COMMITTEE FOR FINANCE AND PERSONNEL

OFFICIAL REPORT

(Hansard)

Role of the Department of Finance and Personnel’s Central Expenditure and Supply Divisions in Overseeing Public Expenditure

15 October 2008

Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Dr Stephen Farry
Mr Fra McCann
Ms Jennifer McCann
Mr David McNarry
Mr Adrian McQuillan
Mr Declan O’Loan

Witnesses:
Mr Richard Pengelly, Budget Director ) Department of Finance and Personnel
Mr Michael Daly, Head of Central Expenditure Division )
Mr Jack Layberry, Head of Supply 1 )

The Chairperson:
We are joined by the Department of Finance and Personnel’s budget director, Richard Pengelly; head of the central expenditure division, Michael Daly, and Jack Layberry, head of supply 1. I refer members to the DFP and secretariat papers which have been circulated.

The witnesses are here early, and we have had a slight delay in getting through the early part of our agenda. Apologies for that. You have all been here before, and you are all welcome back. This session is being recorded by Hansard, so please ensure that all mobile telephones are switched off.

Mr Richard Pengelly (Department of Finance and Personnel):
I will not take up too much time with opening comments. I will say a few words about the strategic overview position, then Michael Daly, who is head of the central expenditure division, and Jack Layberry, who is head of one of the supply divisions, will talk about some of the issues from the divisional perspective.

In overview and public expenditure management terms, today, the central finance group— of which central expenditure and supply are key elements — deal with four key issues. First, it is concerned with securing the Northern Ireland public expenditure total through dialogue with the Treasury, and by working through the UK public-expenditure system. Secondly, it deals with analysis and makes recommendations to Ministers as to how moneys are allocated between different services and Departments in Northern Ireland. Thirdly, throughout the course of the year it undertakes a process of monitoring and reallocating expenditure allocation, and, finally, it is concerned with reporting spend. However, we will not address that final element as that is the remit of the Departments, carried out through their annual accounts and by our colleagues in the accountability division of DFP.

The central expenditure division — which is Michael’s area — lead the dialogue with the Treasury and the Northern Ireland interface into the UK public-expenditure system. They also review the operation of the Barnett formula, both in conceptual terms and in the arithmetic workings of it, thus ensuring that we receive our entitlement.

Supply divisions represent the DFP interface with Departments. That division is the main day-to-day point of contact with the 11 Departments. It seeks inputs from all Departments, analyses those inputs and passes them to the central expenditure division, which then collates the information to form an overview Northern Ireland perspective, which forms the basis of advice to Ministers. The two divisions inevitably work closely together in performing that task.

Sometimes our colleagues in Departments struggle with the concept of supply. Jack Layberry might say more about that. Supply is in a uniquely challenging position, as those divisions must, effectively, wear two hats. On the one hand, with the DFP departmental interface they perform a robust challenge function and act as something of a pushback to departmental aspirations. Having carried out that process of scrutiny and analysis, they then turn to the internal DFP debate and become an advocate for the Department, presenting a case for it during the competitive process for funding in the block.

That should provide Committee members with an overview. Michael will now say a few words about CED and Jack will deal with supply. Following that, we will deal with any points or questions that members may have.

Mr Michael Daly (Department of Finance and Personnel):
Richard has provided a fairly high-level overview of the work carried out by CED, which is the part of the central finance group that supports the Minister. We do that by achieving the best possible settlement for the NI block from the Treasury, and by supporting the Minister in the overall management of the devolved public-expenditure processes. In that way, we are the advisers on planning management and control of expenditure, advising on the prioritisation of public spending during the Budget and monitoring rounds and — as members will be aware — supporting the Minister through the relevant Assembly processes.

In a practical sense, we are the main interface with the Treasury and the devolved Administration on spending reviews. We also advise on any other public expenditure matters, as and when those arise. In relation to budget processes and monitoring rounds, we are responsible for managing arrangements and the operation of those arrangements between the various Departments, allowing the development of proposals that fit in with the block figure work. In doing so, we work closely with the supply divisions and, depending on the nature of the issue, with another part of the central finance group — the strategic policy division.

Outside of the Department — but again as part of that process — we liaise closely with our colleagues in OFMDFM, specifically the economic policy unit and the SIB. That close liaison ensures that interfaces are established between budget processes and monitoring arrangements on one hand, and the Programme for Government and the investment strategy for Northern Ireland on the other.

CED also manages the public expenditure database and you can see the output of that work when you look through the detailed estimate booklets, published during the estimates process. As part of that we must ensure that the database is maintained in a manner consistent with the corresponding database in the Treasury. CED also provides routine financial information to the Treasury at key points during the financial cycle.

That is a general overview of what the division does and how it fits into the process.

Mr Jack Layberry (Department of Finance and Personnel):
As Richard said, supply has as an unusual role in that it acts as the interface between DFP and the other Departments. Supply has two main functions: to provide advice to the centre on the allocation of public expenditure and to ensure that value for money is achieved in the Departments. That role requires supply to have a sound understanding of the policy priorities and responsibilities of the Departments and, at the same time, to be seen to be impartial and independent. That facilitates a robust and transparent challenge by supply to policy proposals that are put forward, either as part of the budget or as spending proposals for approval by DFP.

The key to doing the job well lies in the quality of relationships with the Departments. There is a perception that DFP’s role is largely one of saying no. That is not the case; the key is to be seen by Departments as willing to challenge robustly their proposals to ensure value for money and, at the same time, to champion those ideas at the centre, if DFP thinks that they are worthwhile.

Mr Hamilton:
Thank you for that run-through. The Committee understands and appreciates the important role of the central finance group in overseeing expenditure and improving financial management. The Department’s business plan contains a target to ensure no overspend and acceptable underspend against Treasury controls. Can you outline the role that the group plays in combating and robustly challenging underspend? Although the elimination of underspend is desirable, everyone accepts that there are always acceptable reasons for it. What level of underspend do you consider to be acceptable?

During the past year, a vote on supply on the overspend on the pensions of the Department of Health, Social Services and Public Safety went through the Assembly. How frequently has that occurred in the past five years? Given the persistent problems of underspend across Departments, how do you critically assess the central finance group’s performance in managing that problem?

Mr Pengelly:
The in-year monitoring process, which represents the safety valve for Departments, is our main vehicle for meeting the target to ensure no overspend and acceptable underspend. Four times a year, we ask Departments to survey their business areas to identify pressures that they feel are unfunded and to identify areas in which they are not spending to their full capacities. Our main response is strategically to pull those issues to the centre and provide advice to the Executive on how the areas of slippage could be reallocated to areas of pressure. In providing advice to the Executive, DFP and Committees feel difficulty and frustration that they are in the hands of Departments; we can deal only with the information provided by Departments.

At any point in the cycle, when we ask Departments whether they will spend their full budget, the answer is always yes. At a human level, I understand that, because the Departments fear that if they tell DFP that they will underspend by a couple of percentage points, DFP will remove the money and reallocate it. We keep challenging Departments by asking that question. Jack Layberry may talk about the specific dialogue that he has with Departments. Our main tool is an analysis that we regularly present to Departments that shows their performance over a period of three or four years.

While it is unfair to go too far into the detail of any single Department perhaps an example would help. The Department of Agriculture and Rural Development, for example, faced some considerable pressures this year and we worked with it to try to resolve those. A crude analysis shows a track record of several percentage points of underspend in that Department and, during the in-year monitoring process, the Department continually seeks, and is given, additional funding. That is an issue of culture and behaviour. In the Department’s favour, some of the areas it deals with are particularly volatile. It is difficult for the Department to predict what lies around the corner with respect to outbreaks of animal disease and compensation claims.

Our main approach is to maintain dialogue and build up an understanding with each Department. We challenge the information each provides. Departments such as Education, or Health, Social Services and Public Safety, are huge and have a diverse range of business activities across volatile, demand-determined, areas. It is difficult for us, limited as we are by resources, to understand a Department’s business in anything like the detail it does. That is why, in Assembly debates, current and previous Finance Ministers were keen, through this Committee, to encourage departmental Committees to improve that dialogue, acquire an understanding and look at the figures associated with underspend.

As a part of the annual monitoring paper that we present to both the Executive and the Assembly, we suggest that a ministerial statement to the Assembly should include the latest from his or her Department on its forecast expenditure. Our Minister has requested that the September monitoring papers are cleared by the Executive through the urgent procedures. An annex to that will, I hope, in the fullness of time, be presented to the Assembly, showing that, as at the end of September, all of the Departments forecast that they will spend all of their budgets for the year. This time last year, Departments said that; however, in the event, the total underspend by Departments was over £170 million. That is a huge opportunity cost to key public services, many of which face enormous pressures. It is a challenge that takes probing and dialogue.

Is there an acceptable level of underspend? The benchmark we set is about 2%. The analogy that many Departments use is that managing a budget is like trying to land a jumbo jet on a postage stamp. It is difficult: however, if we continue to move in the right direction and year-on-year continue to reduce the underspend, none of us would get too hung up on hitting a target of 2% or 1∙5% immediately. However, we need to see a steady improvement and quantifiable forward steps.

The Committee must understand that there are two levels of overspend faced by the Northern Ireland Administration. If we overspend the block, so that public expenditure in Northern Ireland is higher than the Treasury-approved total, the Treasury response to that is to reduce public expenditure the following year by the amount of the overspend. That is a severe sanction, so it is important to get that right. In my time at DFP, there has never been an overspend at block level. We have faced some issues internally, when elements of Departments have overspent. One example is the overspend on health pensions. In block terms, that is a small amount and there has been no great impact.

Last year, Departments underspent ove £160 million in total: if, within that figure, there were a couple of overspends of a few million pounds by Departments, that, in numerical terms, would not present a big problem. The problem, rather, is one of management control and how overspend occurs. We see that as a management control, rather than a numerical, issue, and we continue to watch that.

Our group’s performance in managing the block position is judged by the block position, which must be good. To give some detail, the steps we have taken include programmes of mandatory financial management training for all senior civil servants. We try to work with Departments to produce standard models of good practice regarding the sorts of information that should be made available to departmental boards on a monthly basis, to allow senior management and organisations to fully understand and analyse the financial position to seek to reduce underspend and minimise the risk of overspend. We continue to work on that and provide advice and guidance.

A great deal is happening; however, it has not yet produced the dividend of better performance, and we must soon move into that new environment. The pressure on the block of public expenditure is such that we simply cannot afford to have big chunks of money remaining unspent. That is especially the case if the Treasury restricts end year flexibility and money is not returned immediately for deployment in Northern Ireland.

Mr Hamilton:
How does the supply division achieve its target of ensuring that Departments carry out post-project evaluations on a timely basis? What is the target for performing those evaluations? What is current performance against that target?

Mr Layberry:
An annual monitoring exercise ensures that all necessary post-project evaluations are carried out. Furthermore, we ensure that decisions on post-project appraisals of spending proposals are informed by previous post-project evaluations.

I am not sure what Departments’ performance is against the targets for post-project evaluations.

Mr Pengelly:
We can follow up with that information.

The Chairperson:
There are many more in-year declarations of reduced requirements, which I thought would have impacted on the projected out-turn for the year. However, the underspend for this year could be higher than it has been for the last four years. That is serious. What is your explanation for the ongoing weakness in financial projection? When did the central finance group realise that that could well be the out-turn for this year? What steps have you taken to address the problem? You indicated that there are weaknesses in control and management, and people must be held to account as well as being educated.

Mr Pengelly:
Departments have told the central finance group that there will be zero underspend. However, our experience is that we tend to be told that at this stage of the cycle every year. The total departmental underspend has never been lower than £100 million or more in recent years. We expect that the underspend will be in line with those figures, but we have no evidence for that other than gut feeling and experience.

The Chairperson:
Do you have a provisional out-turn figure that is above the 2% target?

Mr Pengelly:
We do not receive provisional out-turn figures until May, which is a couple of months after the end of the financial year. Departments have forecast that they will spend their entire budget and that there will be zero underspend. I can understand that, because it is very difficult for Departments to forecast their spend on public services. Departments are nervous that some of their budget will be reduced if they put their hand up and suggest that there might be an underspend. We have provided absolute guarantees that it is not about removing money from Departments. We need quality information to enable the Executive to make informed decisions about over-commitment levels and the amounts that can be allocated at this point in the year.

There is a range of issues at play in Departments, such as the difficult nature of the subject; the level of financial skills and experience at budget-holder level, which we are trying to improve through more structured programmes; and nervousness about declaring that there will be no underspend. There is a time lag in information; for example, if we ask a Department to forecast spend for the rest of the year at the end of September, we like that forecast to be based on the position of actual spend to the end of September. We are also in a difficult position because the historic accounting systems in Departments, in some cases, are not fit for purpose. However, Account NI will transform those systems. Several Departments have already moved across to new systems, and the transition for all Departments will be complete by the end of 2009.

That will remove the excuse for poor-quality information. Real-time quality information on actual spend, which can be analysed in any way, will be available a few days after the end of every month. Once we are at that stage, we should start to see step-changes in the quality of information from Departments.

The Chairperson:
Therefore, at this stage — October — central finance group has no indication about whether Departments will achieve their targets at the end of the financial year?

Mr Pengelly:
We have no evidence base. However, we did ask the Departments —

The Chairperson:
It is not a play on words. Therefore, at this point, you have no basis for being concerned or for taking action?

Mr Pengelly:
The Departments have said that they will not underspend. However, given that, in the previous three or four years, they have said the same thing, the reality is that there will probably be some underspend. My guess is that Departments will have material underspend.

Previously, we discussed the nature of the public-control environment where the incentive is to underspend rather than to overspend. My experience also suggests that during times of economic downturn, when public expenditure is incredibly tight, the system sometimes overcompensates. Budget holders become exceptionally nervous about overspending, which — perversely — can have the effect of a slightly higher` underspend, because everyone slows down their spending.

Based on what the Departments have said, underspend should be less than last year. Overall, underspend should be in the region of 1 5% to 2% at block level. However, my assessment is based on intuition, not evidence.

The Chairperson:
Given the looseness in the financial-management profile, could underspend be heavily skewed towards the last quarter of this financial year, as has happened in previous years?

Mr Pengelly:
That could not be ruled out at this stage.

Mr Layberry:
From a supply perspective, we meet the Departments regularly for stocktakes to try to reduce underspend. Departments find that extremely difficult, because some have perhaps 70 to 100 budget holders. Civil servants are risk-averse; they are very concerned about having an excess vote. When 100 budget holders play it safe, the degree of underspend is multiplied by 100. That all adds up and results in the Department playing it safe. The role of supply division and the central expenditure division is to work with the Departments to focus minds on that.

Certainly, during the September monitoring round, there were a couple of times when we forced Departments to return extra money by pressuring them to think about ways in which they had saved money in the past.

Mr McQuillan:
Do budget holders have a role within Departments during in-year monitoring rounds?

Mr Layberry:
Yes, budget holders have a role within Departments during monitoring rounds. That role fits in with financial management training.

Mr McQuiallan:
Does the extent of a Department’s underspend become apparent during that process?

Mr Layberry:
Yes, but a Department will still play it safe to try to avoid an excess vote.

Mr Pengelly:
During that process, Departments have some flexibility to reallocate any unspent money internally. That helps to manage some internal departmental pressures.

Mr O’Loan:
I do not want you to duplicate your answers on underspend and return of funds, but please add more detail if you can.

Three fairly obvious reasons for the return of funds are, first, that the Department may have been more efficient than expected, resulting in money being left over. Secondly, funds may be returned because the Department overstated the resources that it needed. Thirdly, funds may be returned because the Department failed to deliver the planned level of service.

What has been the dominant reason for return of funds in recent years and, in particular, last year? Last February, you assured us that you were developing a monitoring system that would examine the reasoning behind reduced requirements. Will you elaborate on the progress of that? Are there any preliminary results? Will you detail the Departments’ reasoning for their returns? How critically do you examine that?

Mr Pengelly:
You highlighted a fundamental point. Over the last number of years, the focus of departmental performance has been on a year-end figure of underspend; the position is that a Department is thought to have performed poorly if it has significantly underspent.

The level of spend is only one measure of performance, which we highlighted and talked about previously. It should be seen in the broader — and more important — context of the delivery of the Executive’s priorities. At the moment, a Department that underspends by 5% is deemed to have performed poorly. However, a Department that delivers all of the Executive’s priorities that are attributed to it and underspends by 5% should perhaps be regarded as the one that is the best-performing and most efficient. There is an information gap there.

I cannot go into too much detail about the monitoring system, because we are still trying to develop a system that monitors performance against the key PSA targets that were agreed by the Executive as part of the Programme for Government. We, and colleagues in OFMDFM, have been working on proposals and engaging with Ministers; however, in the current political situation, there are difficulties in rolling that out.

As part of the September monitoring round, we asked Departments for some preliminary information. However, as with a range of other issues, we cannot implement the process without Executive agreement, and we do not currently have that. In the absence of Executive authority, we are trying to implement a hybrid approach that is based on DFP authority. We hope that the Executive will consider and approve the proposal, and that it will then be rolled out over time.

Instead of asking each Department about financial pressures and about what money could be returned to the system, each Department should regularly be reminded about the targets that were set by the Executive and should be asked for detailed progress against those targets in relation to trajectories, milestones, and whether it is on track to deliver. As a second order issue, the financial position of each Department should be studied, and performance in the round should be judged, rather than just an examination of how much money was spent. When that is achieved, performances will be driven on a much better basis.

In the absence of detail, the assessment and scrutiny of the three reasons that you identified for underspend are very difficult. However, I understand that Departments do overbid. Jack and his colleagues rigorously and robustly scrutinise departmental bids by studying the evidence bases for the bids and previous performances. Thus I hope that element is not the most significant issue. Following the bid Departments and DFP participate in a process of dialogue and negotiation. That leads to overbidding; however, the initial bids do not ultimately determine how much the Department in question receives.

There are areas in which some Departments are more efficient than others. The most significant reason for inefficiency is probably the failure to deliver as planned, owing to programmes rolling out slowly, capital expenditure not being delivered as intended; or because the level of service-provision uptakes was not as great as anticipated when budgets were set. We cannot be absolutely certain until the full, objective monitoring position becomes clear, but — based on our knowledge and experience — the failure to deliver is the most significant of the three areas.

Mr Layberry:
I agree, although there are sometimes reasons for that. The Farm Nutrient Management Scheme ( Northern Ireland) 2005 springs to mind, where farmers filled in application forms for a slurry tank grant schemes, but we could not spend any money until those slurry tanks were built and the money was claimed. The Department budgeted on the basis of the completed application forms and the money that it anticipated being claimed. However, the money has been slow to be claimed, which has held the entire process up.

Mr O’Loan:
Thank you for that answer. It is an important one that indicates that there is a great deal of work that has to be done.

There is so much time and energy put into putting the figures in place and getting the money returned and redistributed that there is not enough management analysis going on, either in Departments or centrally, over how our money is spent.

My second question concerns the surge of activity in the last quarter, both in terms of spend, which we have seen in current and capital — previously there may have been a defence that it was around capital — and the late declaration of reduced requirements, to which you referred. Very large figures have been reported to us recently. None of that gives any suggestion of well-managed expenditure. It is not as if Departments must await their budgets before they make any decisions on the next year’s spend. They know that they are not going out of business next year and that they have a continuing role. Why, therefore, are there such dramatic surges in spending at the end of the year? Why can they not manage their affairs? They only make these declarations late in the year when it can be difficult to redistribute the money, and we are put in the embarrassing position of having demands which cannot be met and yet very significant returns at the end of the year. It is not a good scenario.

Mr Pengelly:
I take your point. The late declaration of reduced requirements is a huge frustration, both at official level within DFP and to wider Executive Ministers in charge of spending Departments. I can only imagine the frustration of a Minister in a spending Department, facing a range of acute pressures around front-line public service provision, at being told that there are no resources available to deal with that pressure and to help individuals who need public help, only to see a Department putting its hand up some three or four months later and saying that it has £10 million or £15 million that has not been spent.

The Chairperson:
For some of them, it is much more than that.

Mr Pengelly:
Yes, for some Departments it is more than that. The Finance Minister will continue to press that point: he makes the point to Executive colleagues at every opportunity and he seeks assurances. The way around that is for a Member of the Executive, who feels hugely frustrated at pressures not being addressed because of that reason, to start by making sure that his or her Department is beyond criticism on those terms. All Departments should do that.

The evidence and data show that there is a year-end surge in activity. I liken that to my earlier point about a possible failure to deliver. Furthermore, we must bear in mind that in some cases, when seeking budgets, Departments view the year in totality rather than on a month-by-month basis. In some cases, therefore, spending is skewed towards later in the year. For example, in cases such as student awards programmes, grants are paid at set times, and that can distort analysis.

With regard to securing funding, there can be a necessary lead and preparation time before a service is ready to start. If we were to stratify the data, we would see that in the steady-state service provision that runs from year to year, there is not much of a change in monthly activity. That tends to be on new programmes, and it may be because of some delay in the early part of the year in getting the programme up and running, then activity ramping up towards the end of the year.

I am as confident as I can be, and that confidence is based on the evidence from the Northern Ireland Audit Office reports, the Public Accounts Committee and the certification of annual accounts. In the 1970s and the 1980s, before end year flexibility, it was a case of just spending at any price at the end of the year because it was better to have spent the full budget than to have an underspend. Anecdotally, money was thrown out of the door, and there were stories, back in the bad old days of the 80s, that every public sector building was repainted in March and had new furniture. Departments are not doing that. I do not think that they spend for spend’s sake, but better planning and performance management might result in a quicker flow. We would address the year-end surge by putting the services in place earlier, and that is the more important point about making the services available to the public as soon as possible.

The Chairperson:
Thank you. The targets that are being reduced in relation to over-commitment — £100 million this year and I think it goes down to £60 million by 2011 — are we reviewing those in the light of experience, or can we measure improvement in project and financial management?

Mr Pengelly:
We will certainly keep an eye on that.

Some in the system argue that we should have a zero overcommitment; others that it should be £200 million or £300 million. My advice to the Minister — and I think that he has accepted it, given the profile that has been set — was that there is a trade-off. Conceptually, the earlier that spending money is planned, the more lead and preparation time there will be, and so better value for money will be achieved, and that will result in a better public service.

I am concerned that, with a zero overcommitment, money will inevitably come back through reduced in-year requirements. If it were all available, it would be turned and recycled; in some cases at the expense of value for money with in respect of a proper lead time for planning. Similarly, if there is a very high overcommitment, flexibility, as well as the capacity to address newly identified pressures, is lost.

The right balance is in and around £80 million or £100 million. Public expenditure of £80 million can be planned now, setting up the process and the shape in which to deliver it next year, in the knowledge that it will absorb the first £80 million of reduced requirements. We know that in-year reduced requirements will be higher than that; therefore that will provide the flexibility to deal with emerging pressures. We will keep an eye on that in light of the emerging year-end position.

At the moment, we have no plans to amend the figures before —

The Chairperson:
That is where the question was leading. There are two constituencies arguing two different perspectives, but there is no indication that we should review the decision that was taken.

Mr Pengelly:
The point at which formal review will take place, is in the next annual Budget process.

The Chairperson:
So you will give it a bit longer?

Mr Pengelly:
We will not do it for now; we want to review it in light of how the current situation plays out.

Mr McNarry:
I wish to talk about sanctions at organisational and individual levels, which take into greater account the Department’s underspend performance when prioritising funding, or — as is the currently topical issue — revisit the Budget allocations in that respect. What new initiatives are there, concerning sanctions, to ensure that Departments are maximising the impact from available resources?

The formal underspend targets have been set for individual Departments. Nothing personal, gentlemen, but we have all been treated to the sight of chief executives from the banking industry — quite rightly — having their bonuses docked and removed. Do the criteria for awarding bonuses to senior civil servants take into account an individual’s performance in managing finances, particularly a lamentable and poor performance?

Mr Pengelly:
I shall separate, as you did, the individual and the organisation, and I will deal first with the individual. In the senior Civil Service, individual performance assessment is a matter for the Permanent Secretary of each Department, who puts in place performance measures for his or her senior team in the Department.

Mr McNarry:
Are you saying that there is no corporate policy or rules?

Mr Pengelly:
There are. Ultimately, the sign-off on performance is done by the Permanent Secretary in each individual Department. I cannot, with any authority, give an overview, as that involves the Central Personnel Group, the head of the Civil Service and his dialogue with the Permanent Secretaries. I am not privy to those conversations.

Mr McNarry:
Is there a procedure?

Mr Pengelly:
There is a procedure; every year, members of the senior Civil Service must draw up a performance agreement for approval by their line manager. In the Department of Finance, my personal performance agreement has a measure in it —

Mr McNarry:
Try not to make it too personal.

Mr Pengelly:
In the Department of Finance, the culture is that, for each member of the senior Civil Service, a target is included concerning underspend performance in his or her own business area. My performance agreement does not take into account the underspend performance of all Departments. Ultimately, however, I will be judged against the central finance group’s budget, so fingers crossed.

Mr McNarry:
The story with the banks is that they have been gambling and overspending, whereas we would be looking to sanction people who continually underspend.

Mr Pengelly:
Compared to other performance measures, the beauty of monitoring departmental spending is that it is perfectly quantifiable and totally objective. Having said that, departmental spending is only one of a range of performance measures. Although I do not know the extent to which that performance measurement is used by senior civil servants in other Departments, that is the culture in DFP. My colleagues in the DFP’s central personnel group are probably best placed to inform you about that.

Mr McNarry:
I do not criticise Richard for being unable to answer that question; however, we might solicit an answer from those who know.

The Chairperson:
That is exactly what I have been talking to the Committee Clerk about.

Mr McNarry:
That would be interesting.

The Chairperson:
We received answers previously, so we will pursue that matter for Mr McNarry.

Mr Pengelly:
With regard to organisational sanctions, DFP’s normal reaction to Departments — which some people might describe as somewhat ruthless and vindictive — is to insist that underspends must be less than 2%. Any more than that may elicit sanctions. A simple sanction would be to reduce a Department’s budget the following year. For example, if a Department were to underspend by 5%, it clearly did not require that 5%, and therefore we could reduce the subsequent budget by that amount. Our fundamental difficulty with that approach is that, in many respects, underspend is a management performance measure. We are acutely aware that we are dealing, through all Departments, with key public services that are provided, in many instances, to extremely vulnerable groups in society. We are hugely reluctant potentially to penalise such vulnerable groups because the senior civil servants who are charged with managing that service cannot get their budget right. If a senior civil servant in Department X happens to underspend by 3%, reducing that Department’s budget the following year would mean that 3% less money would be available for services required by vulnerable people in society. We are incredibly uncomfortable with using such measures as an automatic sanction. In practice, we use that information on underspend performance and factor it into discussions with the Executive when budgets are set.

Mr McNarry:
Who carries the can — the Minister or senior civil servants?

Mr Pengelly:
In the Budget process, both carry the can, because that forms part of the relevant information base that is made available to the Finance Minister to consider his recommendations to the Executive, and to the Executive so that they can arrive at a set of conclusions about future public-expenditure allocations for those services.

Mr McNarry:
The Committee’s report on the Budget found that the record for average annual underspends in Northern Ireland compares unfavourably with the record of Departments in Scotland, Wales and Whitehall, particularly concerning current expenditure. We proposed a figure below your figure of 2%; underspends need be no more than 1%. Will you explain why there are generally higher underspend levels in Northern Ireland compared to other regions? Furthermore, do you compare underspend performances in Northern Ireland Departments with performances in those other Administrations, and are you able to provide the Committee with up-to-date information that analyses current and capital expenditure patterns?

Mr Pengelly:
You have asked three questions, which I will address in a slightly different order. With regard to monitoring, information from the other devolved Administrations and the Whitehall Departments is made available to us only once a year — in August or September — in the provisional Public Expenditure Outturn White Paper. We monitor Northern Ireland’s overall performance against to that, and that was the basis for the information that we gave to the Committee.

I do not wish to suggest that we are comfortable with Northern Ireland’s performance; it ranks about mid-table compared to Whitehall Departments and, with some variation, it has been materially poorer than performances in Scotland and Wales. The main reason —

Mr McNarry:
We are not in the premier league. In certain circumstances, we are non-league, and we cannot just talk that away.

Mr Pengelly:
To understand the most fundamental reason for that one must consider the control position.

In terms of size, the Northern Ireland block is effectively a Whitehall Department indeed many Whitehall Departments have a bigger grant than the Northern Ireland block. In any Whitehall Department there is complete flexibility, and, every month, activity is monitored, and pressures and areas of underspend are identified.

The Chairperson:
Can they reprioritise and re-allocate every month?

Mr Pengelly:
The Department and its Minister have complete autonomy to do that. They do not need to wait for a quarterly monitoring system and present their case to a group of other Ministers to consider. However, the nature of the Northern Ireland system —

Mr McNarry:
Are you bartering for a voluntary coalition?

Mr Pengelly:
No. If Northern Ireland were to abandon the monitoring system tomorrow in favour of a Budget process, which set a budget that each of the 11 Departments could spend as they wished, with complete flexibility to redeploy any reduced requirements to whatever areas they saw fit —

Mr McNarry:
We have one for three years; we have a fair idea about what we are doing. The block grant for 2008-2011 has been settled. However, I understand the need for the flexibility that Whitehall Departments have been given. We have a three-year settlement, but what flexibility is built into it?

Mr Pengelly:
A Whitehall Department is allocated its budget, and it top-slices an element of it. That is called a departmental unallocated provision (DUP).

Mr McNarry:
Does it work? [Laughter.]

Mr Pengelly:
That money is set aside, and it acts as that Department’s contingency fund. Ministers in Northern Ireland have always taken the view that we simply cannot afford to take a chunk of money and set it to one side. Therefore, we have a monitoring process whereby, four times a year, we review the position and take reduced requirements from Departments. The price of that system is a loss of flexibility at individual departmental level. If Departments had complete flexibility, I would be absolutely astonished if underspend in any Department were greater than 1·5%.

Mr McNarry:
I suppose there is something in it. When we were a proper Parliament, we were able to build up reserves, but it appears that we cannot do that now.

On a final point, what is your division’s view on revisiting Budget allocations in the circumstances in which we now find ourselves?

Mr Pengelly:
My division does not have a view on that. The Executive have decided that there will be a strategic stocktake this year, instead of a normal Budget process. Therefore, we will implement the Executive’s decision on that.

Mr McNarry:
You are implementers rather than policy-makers or decision-takers?

Mr Pengelly:

Ministers are policy-makers. We implement the policy as decided by Ministers.

Mr McNarry:
But you said earlier that you gave advice to your Minister?

Mr Pengelly:
That is correct.

Mr McNarry:
Would you consider advising the Minister to revisit the Budget allocations?

Mr Pengelly:
For now, we will just get on with the job of delivering the decisions of the Executive.

Mr McNarry:
That is fair enough.

The Chairperson:
That was a good try.

Ms J McCann:
My question relates to planned capital spend on projects. The construction industry recently asked all Departments that have planned capital spend to bring their projects forward to alleviate the difficulties in which the industry currently finds itself. Is there scope for that to happen? Do Departments have the capacity to bring those projects forward? I know that there was concern about the delays in underspend that previously went into capital-build projects. Is there scope to bring those projects forward to aid the construction industry?

Mr Pengelly:
There are different issues here. There is no possibility of accelerating or bringing forward capital spend projects from next year to this year, because there is a finite amount of money available this year. Therefore, we cannot do things this year that are planned for next year.

The Chairperson:
Will you explain why you cannot do that?

Mr Pengelly:
Using crude numbers, if our planned capital spend in the context of the formal control totals is 100 this year, next year and the year after, we cannot spend more than 100 this year. We cannot, say, bring forward 50 from next year and spend 150.

We can, however, look to compensate. If a Department planned to start a project this year that cost, say, £20 million, and that project could not happen this year for whatever reason — project management issues, or because planning approval had not been secured — that £20 million will not be spent on that project this year. The Department could possibly accelerate something costing £20 million that it had planned for the next year to absorb the £20 million underspend.

We continually make the point to Departments that some flexibility has been provided. Departments can do that unilaterally without the delay of having to seek Executive approval. If the Executive has approved a series of projects over the three years of the Budget, then Departments have the flexibility to juggle the timing of those projects, as long as they do not overspend that amount in any year. We are creating flexibility and the environment in which Departments can do that.

Ms J McCann:
Even if that is from a block grant that has already been given? Can it still not be spent unless the year has finished?

Mr Pengelly:
A Department cannot overspend. If it is unable to spend money on a certain project this year, then it could bring a project forward from next year to replace it. That means that overall spending will not go above the control limit. If, however, the Department is doing everything that it had planned to do this year, then it cannot do some of next year’s workload as well. It cannot —

The Chairperson:
It would not have the capacity. It is a capacity issue.

Mr Pengelly:
No, they would not have the capacity because there is an annual budgetary limit.

There is a genuine issue — and I think that the Committee is particularly aware of the underspend and capital expenditure of previous years. With regard to acceleration, in many respects I would advise Departments do the things they planned to do this year. There are plans for £1∙8 billion of capital expenditure in this year’s Budget. The actual expenditure in 2007-08 was around £1∙1 billion, so delivering projects that the Executive have approved and put in place alone will lead to a massive increase in the level of construction activity in Northern Ireland. Even if there is some reasonable underspend of that £1∙8 billion, it would still lead to a significant increase in construction. I do not think that we need to focus too much on trying to be too clever about accelerating projects for future years; rather, we ask Departments to get their heads down and start the projects for which they sought money from the Executive this year. If those are delivered, many of the concerns about both public service provision and the construction industry will be addressed.

Ms J McCann:
Are you saying that there is already a level of underspend in capital build that could be spent this year but has not yet been spent?

Mr Pengelly:
No. Capital expenditure of £1∙8 billion is planned for this year. Even if we ultimately underspend by £200 million — which I do not suggest is acceptable — that would mean that £1∙6 billion was spent on construction this year, compared to a little over £1 billion last year. That is a 60% increase. I think that the construction industry would bite off our hands to get that sort of surge in activity.

Departments need to focus on starting approved projects. That £1∙8 billion capital expenditure is in place because Departments asked the Executive for certain amounts of money for their projects, and not because the Executive told any Department to take the money and go and do something. The Executive responded by putting the money in place, so the Department should deliver the project that they have asked the Executive to authorise. We will address those concerns.

The Chairperson:
In terms of the budgetary limit — just to help the Committee to understand what powers the Executive and Assembly have — could we, for example, review that budgetary limit as part of the strategic review?

Mr Pengelly:
The limit for Northern Ireland is set by the Treasury. If we have £1∙8 billion capital available this year, that it is an issue for the Executive and the Assembly as to how that £1∙8 billion is allocated to Departments and projects in Northern Ireland.

Mr McNarry:
May I ask a supplementary question? Perhaps it is due to my ignorance, but when the Executive had their first meeting and stated that they were going to introduce measures, did they receive costings from day one, or did they pull them out of the sky as a wish list? Where did it start? It seems important that we might have this money for the construction industry.

Mr Pengelly:
I will retrace the steps. The Executive appeared on the scene in May 2007, when expenditure plans, drawn up by the direct rule Administration, were already in place for the year 2007-08. One of the first steps taken by the Executive was to endorse those plans: that is normal for an incoming Government so close to the start of a financial year. That allowed the Executive to run the Budget process throughout 2007, culminating in Assembly approval in January 2008 to a set of plans for the current financial year and the next two financial years. Those plans were based on specific project inputs from Departments in respect of capital: the costs of each and the estimated delivery time. That information was compiled through the investment strategy and included in the capital Budget.

Ms J McCann:
In the DFP Business Plan 2008-09, there is a target for the establishment by OFMDFM of a performance management and monitoring framework for targets in the Programme for Government by April 2008. Has that framework been finalised? Will it provide a basis for setting the next Budget and Programme for Government process?

Mr Pengelly:
The Programme for Government includes 23 public-service agreements, some 40 goals and 27 commitments. In most cases, they are numerically quantified. There is no common set of dates. The key economic growth target is halving the GVA gap with GB by 2015. Other target dates may be 2010, still others 2008.

As a starting point, we have asked each Department to map out a delivery plan, stating what actions each will take to deliver its targets. Whatever the end point of the target, be it 2010 or 2015, from this point forward we want to know what the milestones and trajectories are for reaching it. For example, if the target is to achieve 75% employment by 2012, we want to know what the percentage figure should be by the end of 2009, or 2010. That is the basis, or context, for monitoring performance.

The Executive agreement to the monitoring of the management system remains outstanding. In the meantime, DFP has a range of powers which allow it to ask some questions about the performance of Departments. As a part of the September monitoring round, we have asked for an update on the performance of each Department. The returns have just come in and we are analysing them. That information, and the information that we hope will be available as and when the Executive agree the wider performance-management system, will be a key component of all the Executive’s future budget deliberations. A key issue for any Department seeking resources is its track record of delivery. That will be fundamental.

Dr Farry:
I wish to follow up on Richard’s point about GVA targets. In a bizarre way, there is now an enhanced chance that the target will be met more easily than would previously have been the case. That is because, rather than our economy improving, the economy of the rest of the UK is declining.

Mr Pengelly:
The GVA position for GB is completely skewed by London and the southeast. Our target excludes that.

Dr Farry:
I know. I warned you against taking that out.

Mr Pengelly:
That is where the hiatus lies at the moment.

Dr Farry:
If you want to go back and revise the target for the UK average, be my guest and include London.

Mr Hamilton:
London ’s problems are Northern Ireland’s opportunity.

The Chairperson:
As long as you get credit for it, Stephen.

Dr Farry:
It is more important that the economy grows.

I turn to the issue of the PKF report. What is the status as regards the implementation of the report’s recommendations? Bearing in mind the wider discussions on budget processes, could consideration be given to starting from the current baseline and making adjustments up or down, setting goals and working out what resources to allocate against them, rather than starting the budget processes every three years?

Mr Pengelly:
The PKF report contained a series of recommendations. The Department appointed an individual from its financial management directorate — which is the other side of the house from us — to work specifically on that matter. Much good work has been done and continues to be done. A short-term issue has arisen in that that individual has been promoted and moved to another Department — fortunate for him, but not for us. His promotion is perhaps an indication of his success in dealing with those recommendations. Therefore, some progress has been made, but more remains to be done. It is one of our key objectives, and we continue to focus on it.

Essentially, your question is whether we should carry out zero-based budgeting. Ideally, yes, we should. The scale of the task for public services is huge. Equally, incremental budgeting takes one into some very bad places. The combination of the enhanced performance-management framework and system, and better information about delivering on targets, will go a long way towards bridging the gap.

Separately, the central finance group wants to start a programme of rolling-baseline reviews. It would be a task beyond us to carry out a zero-based review of everything as part of every Budget cycle. Over a period of three or five years, I would like to subject 100% of each Department to that sort of zero-based analysis — that could mean doing 20% a year in a five-year cycle or 33% in a three-year cycle. That would fall very much to Jack’s side of the house as part of the normal supply dialogue. We want to build an information base to do that.

Dr Farry:
Where do matters stand with Treasury on the negotiations on end-year flexibility?

Mr Pengelly:
A position was agreed as part of the comprehensive spending review in October 2007, and the Treasury has no plans to revisit the matter for the duration of the comprehensive spending review. As you can appreciate, the Treasury is in a pretty dark place at the moment.

Dr Farry:
Given that David McNarry was shown a wee bit of latitude earlier, I want to throw in a question from left field.

The Chairperson:
It wouldn’t be like you.

Dr Farry:
Michael is being very quiet there. He mentioned the Barnett formula and how it was one of the issues of responsibility in Treasury discussions. I do not suggest that we open a wider debate on the matter; however, I am particularly conscious of the potential devolution of policing and justice in the next months or years. As I said, I do not want to get into the pros and cons of that debate —

The Chairperson:
I was wondering why you sat on that side of the table.

Mr Hamilton:
I thought that it was bad enough opening up the debate on the Barnett formula.

Dr Farry:
My question is important. The NIO is responsible for the policing and justice budget, and it is not considered as part of the Barnett formula. Thus, when those policing and justice powers are transferred, funding responsibility will transfer to the Northern Ireland block grant. Given that, is there work to be done to establish at what level the baseline for the Barnett formula will be set?

Mr Daly:
The simple answer is that if policing and justice powers are transferred, we will have to consider the Barnett formula again. It will have to be adjusted, and we will have to ensure that it is still appropriate, given the addition of those new responsibilities.

Dr Farry:
At what stage should those discussions take place? I appreciate that this issue is more relevant to the next UK-wide comprehensive spending review, but how proactive should we be in working out our own arguments as to what the baseline should be? I am sure that Treasury will have its own view on that matter.

Mr Daly:
It will have its own view. Obviously, some work is under way in the system, but we have not engaged in those detailed discussions with the Treasury.

Mr Pengelly:
Wearing his hat as Finance Minister, as opposed to any political hat, our Minister has made his position very clear`. Notwithstanding the politics of the devolution of policing and justice, he has indicated we will not accept that responsibility unless and until the funding position is adjusted to accommodate it. It would be imprudent to accept responsibility for a new function when the consequence would be reduced spending on other functions because of insufficient money. That marker has been put down.

Dr Farry:
That marker is broader than simply the transfer within the current CSR framework, and relates to the future with regard to Barnett baselines and suchlike. I wanted to flag that up as an important issue.

The Chairperson:
I thought that he was going to declare an interest in policing and justice. – [Laughter.]

Mr F McCann:
The DFP business plan 2008-09 explains that CFG, among other things:

“leads the work to see through the implications of the efficiency measures which were conducted as part of the 2007 Budget process”.

What does that role entail, and can CFG provide a strategic view on the outworking of the efficiency measures to date?

Mr Pengelly:
The Executive agreed that as part of the three-year Budget process, Departments should deliver 3% cumulative efficiency-savings annually. As part of that process, Departments were required to produce, and to publish on their departmental websites, detailed plans as to how they would deliver those savings.

We had a preliminary look at those plans and gave the Departments feedback. The 3% efficiency savings in money terms have been removed from the budgets of each Department. The money is gone and has been allocated to other services. It is very much for individual departmental Ministers to work out how they will deliver savings. We are not challenging how they do that; however, we will, in the near future, ask Departments in for progress reports against their planned level of efficiency savings. An update report will be produced on how they are progressing this year, and projecting across the remaining two years of the Budget process.

Mr F McCann:
When the Committee raised questions with regard to the negative impact of efficiency savings on various programmes, it was always told that it was never the intention of DFP or any Department that frontline services would be affected by efficiency savings.

Supporting People is one of the key programmes, dealing with the homeless, the elderly and the mentally ill; yet we have already been told that an inflationary freeze has been placed on any increases. That will have a serious impact on the ability of groups to deliver services.

The Simon Community, to mention but one group, says that, in addition to the impact of the freeze on the programme that they have set themselves, they may have to shed jobs in essential parts of their service. In such cases, will the Department of Finance and Personnel remind Departments that such was never the intention of efficiency saving?

Mr Pengelly:
The Department was forceful in making that point during the Executive Budget deliberations. The 3% cumulative target over three years released, I believe, just under £800 million. All of that money has been re-allocated; therefore £800 million of additional service provision would not have happened but for the efficiency savings.

As part of that, the onus has been on Departments to look at sensible, robust efficiency measures. The message from the Finance Minister and the broader Executive was about delivering the same level of services for less. In some cases, there has been an inevitable scaling-back of some services, but that was to be done on a clear, prioritised basis.

The reality of the public-expenditure position is that not everything that Ministers would like to be done can be done. There was to be clear prioritisation. The Executive concluded that it was for the relevant departmental Minister to decide on the relative priorities in individual Departments. Therefore, if a service is scaled back, it is because the relevant departmental Minister has judged that service to be of lower priority, given that Department’s broad range of aims and objectives.

Mr F McCann:
So, if there is a cutback in the Supporting People programme, especially with the inflationary freeze, that will be the result of the departmental Minister’s making a decision?

Mr Pengelly:
Neither the Executive nor the Finance Minister prescribed to any Department how it should make efficiencies. I do not know the detail of the Supporting People programme. I do not know whether the Department is saying that for less money the same level of services can be provided, or whether it says that that has a lower priority and, therefore, can be scaled back.

Mr F McCann:
The programme deals with those who are most in need in society. One would have thought that such a programme would have been protected against a decrease in budget or an inflationary freeze.

Mr Pengelly:
I do not know; perhaps the Department has concluded that the model of delivery could have been better, or that the same level of service could be provided for less money.

Mr F McCann:
The Department of Finance and Personnel’s business plan for 2008 states that CFG will develop a deeper evidence base on long-term trends and wider strategic issues to inform Departments’ decision-making, and will ensure that that will be available to influence the Budget 2008 process. Given that departmental returns are due by the end of the month on Budget 2008, when was the evidence base made available to Departments and what are the key issues in it?

Mr Pengelly:
Our colleagues in the strategic policy division deal with the evidence base. That division’s core remit is to examine the longer-term, and broader, economic agenda, as well as the public-service agenda.

As the evidence base emerges it will be factored into the strategic stock-take position rather than the fundamental budget process. The evidence base was never intended to be a formalised public report. Essentially, it was intended to contain various pieces of interconnected evidence for availability to Ministers on consideration of the position.

Mr McQuillan:
The CFG has a role to play with the performance and efficiency delivery unit (PEDU) and the capital realisation taskforce, according to DFP’s business plan. Those were seen as vital tools when the Budget was announced earlier this year. Can you quantify their role since then?

Mr Pengelly:
Michael perhaps has more detail on the capital realisation taskforce (CRT) than I do. However, CRT is underpinned by a central assets realisation team (CART). It sounds like death by acronyms. That team works with Departments to identify assets that could be disposed of during the Budget period. CART has external expertise on the market available. Given current economic conditions, it is aware that assets that were marketable six or eight months ago, are perhaps not so now.

There is no question that there has been a headlong rush by Departments to sell a range of assets simply to meet targets. Similarly, some Departments have said that they might delay selling assets for three or four years, because, in the present market, they might not get as much for them as they had first anticipated.

We must pause on that, because Government is not in the business of property speculation. A business case must be made as to whether a Department should be allowed to let an asset sit idle for two or three years, while incurring maintenance and site security costs, in the hope that its value increases, or whether it should sell the asset, take what value the market delivers and reinvest that money to work in another service. A complex set of issues exists around the issue, and CART continues to work on that.

Mr Daly:
For the last few months, CART is recruiting additional staff for that and for consultancy work. CART works with some Departments on assets for disposal and provides much external assistance in bringing forward business plans. We expect those over the next few months

Mr McQuillan:
What is CART’s performance?

Mr Daly:
CART works with the Departments for Regional Development and Social Development, and the Department of Health, Social Services and Public Safety. I do not have the precise details of that with me, but those are the main Departments involved. Over the next few months, those business cases will focus on the supply side of things.

Mr Pengelly:
Given present market conditions, no assets should be sold unless a business case demonstrates that that is good value for money.

Peter Robinson issued a statement on 15 April outlining that PEDU’s main focus is planning. In late spring and early summer, much preparatory work was done to gather background data and information about the overview position of planning. Members will be aware that we wanted to build the prime minister’s delivery unit model as an example of best practice.

The PMDU model says that the best way to carry out the work is to conduct an intensive and focused six- or eight-week study, using a dedicated team with tight terms of reference. That specific piece of work began a couple of weeks ago, so we are two weeks into an eight-week, intensive piece of work. According to the PMDU model, for the work to have the maximum benefit, it must be collaborative in nature. We have put together a team that includes four full-time PEDU staff and two people on secondment from the Planning Service who will work full-time on the team.

Our terms of reference are focused around the PSA targets set by the Executive for reducing the average time for planning applications. That work began two weeks ago, and it will conclude on or before 25 November 2008. I say that with certainty because, that day, the team will meet the Minister of Finance and Personnel and the Minister of the Environment to report the outcome of its work. As far as possible, the Ministers tried to lock that date in so that it cannot be moved, to give a definitive end point to that piece of work.

The emerging signs are that the work is highlighting some good issues, which will facilitate good improvement to the Planning Service. I have had several meetings with the Minister of Finance and Personnel and the Minister of the Environment, both of whom are 100% committed to the work and, more fundamentally, to making a material improvement in the timeliness of planning applications. Everything that we need to be in place is in place, and we will make good progress.

Mr McQuillan:
Will the Committee see the outcome of the work?

Mr Pengelly:
I always quote the example of the Prime Minister’s delivery unit, which, by all accounts, was a marvellously effective organisation. No reports were ever available from PMDU. The reporting structure of our work is that we will have a session with the two Ministers, and we will report our findings. More importantly, we will set in place an action plan, which will commit the Planning Service to making improvements over the next few months. We will report progress, the key output of which will be a report to the two Ministers, which, it is hoped, they will endorse and stand behind.

The type of report that the Audit Office normally produces, hammering the Planning Service, would not be helpful. The Audit Office is about to publish a fairly critical report on the Planning Service. I will certainly speak to the Minister of Finance and Personnel and suggest to him that there may be merit, perhaps in a closed session, in providing feedback to the Committee. There will not be a published report on our work.

Mr McQuillan:
I understand where you are coming from. According to the business plan, the in-year financial monitoring process was to be reviewed and rationalised by March 2009. What is happening with that?

Mr Pengelly:
There is a long time between now and March 2009.

The Chairperson:
A splurge of activity will take place, Adrian.

Mr Pengelly:
A fundamental review of monitoring must relate to the improvement of financial management. Earlier, Mr McNarry asked about departmental flexibility. Similar to the issue of overcommitment, there are two schools of thought at the extreme ends of the spectrum.

Some people think that four monitoring rounds is too many and is unnecessarily bureaucratic. However, if I were to tell the Departments that only one monitoring round a year would take place, people would pull their hair out in horror. Decisions would not be able to be made until the Executive endorsed a monitoring round; they would be tied up for up to eight months. Some people push the other way in favour of a monitoring round every month. That would provide maximum flexibility and help with reducing underspend, but it would be quite an intensive and bureaucratic process.

My longer term aspiration is for Departments to get to such a level and quality of financial management skills that they are doing everything that is necessary to underpin a model that is part of their normal and routine monthly business process. At any time, DFP could skim along the top of that and suck the information out with no addition to anyone’s workload and do a quick monitoring round. That must be progressed in tandem with the improvements in financial management generally.

Mr McQuillan:
Will that be done by March 2009?

Mr Pengelly:
We will have carried out a review by March 2009, and I suspect that that review may recommend no substantive change, but with the long-term aspiration of laying the foundations for a better basis to improve monitoring.

The Chairperson:
It will be interesting to see how that develops. I presume that everyone is using the same financial modelling and project management skills.

Just finally, Richard, you raised an issue that we spoke to you about and that came up during the question and answer session. It concerns the ability of the Committee to scrutinise DFP’s role in overseeing departmental spending, with particular emphasis on reducing the overall underspend, as was reflected in the discussion.

On a previous occasion, DFP provided the Committee with a table of monthly projected out-turn against the departmental spend. There now seems to be a reluctance to continue to provide that information to the Committee, which is causing members some concern, the argument being that each Department would be better placed to contextualise variances with their respective Committees directly. We cannot understand how that would help us to help you in identifying indications across in-year departmental underspend, and scrutinising the central finances group’s performance in challenging such underspend by all Departments. The Committee feels that that information is essential for us to be able to carry out our function and to satisfy the Assembly that the central finance group is doing the same.

Mr Pengelly:
I can only relay those concerns to the Minister. In discussion with the Minister, the view was that the available monthly information consists of raw data. We get nothing by way of an explanation from the Departments. There is a process of ongoing dialogue that includes many sources of evidence. It would be difficult to quantify that evidence into a couple of neat paragraphs about an understanding of the position; that take many years of experience.

I will happily relay your concerns to the Minister; however, our view is that the best way to deal with that issue is for other Committees to obtain information from their respective Departments, which will then be the focus of a monthly dialogue with the relevant officials, and will filter back to this Committee from those sources, rather than in the form of raw data, which does not give this Committee the information base that it requires in adding value to the process.

The Chairperson:
Furthermore, we want a planned programme of work, rather than relying on some kind of stream of consciousness between other Committees, who may wish to address other priorities at other times of the year.

Mr Pengelly:
I am also conscious that the previous Minister of Finance and Personnel, if not this one, specifically sought your support in the Chamber. I will take those concerns back to the Minister.

The Chairperson:
Thank you very much. It was a long but interesting discussion.