there were significant backlogs to processing passport applications. Of the 56.1 million usually resident population of England and Wales in 2011, 76 percent (42.5 million) held a UK passport. Any change to the current approach therefore has the potential to be significant

Not all these decisions can be made unilaterally and in devising policies around this will require interaction with the EU as well as making practical changes, requiring upfront investment by the UK Passport Service into technology as well as staffing to manage the transition.

Foreign and Commonwealth Office is another department that has seen a significant reduction in embassy staff. This was part of the efficiency drive under austerity and was possible due to sharing these duties and support from other government departments (DFID, NCA and BIS). This will need to be reversed to meet the growing need to ensure the embassy network is fully functioning.


There are many practical questions around health ranging from staffing to travel. Currently, there is the E111 to guarantee medical health care provision if UK citizens fall ill when in an EU country. Will this still service still be available? Will UK citizens need to take out travel insurance to cover any medical bills? Or will government be required to pay this back? What will the service look like, and how will it work, will need to be developed. Presently, the Department for Health reported £434m payable for UK travellers requiring medical treatment in the EEA and received £50m for EEA travellers requiring medical treatment in the UK. Will they need increased administrative support to invoice and chase non-payment?  This will potentially (inevitably?) create an additional overhead.


There has been EU funding for teaching hospitals and the ERAMUS programme, an exchange programme that fosters mobility for talent flows. Higher education institutions will be seeking assurances to ensure new rules allow for such cultural exchange and talent transition to continue.

There are many demands on the £8.5 bn funding that ‘would have gone to the EU’ and more will be required to consider the impact on trade negotiations. As noted in the newly created Brexit unit, ‘bringing together the brightest and best’ across the civil service to be headed by Olly Robbins, a significant proportion of resources will need to develop policies and procedures to ensure the UK has the trading relationship it seeks from the EU and other countries. Given the time taken to negotiate TTIP and other trade agreements (e.g. the EU-Canada Comprehensive Economic and Trade Agreement has taken almost 8 years to agree) any changes will undoubtedly require time and expert negotiation skills.

The risk is that government spirals into inertia as the focus is on the impact of Brexit. But service improvement, continued public service delivery and savings delivery plans need to remain in focus if public services are to be delivered effectively, efficiently and economically to meet plans to meet the public spending reductions.

Therein is the challenge how to focus on ensuring a successful transition and extraction from the EU and maintain government finances which are likely to come under severe pressure. The Governor of the Bank of England has already allocated £250bn to support the banks if there is another repeat of the 2008 situation. The level of government support is £1,174.5bn (short term £235.2bn and long term £939.3bn) in the 2014 Whole of Government Accounts (an increase of £78.4 billion on the previous year.) This will come at a cost – increased interest payments.

As Gus O’Donnell remarked this is what the civil service does best and will manage but based on the projected costs it will be a number of years before the benefit of the ‘additional’ £8.5bn is going to be felt if at all if there is a cost associated with keeping access to the EU.

This article first appeared on Politics Home.

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