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INFORMATION FOR USE BY EU CANDIDATE COUNTRIES ON THE UK SYSTEM OF PUBLIC EXPENDITURE CONTROL
The UK system of public expenditure control is centred on the Westminster Parliament, which alone has the power to vote taxes and to authorise the expenditure plans put forward by the Government of the day. Parliament oversees the administration of public finances closely, with the help of the National Audit Office. Within the executive, it is the Treasury which co-ordinates the expenditure plans which are put to Parliament and is responsible for control of expenditure. The Treasury must agree to all expenditure. But it does this through a system whereby it delegates control to Departments (Ministries), subject to a number of checks and controls. Departments are accountable for the use to which they put the resources they are allocated. The most senior permanent official in a Department is designated an “Accounting Officer” and is accountable to a committee of Parliament which investigates the propriety, regularity and value for money of public expenditure. The Accounting Officer must establish a proper system of internal controls, including an internal audit function, to safeguard the public resources which have been made available to the Department. If you would like more information on the UK system of public expenditure control, click here.
Internal Audit within the UKOne of the responsibilities of the Accounting Officer, as set out in the Accounting Officer Memorandum, is to make arrangements for Internal Audit that accord with the objectives, standards and practice set out in the Government Internal Audit Manual (GIAM). Auditors have a key role to play in accounting for public spending. The quality and effectiveness of internal audit, as well as ensuring compliance with GIAM standards is the responsibility of the individual government department. The Treasury is responsible for ensuring that internal audit standards remain in line with acceptable UK and international auditing standards, and that these are generally complied with by government internal auditors. The Audit Policy & Advice Team in the Treasury give advice on matters of interpretation of the standards, on the principles involved and encourage the development of high quality internal audit. The prime objective of Internal Audit in UK government departments is to provide the Accounting Officer with assurance on the organisations internal control systems.
The position of Internal Audit in Government departments in the UKThe Head of Internal Audit is responsible to the Accounting Officer but in many cases he/she reports to the Accounting Officer via a Principal Finance Officer and the Audit Committee. In all cases, the Head of Internal Audit has the right of direct access to the Accounting Officer. Relationships with External Audit in the UKManagement and staff at all levels must have complete confidence in the integrity, independence and capability of internal audit. This should be reflected and maintained in good working relationships between auditors, auditees and External Audit. A Good Practice Guide: Co-operation between Internal and External Audit can be obtained free of charge from the Public Enquiry Unit at the Treasury 00 44 207 270 4860.
Assessing the need for an Internal Audit unitIn order to achieve good financial management, and hopefully reduce the likelihood of an adverse hearing in the Public Accounts Committee the Accounting Officer is required by Treasury’s manual Government Accounting to have an internal audit service. Arrangements for internal audit can vary between a fully in-house audit activity and a partial or fully outsourced function. It is important that the Accounting Officer and the audit committee understand what they might expect from their internal audit function and how to gauge the benefits and value they are receiving against those expectations. Quality Assurance of internal audit activitiesIn the UK Heads of Internal Audit establish review arrangements to evaluate the operations of internal audit. These vary in scope but can take the form of:
Quality Assurance Questionnaires Quality Assurance Questionnaires have been developed by Treasury to assist with the conduct of such reviews and a copy of these can be obtained free of charge from the Public Enquiry Unit, HM Treasury 00 44 207 270 4558 Fraud & IrregularitiesIn the UK responsibility for the prevention and detection of fraud rests with the management of government departments, who need to establish anti-fraud policies and maintain an adequate system of internal control to enable them to discharge their responsibility. In the UK internal audit’s role is to evaluate the controls designed to secure assets and data and to prevent and detect fraud and abuse. The Head of Internal Audit makes arrangements to be informed as soon as possible of all suspected or discovered fraud so that such information can be taken into account when evaluating internal control systems. The Treasury’s booklet “Managing the Risk of Fraud” provides guidance on the development of anti-fraud policies and can be obtained free of charge from The Public Enquiry Unit, HM Treasury 00 44 207 270 4558. The Audit Policy and Advice Team collects information from departments annually in order to complete an annual report on mainly internal fraud in central government “1998/99 – An analysis of reported fraud in government departments”. This is circulated within central government, placed in the House of Commons Library and issued to the public on request. The full report can be found on the Treasury web-site.
Control of public money in the UKClick
here to view a diagrammatic representation
of the Westminster Parliamentary structure
and responsibilities for control of public
expenditure. The ParliamentThe Westminster Parliament (for these purposes the House of Commons) has a central position in the public expenditure system. On the revenue side, all taxes have to be approved by Parliament. On the expenditure side Parliament authorises (“votes”) nearly all expenditure and is responsible for the allocation of finances and the granting of authority to incur expenditure and to consume resources by Departments of State (Ministries). It can in principle refuse or reduce expenditure proposed by the Government but cannot increase it. Parliament also takes a close interest in how the money is spent during the year, through its powerful Public Accounts Committee (PAC). It is assisted by the National Audit office whose head is an officer of the House of Commons. Ministers are politically accountable to Parliament. Click on text for access to the Westminster Parliament website
The TreasuryThe Treasury is responsible for presenting the Government’s expenditure plans to Parliament in the form of “Estimates”. It is the only Department which can ask Parliament for authority to spend money, and this enables it to have central control over the allocation of resources between Departments. The 1998 Comprehensive Spending Review (CSR) established a new framework for planning and controlling public spending in the UK. Though Parliamentary authority to spend must still be obtained each year, Departments are now set spending plans for three years ahead. Departments are now allocated funds for a three year period. Coupled with these spending allocations, Public Service Agreements (PSAs) are agreed, setting out targets for the outputs and outcomes departments will deliver with the money provided, including targets for improving efficiency and value for money. The new spending regime places a strong emphasis on setting outcome targets, for example better health and higher educational standards. The 2000 Spending Review which concluded in July, agreed new PSA targets as the same time as setting new spending plans. The government monitors progress against PSA targets with performance reported in detail in annual Departmental reports, giving Parliament and the people the opportunity to evaluate progress. For further information on the new results based approach to expenditure planning click here www.hm-treasury.gov.uk/sr2000/index.html
The Treasury’s power to propose expenditure to Parliament is matched by a responsibility for how the money is spent. In theory the Treasury is responsible for approving all expenditure but in practice it exercises this control in a strategic manner giving wide delegations to spend money up to certain defined levels, subject to the overall agreed totals and requirement to seek Treasury Approval for expenditure in particular defined circumstances. The Treasury is also responsible for maintaining an effective accounting and budgeting framework and promoting high standards of regularity, propriety and accountability. The Treasury has an official designated the “Treasury Officer of Accounts” who has responsibility for this work, including appointing Accounting Officers in each Department. Besides its responsibility for controlling public expenditure and improving the quality and cost effectiveness of public services, the Treasury has other roles including maintaining a stable macroeconomic framework; improving the productivity of the economy; securing a fair and efficient market in financial services and banking; managing the government’s debt and foreign currency reserves, and promoting international financial stability. Click here to have access to the Treasury’s public internet site Treasury.
DepartmentsDepartments (Ministries) are set up with defined interests and areas of responsibility and an Accounting Officer is appointed for each department. They will use the resources allocated by Parliament to carry out policies set out in their objectives and public service agreements. Each department also has one or more Ministers of State responsible for the policy interests of the department and answerable to Parliament. The Accounting Officer is usually the most senior permanent official (civil servant) in a Department and is responsible for the propriety, regularity and value for money of the Department’s expenditure. This will be done through ensuring that proper management controls are in place, with the help of the Department’s internal audit. The Accounting Officer may be called to appear personally before Parliament’s Public Accounts Committee to answer questions on the Department’s expenditure. The Accounting Officer must combine his or her official Accounting Officer duties with their duty to serve the Minister in charge of the department, to whom they are responsible and from whom they derive their authority. The Minister is, in turn, responsible to Parliament in respect of the policies, actions and conduct of the department. Departments produce annual departmental reports, setting out the Government's spending plans, initiatives and achievements (including progress against PSA targets) to Parliament and the wider the public. These are published in the Spring. To view examples of the Departmental reports of some UK departments, click on the following:
Comptroller and Auditor General and National Audit OfficeThe Comptroller & Auditor General (C&AG) is appointed as an independent auditor acting on behalf of Parliament. The C&AG arranges for the National Audit Office to carry out independent external audit of government accounts on behalf of Parliament. For access to the National Audit Office website, please click here www.nao.gov.uk
Modernising Government initiativesThe 2000 Spending Review refined the system for controlling public spending in the UK. It introduced a number of initiatives designed to modernise Government and promote innovation, whilst maintaining the structures which form the basis of accountability and control within the public sector. These include the introduction of:
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