Foreword

About this document

i. This document updates the version published in 2007. Like the original, it sets out
the main principles for dealing with resources in UK public sector organisations
Some of the specifics, especially those in the annexes, relate to England rather
than the devolved administrations, which have their own detailed rulebooks. But
the same basic principles generally apply in all parts of the UK public sector, with
adjustments for context.
ii. The key themes also remain. They are the fiduciary duties of those handling
public resources to work to high standards of probity; and the need for the public
sector to work in harmony with parliament.

iii. While these principles are invariant, the advice in this document cannot stand
forever. The law, business practices, and public expectations all change. So public
sector organisations can and should innovate in carrying out their responsibilities,
using new technology and adopting good business practice. Throughout
parliament always expects the government and its public servants to meet the
ethical standards in this document and to operate transparently.

iv. As before, the main text of the document is intended to be timeless. The Treasury
will revise the annexes from time to time as the need arises. All the text is
available freely on the gov.uk website.

v. Above all, nothing in this document should discourage the application of sheer
common sense.
Chapter 1
Responsibilities
The relationship between the government, acting on behalf of the Crown, and parliament,
representing the public, is central to how public resources are managed. Ministers implement
government policies, and deliver public services, through public servants; but are able to do
so only where parliament grants the right to raise, commit and spend resources. It falls to the
Treasury to respect and secure the rights of both government and parliament in this process.

1.1 Managing public money: principles

1.1.1 The principles for managing public resources run through many diverse organisations
delivering public services in the UK. The requirements for the different kinds of body reflect
their duties, responsibilities and public expectations. The demanding standards expected of
public services are set out in box 1.1.
Box 1.1: standards expected of all public services
Honesty impartiality openness accountability accuracy
fairness integrity transparency objectivity reliability
carried out
in the spirit of, as well as to the letter of, the law
in the public interest
to high ethical standards
achieving value for money
1.1.2 The principles in this handbook complement the guidance on good governance in the
Corporate Governance Code1applying to central government departments. Some of the detail
applies to England only, or just to departments of state. There is separate guidance for the
devolved administrations. Where restrictions apply, they are identified.
1.1.3 Much of this document is about meeting the expectations of parliament. These
disciplines also deliver accountability to the general public, on whose behalf parliament
operates. The methods of delivery used should evolve as technology permits. Public services
should carry on their businesses and account for their
1 The Corporate Governance Code - see
https://www.gov.uk/government/publications/corporate-governance-code-for-central-
government-departments
stewardship of public resources in ways appropriate to their duties and context and conducive
to efficiency.

1.2 Ministers
1.2.1 In the absence of a written constitution, the powers used to deploy public resources are
a blend of common law, primary and secondary legislation, parliamentary procedure, the
duties of ministers, and other long-standing practices. This mix may of course change from
time to time.
1.2.2 As the Corporate Governance Code makes clear, the minister in charge of a department
is responsible for its policy and business as part of the broad sweep of government policy
determined in Cabinet. They:
 determines the policies of the departmental group;
 chairs the departmental board;
 allocates responsibilities among the ministers in the department;
 chooses which areas of business to delegate to officials, and on what conditions;
 looks to the department's accounting officer (see chapter 3) to delegate within the
department to deliver the minister's decisions and to support the minister in making
policy decisions and handling public funds; and
 also has general oversight of other bodies on whose behalf they may answer in
parliament, including the department's arms length bodies (ALBs).
1.2.3 The Ministerial Code2 requires ministers to heed the advice of their accounting officers
about the proper conduct of public business. See section 3.4 for how the minister may direct
the accounting officer to proceed with a policy if a point of this kind cannot be resolved.
1.2.4 The minister in charge of a department may delegate defined areas of its business, or of
its parliamentary work, to their junior ministers. Ministers have wide powers to make policies
and to instruct officials.
1.2.5 Only ministers can propose legislation to parliament to raise public revenue through
taxation, or to use public funds to pursue their policy objectives. Specific primary legislation
is normally required to spend public funds (see section 2.1). Similarly, taxes may be
collected, and public funds may be drawn, only with parliamentary authority; and only as
parliament has authorised.
1.2.6 It is not normally acceptable for a private sector organisation to be granted powers to
raise taxes, nor to distribute their proceeds. Parliament expects these responsibilities to fall to
ministers, using public sector organisations.
1.2.7 The House of Commons (and not the House of Lords) enjoys the financial privilege to
make decisions on these matters.
2 https://www.gov.uk/government/publications/ministerial-code

1.3 Parliament
1.3.1 Parliament approves the legislation which empowers ministers to carry out their
policies. It also allows finance for services when it approves each year's Estimates. See the
Estimates Manual3 for more.
1.3.2 From time to time parliament may examine government activity. Select committees
examine policies, expenditure, administration and service delivery in defined areas. The
Committee of Public Accounts (PAC - see section 3.5) examines financial accounts,
scrutinises value for money and generally holds the government and its public servants to
account for the quality of their past administration.

1.4 The Treasury

1.4.1 Parliament looks to the Treasury to make sure that:
 departments use their powers only as it has intended; and
 revenue is raised, and the resources so raised spent, only within the agreed limits.
1.4.2 Hence it falls to the Treasury to:
·

 set the ground rules for the administration of public money; and
 account to parliament for doing so.
1.4.3 This document sets out how the Treasury seeks to meet these parliamentary
expectations. The key requirements are regularity, propriety, value for money and feasibility
(see box 3.2). The Treasury:

 designs and runs the financial planning system4 and oversees the operation of the
agreed multiyear budgets to meet ministers' fiscal policy objectives;
 oversees the operation of the Estimates through which departments obtain authority to
spend year by year;
 sets the standards to which central government organisations publish annual reports
and accounts in the Financial Reporting Manual (FReM). This adapts International
Financial Reporting Standards (IFRS) to take account of the public sector context;
 sets Accounts Directions for the different kinds of central government organisations
whose accounts are laid in parliament; and
 may also work through the Cabinet Office to set certain standards applicable across
central government, for example functional standards5.
3 https://www.gov.uk/government/publications/supply-estimates-guidance-manual
4 See the Consolidated Budgeting Guidance for more -
https://www.gov.uk/government/publications/consolidated-budgeting- guidance
5 See Functional Standards - GOV.UK (www.gov.uk).
1.5 Departments
1.5.1 Within the standards expected by parliament, and subject to the overall control and
direction of their ministers, departments have considerable freedom about how they organise,
direct and manage the resources at their disposal. It is for the accounting officer in each
department, acting within ministers' instructions, and supported by their boards, to control
and account for the department's business.
1.5.2 A departmental board, chaired by the senior minister, leads each department. Boards
can bring to bear skills and experiences from elsewhere in, and outside of, the public sector
(see section 4.1).
1.5.3 Within each department, there should be adequate delegations, controls and reporting
arrangements to provide assurance to the board, the accounting officer and ultimately
ministers about what is being achieved, to what standards and with what effect. These
arrangements should provide timely and prompt management information to enable plans to
be adjusted as necessary. Similarly ministers should have enough evidence about the impact
of their policies to decide whether to continue, modify or end them. This is discussed further
in chapter 4.
1.5.4 In supporting ministers, civil servants should provide politically impartial advice.
Should they be asked to carry out duties which appear incompatible with this obligation, the
accounting officer should take the matter up with the minister concerned (see also the Civil
Service Code?).
1.5.5 Departments often operate with and through a variety of partners to deliver their
ministers' policies. It is important that these relationships operate in the public interest: see
chapter 7.

1.6 The Comptroller and Auditor General

1.6.1 Supported by the National Audit Office (NAO), the Comptroller and Auditor General
(C&AG) operates independently to help parliament scrutinise how public funds have been
used in practice. Further information about the role of the NAO is available on their websites
and in annex 1.1.
1.6.2 The C&AG provides parliament with two sorts of audit:
 financial audit of the accounts of departments and ALBS, covering:
 assurance that accounts have been properly prepared and are free of material
misstatements9; and
 confirmation that the underlying transactions have appropriate parliamentary
authority;
 value for money reports assessing the economy, efficiency and effectiveness with
which public money has been deployed in selected areas of public business. A
programme of these reviews covers a variety
6 If there is a change of Accounting Officer in the course of the year, the Accounting Officer
in place at the year end takes responsibility for the whole year's accounts, using assurances as
necessary.
of subjects over a period, taking account of the risks to value for money and parliament's
interests.
1.6.3 The C&AG has a general right to inspect the books of a wide variety of public
organisations to further these investigations. When the NAO investigates any public sector
organisation, it should get full cooperation in provision of papers and other oversight. It is
good practice to draw the NAO's attention to the confidentiality of any sensitive documents
provided in this process. It is then for the independent C&AG to judge what material can be
published in the public interest.
1.6.4 In addition, the C&AG publishes other independent reports to parliament. The PAC
(see section 3.5) may hold hearings to examine evidence on any of these reports and on other
related matters.
Chapter 2
Use of Public Funds
This chapter explains the process for parliamentary authorisation of public resources.
Parliament consents in principle to the use of public funds through legislation to enable
specified policies. It then approves use of public resources to carry out those policies year by
year by approving Estimates. Only rarely can lesser authority suffice. At the close of each
financial year, parliament expects a clear account of the use of the public funds it has
authorised. Parliament expects the Treasury to oversee the operation of these controls. The
PAC may investigate specific issues further.
 Ministers have very broad powers to control and direct their
departments. In general, they may do anything that legislation does not prohibit or limit,
including using common law powers to administer their operations or continue business as
usual.

 Ministers also need parliamentary authority for use of public funds before each year's
expenditure can take place. The full list of requirements is set out in box 2.1.
Box 2.1: requirements for use of public funds
·
 budget cover in the collectively agreed multi-year budgets
 with a few exceptions1, parliamentary authorisation for each year's drawdown of
funds through an Estimate, which is then approved as a Supply and Appropriation Act
(see section 2.2)
 adequate Treasury consents (see section 2.3)
 assurance that the proposed expenditure is regular and proper (section 2.4)
 sufficient specific legal powers - though see section 2.5 for some limited exceptions
2.1.1 The Treasury runs the control process because parliament expects the Treasury to
control public expenditure as part of fiscal policy. The primary means through which the
Treasury controls public expenditure is multi-year budgets, agreed collectively at spending
reviews. The Consolidated Budgeting Guidance sets out the rules for their use. (See also
chapter 4).
2.2 Using the Estimate
2.2.1 The requirements in box 2.1 are to some extent interrelated. The accounting officer of a
department (see also chapter 3) is responsible for ensuring that:
2.2.2 the Estimate(s) presented to parliament for the department's annual expenditure
(consolidating its ALBs) are within the statutory powers and within the government's
expenditure plans; and
2.2.3 use of resources is within the ambit of the vote and consistent with the Estimate(s)-
and must answer to parliament for stewardship of these responsibilities.

2.3 Treasury consents

2.3.1 Departments also need Treasury consent before undertaking expenditure or making
commitments which could lead to expenditure (see annex 2.1). Usually the Treasury agrees
some general approvals for each department subject to delegated limits and/or exclusions.
2.3.2 Some common approaches to setting delegations are shown in box 2.2 and are
discussed further in annex 2.2. It is good practice to review delegations from time to time to
make sure that they remain up to date and appropriate. Delegations can be tightened or
loosened at reviews, depending on experience.
Box 2.2: examples of approaches to delegated authorities
objective criteria for exceptions requiring specific Treasury scrutiny or approval a sampling
mechanism to allow specimen cases to be examined
a lower limit above which certain kinds of projects must achieve specific consent
2.3.3 In turn departments should agree with each of their arm's length bodies (ALBS - the
public sector organisations they sponsor or finance) a similar set of delegations appropriate to
their business2 (see also chapter 7).
2.3.4 There is an important category of expenditure commitments for which the Treasury
cannot delegate responsibility. It is transactions which set precedents, are novel, contentious
or could cause repercussions elsewhere in the public sector. Box 2.3 gives examples.
Treasury consent to such transactions should always be obtained before proceeding, even if
the amounts in question lie within the delegated limits.
Box 2.3: examples of transactions requiring explicit Treasury consent
 extra statutory payments similar to but outside statutory schemes
 ephemeral ex gratia payment schemes, eg payments to compensate for official errors
 special severance payments, eg compromise agreements in excess of contractual
commitments
 non-standard payments in kind
 unusual financial transactions, eg imposing lasting commitments or using tax
avoidance
 unusual schemes or policies using novel techniques
2.3.5 It is improper for a public sector organisation to spend or make commitments outside
the agreed delegations. The Treasury may subsequently agree to give retrospective consent,
but only if the expenditure in question would have been agreed if permission had been sought
at the right time.
2.3.6 Sometimes legislation calls for explicit Treasury consent, eg for large or critical
projects. There are also Whitehall wide controls on key progress points for the very largest
projects.3 In such cases it is unlawful to proceed without Treasury consent - and Treasury
consent cannot be given retrospectively.
2.4 Regularity and propriety
2.4.1 The concepts of regularity and propriety, fundamental to the right use of public funds,
are set out in box 2.4. The term regularity and propriety is often used to convey the idea of
probity and ethics in the use of public funds - that is, delivering public sector values in the
round, encompassing the qualities summarised in box 1.1. Supporting this concept are the
Seven Principles of Public Life - the Nolan principles4 - which apply to the public sector at
large. In striving to meet these standards, central government departments should give a lead
to the partners with which they work.
Box 2.4: regularity and propriety
Regularity: compliant with the relevant legislation and wider legal principles such as subsidy
control and procurement law, delegated authorities and following the guidance in this
document. Propriety: meeting high standards of public conduct, including robust governance
and the relevant parliamentary expectations, especially transparency.
2.4.2 Each departmental accounting officer should make sure that ministers in their
department appreciate:
 the importance of operating with regularity and propriety; and
the need for efficiency, economy, effectiveness and prudence in the administration of public
resources, to secure value for public money5.
2.4.3 Should a minister seek a course of action which the accounting officer cannot reconcile
with any aspect of these requirements, they should seek instructions in writing from the
minister before proceeding (see chapter 3).
2.4.4 Should departments need to resolve an issue about regularity or propriety, they should
consult the relevant Treasury spending team. Similarly, ALBs should consult their sponsor
departments about such issues, and the department concerned may in turn consult the
Treasury.
2.4.5 Neither improper nor irregular expenditure achieves the standards that parliament
expects. So any such expenditure must be noted in the department's annual report and
accounts. If the discrepancy is material it can result in a qualification to the accounts. When
any expenditure of this kind comes to light, it should be drawn to the attention of both the
NAO and the Treasury. The immediate follow up action is to identify the source of any
systematic problems so that there is no recurrence. The PAC may also call the accounting
officer to explain the matter at a public hearing.

2.5 Securing adequate legal authority

2.5.1 Parliament usually authorises spending on a specific policy or service by approving
bespoke legislation setting out in some detail how it should work. It is not normally
acceptable to use a royal charter as an alternative to primary legislation, for this approach
robs parliament of its expectations for control and accountability. Departments should ensure
that both they and their ALBs have adequate legal cover for any specific actions they
undertake.
2.5.2 The Treasury takes this requirement seriously. It is fundamental to the trust and
understanding between the government and parliament on which management of the public
finances is founded. In the Concordat of 1932 (see annex 2.3), the Treasury undertook that
departments would not spend without adequate legal authority.
2.5.3 There are some general exceptions. These kinds of expenditure do not require specific
legislation in order to avoid burdening parliamentary time:
 routine matters covered by common law (the main examples are in box 2.5);
 a very limited range of Consolidated Fund Standing Services (see section 5.3);
2.5.4 Projects or services which are modest or temporary (see box 2.6). This exception cannot
be used to plug a gap in spending authority before specific legislation for an ongoing service
is passed. The temporary services derogation only applies to initiatives lasting no more than
two years in total, and it is therefore important to note that this does not provide a two-year
grace period for spending on a new, ongoing service before specific legislation is required.
Box 2.5: expenditure which may rely on a Supply and Appropriation Act
 routine administration costs: employment costs, rent, cleaning etc
 lease agreements, eg for photocopiers, lifts
 contractual obligations to purchase goods or services (eg where single year contracts
might be bad value)
 expenditure using prerogative powers such as defence of the realm and international
treaty obligations
In all the three cases in paragraph 2.5.3, departments may rely on the sole authority of a
Supply and Appropriation Act (the culmination of the Estimates process) without the need for
specific legal authority, provided that the other conditions in box 2.1 are met.
Box 2.6: modest or temporary expenditure which may rely on a Supply and Appropriation
Act either services or initiatives lasting no more than two years, eg a pilot study or one off
intervention or expenditure of no more than £1.75m a year (amount adjusted from time to
time) provided that there is no specific legislation covering these matters before parliament
and existing statutory restrictions are respected.
These conditions are demanding. Treasury consent is required before they may be relied on.

2.6 New services

2.6.1 When ministers decide on a new activity, all the conditions in box 2.1 must be met
before it can begin. In practical terms this means that most significant new policies which are
intended to persist require specific primary legislation. Sometimes ministers want to start
early on a new policy which is intended to continue but whose enabling legislation has not
yet secured royal assent. It may be possible to make limited preparation for delivery of the
new service before royal assent, but to do so it will usually be necessary to consider
borrowing from the Contingencies Fund (see annex 2.4). Access to this Fund is controlled by
the Treasury, subject to the conditions in box 2.7. Specific Treasury consent is always
required.
Box 2.7: conditions for access to the contingencies fund (see also annex 2.4)

 the proposed expenditure must be urgent and in the public interest, ie with wider
benefits to outweigh the convention of awaiting parliamentary authority (political
imperative is not enough)
 the relevant bill must have successfully passed second reading in the House of
Commons
 the legislation must be certain, or virtually certain, to pass into law with no
substantive change in the near future, and usually within the financial year
 the department responsible must explain clearly to parliament what is to take place,
why, and by when matters should be placed on a normal footing.
Chapter 3
Accounting Officers
This chapter sets out the personal responsibilities of all accounting officers in central
government. Essentially accounting officers must be able to assure parliament and the public
of high standards of probity in the management of public funds. This chapter is drawn to the
attention of all accounting officers when they are appointed.
3.1.1. Each organisation in central government - department, agency, trading fund, NHS
body, NDPB or arm's length body - must have an accounting officer. This person is usually
its senior official. The accounting officer in an organisation should be supported by a board
structured in line with the Corporate Governance Code. 3.1.2. Formally the accounting
officer in a public sector organisation is the person who parliament calls to account for
stewardship of its resources. The standards the accounting officer is expected to deliver are
summarised in box 3.1. The equivalent senior business managers of other public sector
organisations are expected to deliver equivalent standards.

3.2 Appointment of accounting officers

3.2.1. The Treasury appoints the permanent head of each central government department to
be its accounting officer. Where there are several accounting officers in a department, the
permanent head is the principal accounting officer.
3.2.2. Within departments, the Treasury also appoints the chief executive of each trading fund
as its accounting officer.
3.2.3. In turn the principal accounting officer of each department normally appoints the
permanent heads:

 of its executive agencies, as agency accounting officers for their agencies; and
 of other ALBs (including all NDPBs), as accounting officers for these bodies; and
at their discretion, additional accounting officers for defined part(s) of the department's
business.
3.2.4. In the case of appointment of principal accounting officers of departments and
accounting officers of trading funds, the relevant department should send a draft letter of
appointment directly to the Treasury Office of Accounts team via
[email protected] for the signature of the Treasury Permanent Secretary.
This should be done at least fourteen calendar days before the accounting officer is due to
take up their role.
3.2.5. In the case of appointment of an accounting officer for an arm's length body, the body
should liaise with its sponsoring department to arrange a letter of appointment from the
principal accounting officer. Again, this should be done at least fourteen calendar days before
the accounting officer is due to take up their role. The private office of the principal
accounting officer should then promptly notify the TOA team.
3.2.6. These actions ensure that the register of accounting officers is kept up to date and that
appropriate training can be arranged.
3.2.7. If the timeframes above cannot be met, or in the event of a temporary gap between the
standing down of an accounting officer and the appointment of a new accounting officer, the
department should contact the TOA team to discuss the appropriate mechanism to ensure
accountability arrangements are maintained.
3.2.8. Template letters of appointment can be found on gov.uk. The TOA team is happy to
assist in the preparation of these letters.

3.3 Special responsibilities of accounting officers

Box 3.1: standards expected of the accounting officer's organisation
Acting within the authority of the minister(s) to whom they are responsible, the accounting
officer should ensure that the organisation, and any ALBs it sponsors, operates effectively
and to a high standard of probity. The organisation should:
governance
 have a governance structure which transmits, delegates, implements and enforces
decisions
 have trustworthy internal controls to safeguard, channel and record resources as
intended
 work cooperatively with partners in the public interest
 operate with propriety and regularity in all its transactions
 treat its customers and business counterparties fairly, honestly and with integrity
 offer appropriate redress for failure to meet agreed customer standards
 give timely, transparent and realistic accounts of its business and decisions,
underpinning public confidence;
decision-making

 support its ministers with clear, well-reasoned, timely and impartial advice
  make all its decisions in line with the strategy, aims and objectives of the organisation
set by ministers and/or in legislation
 take a balanced view of the organisation's approach to managing opportunity and risk
 impose no more than proportionate and defensible burdens on business;
financial management

 use its resources efficiently, economically and effectively, avoiding waste and
extravagance
 plan to use its resources on an affordable and sustainable path, within agreed limits
 carry out procurement and project appraisal objectively and fairly, using cost benefit
analysis and generally seeking good value for the Exchequer as a whole
 use management information systems to gain assurance about value for money and
the quality of delivery and so make timely adjustments
 avoid over defining detail and imposing undue compliance costs, either internally or
on its customers and stakeholders
 have practical documented arrangements for controlling or working in partnership
with other organisations, as appropriate
 use internal and external audit to improve its internal controls and performance.
3.3.1. It is important that each accounting officer takes personal responsibility for ensuring
that the organisation they manage delivers the standards in box 3.1. In particular, the
accounting officer must personally sign: the accounts; the annual report the governance
statement (see annex 3.1); and having been satisfied that they have been properly prepared to
reflect the business of the organisation, must personally approve: voted budget limits; and the
associated Estimates Memorandum.
3.3.2. The accounting officer of a corporate arm's length body should arrange for a board
member to sign the accounts as well as signing them himself or herself, if (unusually) they
are not a member of the board.
3.3.3. There are several other areas where accounting officers should take personal
responsibility.
·

 Regularity and propriety (see box 2.4), including securing Treasury

approval for any expenditure outside the normal delegations or outside the subheads of
Estimates.
 Affordability and sustainability: respecting agreed budgets and avoiding unaffordable
longer term commitments, taking a proportionate view about other demands for
resources.
  Value for money: ensuring that the organisation's procurement, projects and processes
are systematically evaluated to provide confidence about suitability, effectiveness,
prudence, quality, good value judged for the Exchequer as a whole, not just for the
accounting officer's organisation (eg using the Green Book1 to evaluate alternatives).
 Control: the accounting officer should personally approve and confirm their
agreement to all Cabinet Committee papers and major project or policy initiatives
before they proceed.
 Management of opportunity and risk to achieve the right balance commensurate with
the institution's business and risk appetite.
 Learning from experience, both using internal feedback (eg through managing
projects and programmes using techniques such as PRINCE2), and from right across
the public sector.
 Accounting accurately for the organisation's financial position and transactions: to
ensure that its published financial information is transparent and up to date; and that
the organisation's efficiency in the use of resources is tracked and recorded.
3.3.4. In the case of principal accounting officers, these responsibilities apply to the business
of the whole departmental group.

3.4 Accounting officer assessments

3.4.1. Accounting officers should routinely scrutinise significant policy proposals or plans to
start or vary major projects and then assess whether they measure up to the standards in box
3.2.

Box 3.2: the standards expected for projects and proposals

 Regularity: the proposal has sufficient legal basis, parliamentary authority, and
Treasury authorisation; and is compatible with the agreed spending budgets.
 Propriety: the proposal meets the high standards of public conduct and relevant
Parliamentary control procedures and expectations.
 Value for money: in comparison to alternative proposals or doing nothing, the
proposal delivers value for the Exchequer as a whole.
 Feasibility: the proposal can be implemented accurately, sustainably, and to the
intended timetable.
3.4.2. A systematic written accounting officer assessment helps to ensure good decision
making and provides positive assurance that the four standards have been properly
considered.
3.4.3. An accounting officer assessment should be produced for projects or programmes
which form part of the Government Major Projects Portfolio (GMPP):
alongside the request for the accounting officer's approval of the Outline Business Case (or at
the point when it enters the GMPP if this is later)

 at subsequent stages of the project if it departs from the four standards or the agreed
plan - including any contingency - in terms of costs, benefits, timescales, or level of
risk, which informed the accounting officer's previous approval
 if the Senior Responsible Owner (SRO) of the project decides one is merited at any
other stage of the project
3.4.4. In addition, it is good practice to prepare an accounting officer assessment for each
novel and contentious transaction or proposal involving the use of public funds. This may be
particularly useful where it is not possible to produce a fully developed business case, for
example due to lack of time and/or data, or the risk environment is higher than usual. The
Treasury often asks spending departments and organisations for such analyses before clearing
them to proceed, as will the National Audit Office (NAO) when conducting any review of the
issue.
3.4.5. Beyond that, in many cases, the normal governance procedures, such as production and
approval of business cases, should provide sufficient assurance against the accounting officer
standards, without need for a bespoke accounting officer assessment.
3.4.6. All draft accounting officer assessments must be signed off by the organisation's senior
officer for finance (usually Finance Director, Chief Financial Officer or Director General for
Finance) or alternate senior member of the finance function within the department before
being submitted to the Accounting Officer for final sign off.
3.4.7. Whenever an accounting officer assessment is produced for a GMPP project, a
summary of the key points should also be prepared and published. Accounting officers may
also choose to publish similar information from assessments made in other circumstances at
their discretion.
3.4.8. Further guidance on producing and publishing accounting officer assessments can be
found in Accounting Officer Assessments: guidance.2

3.5 Working with other organisations

3.5.1. It often makes sense for two or more departments to work together to deliver public
services. In such circumstances, each accounting officer remains personally responsible for
the resources of their own organisation. It is good practice for participating bodies to
document their respective responsibilities, for example by way of a memorandum of
understanding.
3.5.2. It may also be the case that, in assessing a project or proposal, the accounting officer
will want to draw on expertise from another department or public body. Where this happens,
the accounting officer may ask the organisation to provide written assurances of the
robustness of the analysis and any underlying
methodology. However, the ultimate judgement in each case lies with the accounting officer
personally.

3.6 Directions
3.6.1. The accounting officer cannot simply accept the minister's aims or policy without
examination. Each departmental accounting officer should take care to bring to the attention
of their minister(s) any conflict between the minister's instructions and the standards set out
in box 3.2.
3.6.2. Where a departmental accounting officer determines that a proposal does not meet one
or more of these standards, the best next step is to consider whether the policy or proposed
course of action can be modified to make it fit. If not, and the minister decides it is
nevertheless appropriate to continue with the proposal, the accounting officer should ask their
senior minister for a formal written direction to proceed. An oral direction should be
confirmed promptly in writing.
3.6.3. Before finalising a direction request, it is good practice for accounting officers to
discuss the matter with the Treasury. Often, by their nature, issues that might call for a
ministerial direction are novel, contentious, or repercussive, and therefore require explicit
Treasury consent. Where this is the case, Treasury consent should be obtained before the
direction request is finalised.
3.6.4. As always, the ultimate judgement in each case must lie with the accounting officer
personally. The acid test is whether the accounting officer could justify the proposed activity
if asked to defend it.
3.6.5. There is no set form for requesting a direction, though the accounting officer should be
specific about their nature and the standard or standards that is/are not satisfied.
3.6.6. When a direction is made, the Accounting Officer should:
 follow the minster's direction without further ado
 promptly copy the direction request, the direction and other papers the accounting
officer considers relevant to the Comptroller and Auditor General and the Treasury
Officer of Accounts
 unless it is in the public interest that the matter is kept confidential, arrange for the
direction request and direction itself to be published on the GOV.UK website
promptly, notifying the chairs of the PAC and the relevant departmental select
committee as soon as this occurs
 where confidentiality is required, in addition to copying to the Comptroller and
Auditor General and the Treasury Officer of Accounts as usual, share the direction
request and the direction with the chairs of the PAC and the relevant departmental
select committee, along with an explanation of when they expect the need for
confidentiality to fall away and publication to take place
 if asked, explain the minister's course of action - this respects ministers' rights to
frank advice, while protecting the quality of internal debate.
3.6.7. A direction on regularity or propriety ground does not change that position
- that is it does not make the action regular or proper. It is important to note that a direction
does not permit unlawful action and does not protect against a court finding unlawfulness.

3.7 Public Accounts Committee

3.7.1. The PAC may hold public hearings on the accounts of central government
organisations laid in parliament (see section 1.6). In practice most PAC hearings focus on
NAO value for money studies. The NAO seeks to agree the text of these reports with the
accounting officer(s) concerned so there is a clear undisputed evidence base for PAC
scrutiny.
3.7.2. When a hearing is scheduled, the PAC normally invites the accounting officer(s) of the
relevant institution(s) to attend as witness(es). An accounting officer may be accompanied by
appropriate officials. Where it is appropriate, and the PAC agrees, an accounting officer may
send a substitute. The PAC may also invite other witnesses who may not be public servants to
give insight into the background of the subject in hand.
3.7.3. In answering questions, the accounting officer should take responsibility for the
organisation's business, even if it was delegated or if the events in question happened before
they were appointed accounting officer. In response to specific PAC or Select Committee
requests, previous accounting officers may also attend relevant PAC hearings. Recalls of this
kind should be assessed case by case, depending on the circumstances. They are acceptable if
the business in issue was recent, and where the former accounting officer has had an
opportunity to comment before publication on any NAO report which the PAC is to
investigate. 3.7.4. The PAC expects witnesses to give clear, accurate and complete evidence.
If evidence is sensitive, witnesses may ask to give it in private. Witnesses may offer
supplementary notes if the information sought is not to hand at the meeting. Any such notes
should be provided within one week unless the PAC is willing to grant an extension. They
should do so without delay.
3.7.5. The TOA (or an alternate) attends all PAC hearings. This enables the PAC to explore
any more general issues arising out of the hearing.
3.7.6. The evidence given by accounting officers at public hearings often feeds into reports
published by the PAC. These reports detail its findings, conclusions and recommendations.
3.7.7. For each PAC report, the government responds to recommendations by means of
Treasury Minutes presented to Parliament by a Treasury minister, indicating those the
government accepts and those it does not accept. For those it accepts, Treasury Minutes will
include target implementation dates. For those it does not accept, they will set out reasons for
non-acceptance.
3.7.8. In addition, government departments and organisations are required to report twice
annually to Parliament on progress in implementing Committee recommendations accepted
by government. Treasury Minute Progress Reports are used for this purpose.
3.7.9. The PAC expects the government to respond promptly and transparently through both
the initial Treasury Minute and subsequent Progress Reports. Accounting officers should
ensure the internal clearance processes within their organisation are arranged to fit with
deadlines for responses.
3.7.10. In addition, if a department determines it is necessary to revise the target date for
implementing an agreed recommendation, the accounting officer should write immediately to
the PAC, copied to the Treasury Officer of Accounts, and provide a detailed explanation for
the deferral. Departments should not leave notification of the delay in implementation until
the publication of the next Treasury Minutes Progress Report.

3.8 When the accounting officer is not available

3.8.1. Each public sector organisation must have an accounting officer available for advice or
decision as necessary at short notice. When the accounting officer is absent and cannot
readily be contacted, another senior official should deputise. 3.8.2. If a significant absence is
planned, the principal accounting officer may invite the Treasury to appoint a temporary
acting accounting officer.
3.8.3. In these circumstances, a temporary acting accounting officer stands in the shoes of the
principal accounting officer. They are not acting on behalf of the Principal Accounting
Officer but are personally responsible to Parliament in their own right. Their decisions are not
subject to ratification by the principal accounting officer and their role should only be
activated if the principal accounting officer is unable to fulfil their obligations. To all intents
and purposes the temporary acting accounting officer replaces the principal accounting
officer.
3.8.4. A similar logic can also apply for an accounting officer in an arm's length body (ALB),
whereby the arrangement must be agreed and formalised between the department and the
ALB.

3.9 Conflicts of interest

3.9.1. Sometimes an accounting officer faces an actual or potential conflict of interest. There
must be no doubt that the accounting officer meets the standards described in box 3.1 without
divided loyalties. Possible ways of managing this issue include:
•
for a minor conflict, declaring the conflict and arranging for someone other than the
accounting officer to make a decision on the issue(s) in question

 for a significant but temporary conflict, inviting the Treasury (or the sponsor
department, as the case may be) to appoint an interim accounting officer for the
period of the conflict of interest
 for serious and lasting conflicts, resignation.

3.10 Arm's length bodies

3.10.1. The responsibilities of accounting officers in departments and in arm's length bodies
(ALBs) are essentially similar. Accounting officers in ALBs must also
take account of their special responsibilities and powers. In particular, they must respect the
legislation (or equivalent) establishing the organisation and terms of the framework document
agreed with the sponsor department. See chapter 7 for more. 3.10.2. The framework
document (or equivalent) agreed between an ALB and its sponsor always provides for the
sponsor department to exercise meaningful oversight of the ALB's strategy and performance,
pay arrangements and/or major financial transactions, eg by monthly returns, standard
delegations and exception reporting. The sponsor department's accounts consolidate those of
its ALBS so its accounting officer must be satisfied that the consolidated accounts are
accurate and not misleading.
3.10.3. Overall, the accounting officer of a sponsor department should make arrangements to
satisfy himself or herself that that the ALB has systems adequate to meet the standards in box
3.1. Similarly, the accounting officer of an ALB with a subsidiary should have meaningful
oversight of the subsidiary. It is not acceptable to establish ALBS, or subsidiaries to ALBs, in
order to avoid or weaken parliamentary scrutiny.
3.10.4. Exceptionally, the accounting officer of a sponsor department may need to intervene
if an ALB drifts significantly off track, eg if its budget is threatened, its systems are badly
defective or it falls into disrepute. This may include replacing some or all of the leaders of the
ALB, possibly even its accounting officer.
3.10.5. There are sensitivities about the role of the accounting officer in an ALB which is
governed by an independent fiduciary board, eg a charity or company. The ALB's accounting
officer, who will normally be a member of the board, must take care that their personal legal
responsibilities do not conflict with their duties as a board member. In particular, the
accounting officer should vote against any proposal which appears to cause such a conflict; it
is not sufficient to abstain. 3.10.6. Moreover, if the chair or board of such an ALB is
contemplating a course of action that is inconsistent with the standards in box 3.1, then the
accounting officer should follow the procedure set out in the organisation's framework
document. This process is similar to what happens in departments (see section 3.6), but will
be tailored to reflect the position of the organisation's board, which is often appointed under
statute.

3.11 In the round

3.11.1. It is not realistic to set firm rules for every aspect of the business with which an
accounting officer may deal. Sometimes the accounting officer may need to take a principled
decision on the facts in circumstances with no precedents. Should that happen, the accounting
officer should be guided by the standards in box 3.1 in assessing whether there is a case for
seeking a direction for any of the factors in box 3.2. It is essential that accounting officers
seek good outcomes for the Exchequer as a whole, respecting the key principles of
transparency and parliamentary approval for management of public resources.
3.11.2. In addition, there may be occasions where it is necessary to respond urgently to
events, reducing the time available for analysis and requiring the accounting officer to make
an assessment. In such circumstances, all available options may carry more uncertainty and
more risk than would be acceptable in more normal times.
Here, in assessing value for money and feasibility, the accounting officer must assess the
relative merits and costs of alternatives (including doing nothing).
3.11.3. Sometimes, it is possible to do no more than identify the scale of the problem to be
tackled and then examine why the proposed action should both be effective and have
tolerable cost. Wherever proposals or projects are taken forward, accounting officer should
identify and assess risks, and design and operate the most effective risk treatment activities
(including controls) possible in the time available. 3.11.4. The Treasury stands ready to help
accounting officers think such issues through.
Chapter 4
Governance and Management
Public sector organisations should have good quality internal governance and sound financial
management. Appropriate delegation of responsibilities and effective mechanisms for internal
reporting should ensure that performance can be kept on track. Good practice should be
followed in procuring and managing resources and assets; hiring and managing staff; and
deterring waste, fraud and other malpractice. Central government departments have some
specific responsibilities for reporting, including to parliament.
4.1.1 Each public sector organisation should establish governance arrangements appropriate
to its business, scale and culture. The structure should combine efficient decision making
with accountability and transparency.
4.1.2 In doing so, central government departments should be guided by the Corporate
Governance Code3. Each public sector organisation needs clear leadership, normally
provided by a board. Box 4.1 sets out best practice for departmental boards.
Box 4.1: best practice for boards in central government departments
 chaired by the department's most senior minister, with junior ministers as members
 comparable numbers of official and non-executive members, including a lead non-
executive and a professionally qualified finance director (see annex 4.1)
 meeting at least quarterly
 sets the department's strategy to implement ministers' policy decisions leads the
department's business and determines its culture
 ensures good management of the department's resources – financial, assets, people
 decides risk appetite and monitors emerging threats and opportunities
 steers performance to keep it on track using regularly updated information about
progress
 keeps an overview of its ALBs' activities
4.1.3 It is good practice for ALBS to use similar principles. In many ALBs some structural
features, such as board composition, derive from statute but considerable discretion may
remain. In some organisations it is usual, or found valuable, for the board to include members
with designated responsibility or expertise, eg for regional affairs or for specialist
professional skills.
4.1.4 In order to carry out its responsibilities each board needs to decide, and document, how
it will operate. Box 4.2 outlines the key decisions. It is not
exhaustive. Once agreed, the working rules should be reviewed from time to time to keep
them relevant. Boards should challenge themselves to improve their working methods, so that
their processes can achieve and maintain good modern business practice.
Box 4.2: key decisions for boards

 mission and objectives

 delegations and arrangements for reporting performance
 procedures and processes for business decision making
 scrutiny, challenge and control of significant policies, initiatives and projects
 risk appetite and risk control procedures, eg maintaining and reviewing a risk register
 control and management of associated ALBS and other partnerships
 arrangements for refreshing the board
 arrangements for reviewing the board's own performance
 accountability - to the general public, to staff and other stakeholders (see section 4.13)
 how the insights of non-executives can be harnessed
 how often the board's working rules will be reviewed

4.2 Working methods

4.2.1 The accounting officer of each organisation is accountable to parliament for the quality
of the administration that they leads. The administrative standards expected are set out in the
Civil Service Code4 and the Ombudsman's Principles of Public Administration5. They allow
considerable flexibility to fit with each organisation's obligations and culture. It is against
these standards that failure to deliver is assessed.
4.2.2 Another fundamental concept is the Treasury's leadership position in
managing public expenditure, and setting the rules under which departments and their ALBS
should deploy the assets, people and other resources under their control. In turn each public
sector organisation should have robust and effective systems for their internal management.
Box 4.3 outlines the key decisions each organisation needs to make.
4.2.3 To help the Treasury carry out this task properly:

 departments should provide the Treasury with accurate and timely information about
in-year developments - their expenditure, performance against objectives and
evolution of risk (eg serious unforeseen events or discovery of fraud);
 ALBs should provide their sponsor departments with similar information; and
4 http://www.civilservice.gov.uk/about/values
  the established mechanisms for controlling and reporting public expenditure,
including Treasury support or approval where necessary, should be respected.
4.2.4 In particular, departments should consult the Treasury (and ALBs their sponsor
departments) at an early stage about proposals to undertake unusual transactions or financing
techniques. This applies especially to any transactions which may have wider implications
elsewhere in the public sector (see paragraph 2.3.4 and box 2.3). 4.2.5 Working with the
accounting officer, the finance director of each public sector organisation has special
responsibility for seeing that the standards described in this chapter are respected. Annex
4.1.sets this out in more detail.
Box 4.3: essentials of effective internal decision making
choice
 active management of the portfolio of risks and opportunities
 appraisal of alternative courses of action using the techniques in the Green Book, and
including assessment of feasibility to achieve value for money
 where appropriate, use of models (see annex 4.2) or pilot studies to provide evidence
on which to make decisions among policy or project choices
 active steering of initiatives, eg reviews to take stock at critical points of projects
operation
 appropriate internal delegations, with a single senior responsible officer (SRO) for
each significant project or initiative, and a single senior person leading each end to
end process
 prompt, regular and meaningful management information on costs (including unit
costs), efficiency, quality and performance against targets to track progress and value
for money
 proportionate administration and enforcement mechanisms, without unnecessary
complexity
 use of feedback from internal and external audit and elsewhere to improve
performance regular risk monitoring, to track performance and experience and make
adjustments in response afterwards
 mechanisms to evaluate policy, project and programme outputs and outcomes,
including whether to continue, adjust or end any continuing activities
 arrangements to draw out and propagate lessons from experience
4.3 Opportunity and risk
4.3.1 Embedded in each public sector organisation's internal systems there should be
arrangements for recognising, tracking and managing its opportunities and risks. Each
organisation's governing body should make a considered choice about its desired risk
appetite, taking account of its legal obligations, ministers' policy decisions, its business
objectives, and public expectations of what it should deliver.
This can mean that different organisations take different approaches to the same opportunities
or risks.
4.3.2 There should be a regular discipline of reappraising the opportunities and risks facing
the organisation since both alter with time and circumstances, as indeed may the chosen
responses. This process should avoid excessive caution, since it can be as damaging as
unsuitable risk taking. The assessment should normally include:
 maintaining a risk register, covering identified risks and contingent risks from horizon
scanning;
 reputational risks, since poor performance could undermine the credibility, and
ultimately the creditworthiness, of the Exchequer as a whole;
 consideration of the dangers of maintaining the status quo;
 plans for disaster recovery;
 appraisal of end to end risks in critical processes and other significant activities.
4.3.3 In making decisions about how to manage and control opportunity and risk, audit
evidence and other assurance processes can usefully inform choice. Audit, including internal
audit, can provide specific, objective and well-informed assurance and insight to help an
organisation evaluate its effectiveness in achieving its objectives. It is good practice for the
audit committee to advise the governing board of a public sector organisation on its key
decisions on governance and managing opportunities and risks. It is also a good discipline for
this process to include evaluating progress in implementing PAC recommendations, where
they have been accepted.
4.3.4 In turn the board should support the accounting officer in drawing up the governance
statement, which forms part of each organisation's annual accounts. See annex 3.1. Further
guidance about managing risks is in annex 4.3 and the Orange Book.

4.4 Insurance
4.4.1 In the private sector risk is often managed by taking out insurance. In central
government it is generally not good value for money to do so. This is because the public
sector has a wide and diverse asset portfolio; a reliable income through its ability to raise
revenue through taxation; and access to borrowed funds more cheaply than any in the private
sector. In addition commercial providers of insurance also have to meet their own costs and
profit margins. Hence the public purse is uniquely able to finance restitution of damaged
assets or deal with other risks, even very large ones. If the government insured risk, public
services would cost more. 4.4.2 However, there are some limited circumstances in which it is
appropriate for public sector organisations to insure. They include legal obligations, and
occasions
where commercial insurance would provide value for money. Further information about
insurance generally is in annex 4.4.

4.5 Control of public expenditure

4.5.1 The Treasury coordinates a system through which departments are allocated budget
control totals for their public expenditure. Each department's allocation covers its own
spending and that of its associated ALBS. Within the agreed totals, it has considerable
discretion over setting priorities to deliver the public services for which it is responsible.
4.5.2 Each public sector organisation should run efficient systems for managing payments
(see box 4.4). It should also keep its use of public resources within the agreed budgets, take
the limits into account when entering into commitments, and generally ensure that its
spending profile is sustainable.
4.5.3 Any major project, programme or initiative should be led by a senior responsible owner
(SRO). It is good practice to aim for continuity in such appointments.
Box 4.4: essentials of systems for committing and paying funds
 Selection of projects after appraisal of the alternatives (see the Green Book),
including the central clearance processes for larger commitments.
 Open competition to select suppliers from a diverse range, preferably specifying
outcomes rather than specific products, to achieve value for money (see annexes 4.6
and 4.7).
 Where feasible, procurement through multi-purchaser arrangements, shared services
 Effective internal controls to authorise acquisition of goods or services (including
vetting new suppliers), within any legal constraints.
 Separation of authorisation and payment, with appropriate controls, including
validation and recording, at each step to provide a clear audit trail.
 Checks that the goods or services acquired have been supplied in accordance with the
relevant contract(s) or agreement(s) before paying for them.
 Payment terms chosen or negotiated to provide good value.
 Accurate payment of invoices: once and on time, avoiding lateness penalties (see
annex 4.8).
 A balance of preventive and detective controls to tackle and deter fraud, corruption
and other malpractice (see annex 4.9).
 Integrated systems to generate automatic audit trails which can be used to generate
accounts and which both internal and external auditors can readily check.
 Periodic reviews to benefit from experience, improve value for money or to
implement developments in good practice.
4.6 Receipts
4.6.1 Public sector organisations should have arrangements for identifying, collecting and
recording all amounts due to them promptly and in full. Outstanding amounts should be
followed up diligently. Key features of internal systems of control are suggested in box 4.5.
4.6.2 Public sector organisations should take care to track and enforce debts promptly. The
presumption should be in favour of recovery unless it is uneconomic to do so.
Box 4.5: essential features of systems for collecting sums due
 Adequate records to enable claims to be made and pursued in full. Routines to prevent
unauthorised deletions and amendments to claims.
 Credit management systems to manage and pursue amounts outstanding. Controls to
prevent diversion of funds and other frauds.
 Clear lines of responsibility for making decisions about pressing claims increasingly
more firmly, and for deciding on any abatement or abandonment of claims which may
be merited.
 Arrangements for deciding upon and reporting any write-offs (see annex 4.10). Audit
trails which can readily be checked and reported upon both internally and externally.

4.7 Non-standard financial transactions

4.7.1 From time to time public sector organisations may find it makes sense to carry out
transactions outside the usual planned range, eg:
 write-offs of unrecoverable debts or overpayments;
 recognising losses of stocks or other assets;
 long term loans or gifts of assets.
4.7.2 In each case it is important to deal with the issue in the public interest, with due regard
for probity and value for money. Annexes 4.10 to 4.12 set out what is expected when such
transactions take place in central government, including notifying parliament.
4.7.3 Where an organisation discovers an underpayment, the deficit should be made good as
soon as is practicable and in full. If there has been a lapse of time, for example caused by
legal action to establish the correct position, it may be appropriate to consider paying interest,
depending on the nature of the commitment to the payee and taking into account the
reputation of the organisation and value for money for the Exchequer as a whole (see also
section 4.11).
4.7.4 Similarly, public sector organisations may have reason to carry out current transactions
which would not normally be planned for. These might be:
extra contractual payments to service providers;
  extra-statutory payments to claimants (where a similar statutory scheme exists);
 ex gratia payments to customers (where no established scheme exists); or
 severance payments to employees leaving before retirement or before the end of their
contract and involving payments above what the relevant pension scheme allows.
4.7.5 Again it is important that these payments are made in the public interest, objectively
and without favouritism. The disciplines parliament expects of central government entities
are set out in annex 4.13, which explains the notification procedure to be followed for larger
one-off transactions of this kind. The steps to be considered when setting up statutory or
extra-statutory compensation schemes are discussed in annex 4.14.

4.8 Unusual circumstances

4.8.1 Sometimes public sector organisations face dilemmas in meeting their commitments.
They may have a legal or business obligation which would be uneconomic or inappropriate to
carry out assiduously to the letter. In such cases it can be justifiable to seek a pragmatic, just
and transparent alternative approach, appropriately reported to parliament in the
organisation's annual accounts. One-off schemes of this kind are always novel and so require
Treasury approval, not least because they may also require legislation or have to rest on the
authority of a Supply and Appropriation Act (see section 2.5). Box 4.6 suggests precedented
examples.
Box 4.6: examples of one-off pragmatic schemes

 A court ruling could mean that a public sector organisation owed each of a large
number of people a very small sum of money. The cost of setting up and operating an
accurate payment scheme might exceed the total amount due. The organisation could
instead make a one-off payment of equivalent value to a charity representing the
recipient group.
 A dispute with a contractor might conclude that the contractor owed a public sector
organisation an amount too big for it to meet in a single year while staying solvent.
The customer might instead agree more favourable payment terms, with appropriate
safeguards, if this arrangement provides better value for money.

4.9 Staff
4.9.1 Each public sector organisation should have sufficient staff with the skills and expertise
to manage its business efficiently and effectively. The span of skills required should match
the organisation's objectives, responsibilities and resources, balancing professional, practical
or operational skills and policy makers, and recognising the value of each discipline.
Succession and disaster planning should ensure that the organisation can cope robustly with
changes in the resources available, including unforeseen disruption.
4.9.2 Public sector organisations should seek to be fair, honest and considerate employers.
Some desirable characteristics are suggested in box 4.7.
Box 4.7: public sector organisations as good employers
 selection designed to value and make good use of talent and potential of all kinds
fairness, integrity, honesty, impartiality and objectivity
 professionalism in the relevant disciplines, always including finance
 arrangements to make sure that staff are loaded cost effectively
 management techniques balancing incentives to improve and disciplines for poor
performance
 diversity valued and personal privacy respected
 mechanisms to support efficient working practices, both normally and under pressure
arrangements for whistleblowers to identify problems privately without repercussions.
4.9.3 Similarly public sector employers have a right to expect good standards of conduct from
their employees. The qualities and standards expected of civil servants are set out in the Civil
Service Code. Other public sector employees should strive for similar standards, appropriate
to their context.

4.10 Assets
4.10.1 All public sector organisations own or use a range of assets. Each organisation needs
to devise an appropriate asset management strategy to define how it acquires, maintains,
tracks, deploys and disposes of the various kinds of assets it uses. Annex 4.15 discusses how
to set up and use such a strategy.
4.10.2 It is good practice for public sector organisations to take stock of their assets from time
to time and consider afresh whether they are being used efficiently and deliver value for
public funds. If there is irreducible spare capacity there may be scope to use part of it for
other government activities, or to exploit it commercially for non-statutory business.

4.11 Standards of service

4.11.1 Poor quality public services are not acceptable. Public sector organisations should
define what their customers, business counterparties and other stakeholders can expect of
them.
4.11.2 Standards can be expressed in a number of ways. Examples include guidelines (eg
response times), targets (eg take-up rates) or a collection of customer rights in a charter. Even
where standards are not set explicitly, they may sometimes be inferred from the way the
provider organisation carries out its responsibilities; so it is normally better to express them
directly.
4.11.3 Whatever standards are set, they should be defined in a measurable way, with plans for
recording performance, so that delivery can be readily gauged. It is good practice to use
customer feedback, including from complaints, to reassess from time to time whether
standards or their proxies (milestones, targets, outcomes) remain appropriate and meaningful.
4.11.4 Where public sector organisations fail to meet their standards, or where they fall short
of reasonable behaviour, it may be appropriate to consider offering remedies. These can take
a variety of forms, including apologies, restitution (eg
supplying a missing licence) or, in more serious cases, financial payments. Decisions about
financial remedies - which should not be offered routinely - should include taking account of
the legal rights of the other party or parties and the impact on the organisation's future
business.
4.11.5 Any such payments, whether statutory or ex gratia, should follow good practice (see
section 4.13). Since schemes of financial redress often set precedents or have implications
elsewhere, they should be cleared with the Treasury before commitments are made, just as
with any other public expenditure out of the normal pattern (see sections 2.1 to 2.4).

4.12 Complaints
4.12.1 Those public sector organisations which deal with customers directly should strive to
achieve clear, accurate and reliable standards for the products and services they provide. It is
good practice to arrange for complaints about performance to be reviewed by an independent
organisation such as an ombudsman.
4.12.2 Often such review processes are statutory. The activities of central government
departments and the NHS are open to review by the PHSO9, whose Principles of Good
Complaints Handling10 sets out generic advice on complaints handling and administration of
redress (see also annex 4.14). After investigation of cases of specific complaint, the PHSO
can rule on whether injustice or hardship can be attributed to maladministration or service
failure, and may recommend remedies, either for individual cases or for groups of similar
cases. If departments decline to follow the PHSO's advice, they should lay a memorandum in
parliament explaining why.

4.13 Transparency
4.13.1 All public sector organisations should operate as openly as is compatible with the
requirements of their business. In line with the statutory public rights11, they should make
available timely information about their services, standards and performance. This material
should strike a careful balance between protecting confidentiality and open disclosure in the
public interest.
4.13.2 All public sector organisations should adopt a publication scheme routinely offering
information about the organisation's activities. They should also publish regular information
about their plans, performance and use of public resources. 4.13.3 The published information
should be in sufficient detail, and be sufficiently regular, to enable users and other
stakeholders to hold the organisation and its ministers to account. Benchmarks can help local
users to evaluate local performance more easily.
4.13.4 The primary document of record for central government departments is the report and
accounts, which should consolidate information about the relevant ALBs. It should include a
governance statement (see annex 3.1).
4.13.5 In addition, the Treasury is responsible for publishing certain aggregate information
about use of public resources, for example Whole of Government Accounts (WGA)
consolidating all central and local government organisations' accounts and comparisons of
outturn with budgets. The Office for National Statistics (ONS) also uses input from data
gathered by the Treasury to publish the national accounts.
4.13.6 In certain areas of public business it is also important or desirable to provide adequate
public access to physical assets. Unnecessary or disproportionate restrictions should be
avoided. Managed properly, this can be a valuable mechanism to promote inclusion and
enhance public accountability.

4.14 Dealing with initiatives

4.14.1 Public sector organisations need to integrate all the advice in this handbook when
introducing new policies or planning projects. Each is unique and will need bespoke
treatment. The checklist in box 4.8 brings the different factors together. It applies directly to
central government organisations but the principles will be of value elsewhere.
Box 4.8: factors to consider when planning policies or projects
design

 Has the proposal been evaluated against alternative options, including doing nothing?
 Should there be pilot testing before full roll out?
 Are the controls agreed and documented clearly? Have the risks and opportunities
been considered systematically? Is the change process resilient to shocks? What
contingencies might arise?
 Is the intended intervention proportionate to the identified need?
 What standards should be achieved? How will performance be tracked and assessed?
Could the proposal be simplified without loss of function?
 If partner(s) are involved, is the allocation of responsibilities appropriate?
 Will the proposal be efficient, effective and offer good value for money?
 Is the policy sustainable in the broadest sense? Should it have a sunset clause?
 Does the planned activity meet high standards of probity, integrity and honesty?
 Will the proposal deliver the desired outcome to time and cost?
 Does the accounting officer assess the initiative as compatible with the public sector
standards?
control

 What prior agreement is required, if any?

 How will internal governance and delegation work? Will it be effective? Is it
transparent? Should there be an SRO?
 Is there adequate legislation? If not, what is needed to make the action lawful?
 How will the proposal be financed? Is there budget and Estimate cover? Is it
appropriate to charge to help finance the service? Are charges set within the law?
 Is the proposed action within the department's delegated authorities?
 What financial techniques will be used to manage rollout, implementation and
operation?
 Are project and programme management techniques likely to be useful?
 How will the intended new arrangements be monitored and efficiency measured?
 How will feedback be used to improve outcomes?
 Does the design inhibit misuse and counter fraud? What safeguards are needed?
 Has the risk of fraud been assessed to help inform policy or project design?
 How will the associated risks be tracked and the responses adjusted?
 What intervention will be possible if things go off track?
 Would it be possible to recover from a disaster promptly?
accountability
 How should parliament be told of the proposal and kept informed of progress?
 What targets will be used? Are they sufficiently stretching?
 Is public access called for? How?
 Is the policy or service fair and impartial?
 Will its administration be open, transparent and accessible?
  Should there be customer standards? How are complaints used to improve
performance?
 Should there be arrangements for redress after poor delivery?
 Is enforcement required? If so, is it proportionate?
 Is an appeal mechanism needed?
 Is regulation called for?
learning lessons
 What audit arrangements (internal and external) are intended?
 What information about the activity will be published? How and how often?
 When and how will the policy or project be evaluated to assess its cost and benefits
and to
determine whether it should continue, be adjusted, replaced or ceased?
Chapter 5
Funding
This chapter explores the means by which central government organisations may obtain funds
in order to finance public expenditure. The Treasury operates disciplines to respect
parliament's concern to prevent unauthorised expenditure.
5.1.1 Most public expenditure is financed from centrally agreed multi-year budgets
administered by the Treasury, which oversees departments' use of their budget allocations. In
the main, departments have considerable discretion about how they distribute these budget
allocations, which are expressed net of relevant income. The main source of receipts to be
netted off is fees and charges (see chapter 6).
5.1.2 The Treasury oversees and directs the rules that departments should respect in
managing their budgets. Departments are expected to live within their allocations for each
financial year, with some limited exceptions, eg for certain demand led services. The
budgeting framework is explained in the Consolidated Budgeting Guidance, which is
refreshed each year.

5.2 Grants
5.2.1 Each central government department decides how much of its budget provision it
should cascade to its ALBs in each year of the multi-year agreement. Departments may pay
them grants (for specific purposes) and grants-in-aid (unspecific support) to finance their
spending; though it is the net spending of the ALB that scores in the departmental budget.
Annex 5.1 explains more about grants. 5.2.2 Budgets and Estimates plan net spending and
include all spending of ALBs however it is financed. In general it is sensible to consider
arrangements for protecting the Exchequer interest through clawback of specific grants
should the purposes for which they are agreed not materialise (annex 5.2).

5.3 Estimates
5.3.1 The multiyear departmental budgets agreed collectively among ministers do not of
themselves confer authority to spend or commit resources. Parliamentary agreement, usually
through the Supply Estimate process, is also essential (see box 2.1).
5.3.2 Departmental Estimates are put to parliament covering one financial year at a time, in
the spring. Each covers the net expenditure of a department and its ALBs (ie all spending in
budgets and any voted spend outside of budgets). For the year ahead, the provision sought
should be taut and realistic, without padding. The Supply and Estimates Guidance Manual
has more detail.
5.3.3 Before the summer recess, the provision sought in the Estimate is formally authorised in
a Supply and Appropriation Act, which sets net expenditure limits for the year. The Act is
then the legal authority for public expenditure within the ambit of the Estimate. The ambit
itemises a specific range of permitted activities and income streams for the year.
5.3.4 Within a financial year, there is some scope for transferring (through virement)
provision from one section or subhead to another within any of the control limits in the same
Estimate. There is scope for adjusting Estimate provision through a Supplementary Estimate
late in the year if circumstances change. A Supplementary Estimate should show all
movements between sections, even if they would otherwise have been dealt with through
virement.
5.3.5 Departmental Select Committees may examine departmental witnesses on the plans
contained in Estimates. Usually such hearings take place after Estimates are laid in
parliament but before they are voted into law.
5.3.6 If there is underspending against Estimate provision in one year, it cannot automatically
be carried forward to a later year. If a department wants to spend resources it did not consume
in a previous year, it needs Treasury approval and must also obtain fresh parliamentary
authority to spend in the year(s) concerned.
5.3.7 Like budgets, Estimates are set net of income. But parliament needs to be made aware
of receipts since Estimates authorise gross expenditure, normally using statutory powers.
Annex 5.3 explains more about of types of receipt. Chapter 6 contains guidance about setting
and adjusting fees and charges.
5.3.8 Occasionally an Estimate sets a negative limit for permitted resources. This happens if
income is expected to exceed the relevant gross expenditure. Similarly a Supplementary
Estimate can be negative if provision for spending is to fall within a given year.
5.3.9 A department's Estimate for a year includes all spending within its agreed budget for
that year, as well as any voted non-budget spending. Not all of this amount requires voted
parliamentary approval since some items, such as Consolidated Fund Standing Services, are
paid direct from the Consolidated Fund. Hence only the voted parts of the Estimate requiring
parliamentary approval appear in the Supply and Appropriation Act. Of course the disciplines
on public funds (box 3.1) apply to all the activities described in the Estimate and accounts
whether within the Act or not.

5.4 Excess Votes

5.4.1 Accounting officers have an important role in overseeing the integrity of the Estimates
for which they are responsible. In particular, accounting officers are responsible for ensuring
that Estimates are in good order (see section 2.2).
5.4.2 The Treasury presents parliament each year with a Statement of Excesses to request
retrospective authority for any unauthorised resources consumed above the relevant limits or
outside the ambit of the Estimate. Parliament takes these excesses seriously. The PAC or
departmental select committee may call witnesses to account in person or ask for a written
explanation.
5.4.3 The Statement of Excesses includes two kinds of excess:
  spending above the amount provided in an Estimate; and
 irregular expenditure outside the ambit, eg on an unauthorised service.
5.4.4 Parliament usually regards the latter as particularly unsatisfactory because it means that
the department concerned has flouted parliament's intentions12 and may have defective
systems of control. The auditor may identify such excesses as spending not covered by
statutory powers, even if the total amount spent does not exceed the voted limit.
5.4.5 Expenditure in excess of provision on an activity agreed by parliament is also to be
avoided since the authority of a Supply and Appropriation Act is just as essential as specific
statutory authority (box 2.1). It is possible, with Treasury agreement, to raise the amount in
an Estimate during the course of the year in a Supplementary. But otherwise accounting
officers should reduce, reprioritise or postpone use of resources to keep within the provision
parliament has agreed for the year.

5.5 Commitments
5.5.1 Parliament is not bound 13 to honour ministers' commitments unless and until there are
statutory powers to meet them and it authorises public funds to finance them (through an
Estimate) in a given year. This discipline is especially important when ministers plan a new
service.
5.5.2 Because commitments can evolve into spending, they should always be scrutinised and
appraised as stringently as proposals for consumption (box 4.8 may help). Some departments
may agree with the Treasury blanket authority for defined and limited ranges of non-statutory
commitments, eg indemnities for board members and commitments taken on the normal
course of business. All other non statutory commitments are novel, contentious or
repercussive, so Treasury approval is always essential before they are undertaken.
5.5.3 Public sector organisations should give parliament prompt and timely notice of any
significant new commitments, whether using existing statutory powers or to be honoured
through future legislation. Non statutory contingent liabilities (above a specified threshold)
should always be notified in this way. The process is set out in annex 5.4.
Box 5.1: contingent liabilities: notifying parliament
 Parliament should be notified of uncertain liabilities in a meaningful way without
spurious accuracy. This should be done by Ministerial Statement and departmental
Minutes to the House of Commons, drawn directly to the attention of the chairs of the
PAC and relevant departmental committee.
 If a contingent liability affects several departments but cannot confidently be
allocated among them, the relevant ministers should inform parliament in a pragmatic
way. A single statement may well suffice.
 If, exceptionally, a new liability needs to remain confidential, the minister should
inform the chairs of the relevant select committee and the PAC; then inform
parliament openly when the need for confidentiality lifts.
 Ministers should inform parliament if an ALB assumes a contingent liability which it
could not absorb within its own resources, since the risk ultimately lies with the
sponsor department's budget.
5.5.4 The general rule is to err on the side of caution in keeping parliament
informed of emerging contingent liabilities. It is impossible to generalise about every
possible set of circumstances but some guidance is in box 5.1.

5.6 Tax
5.6.1 Public sector organisations should not engage in, or connive at, tax evasion, tax
avoidance or tax planning. If a public sector organisation were to obtain financial advantage
by moderating the tax paid by a contractor, supplier or other counterparty, it would usually
mean that the Exchequer as a whole would be worse off - thus conflicting with the accounting
officer's duties (section 3.3). Thus artificial tax avoidance schemes should normally be
rejected. It should be standard practice to consult HMRC14 about transactions involving non-
standard approaches to tax before going ahead.
5.6.2 There is of course no problem with using tax advisers to help meet normal legitimate
requirements of carrying on public business. These include administration of VAT, PAYE
and NICs, where expert help can be useful and efficient.
5.6.3 Proposals to create new taxes in order to assign their proceeds to new spending
proposals are rarely acceptable. Decisions on tax are for Treasury ministers, who are reluctant
to compromise their future fiscal freedom to make decisions.

5.7 Public dividend capital

5.7.1 Certain public sector businesses, notably trading funds and certain Health Trusts, are set
up with public dividend capital (PDC) in lieu of equity. Like equity, PDC should be serviced,
though not necessarily at a constant rate.
5.7.2 PDC is not a soft option. In view of the risk it carries, it should deliver a rate of return
comparable to commercial equity investments carrying a similar level of risk. There is scope
for the return to vary to reflect market conditions and investment
patterns; but persistent underperformance against the agreed rate of return should not be
tolerated.
5.7.3 A department needs specific statutory power to issue PDC, together with supply cover
to pay it out of the Consolidated Fund. Sometimes instead of a specific issue of PDC, the
legislation establishing (or financially reconstructing) a public sector business deems an issue
of PDC to the new business. Dividends on PDC, and any repayments of PDC, are paid to the
sponsor department of the business.
5.7.4 Further information about the use of PDC can be found in Consolidated Budgeting
guidance.15

5.8 Borrowing by public sector organisations

5.8.1 Some public sector organisations, eg certain trading funds, are partly financed through
loans provided through the sponsor department's Estimate; or from the National Loans Fund
(NLF). In these cases Treasury consent and specific legal powers are always required. Limits
and other conditions are common. See annex 5.5 for
more.
5.8.2 NLF and Voted loans can only be made if there is reasonable expectation that the loan
will be serviced and repaid promptly. Similarly, when ALBS borrow, their sponsor
departments explicitly stand behind them and so should scrutinise borrowers'
creditworthiness, not just relying on their track records, in order to satisfy themselves that
such loans are sound. For NLF loans, if timely repayment could not realistically be expected,
the loan would be unlawful.
5.8.3 Should a department become aware of concerns about the security of outstanding loans
(either its own or an ALB's), it should warn the Treasury promptly and consider what action
it can take to reduce or otherwise mitigate any potential loss. If a loan becomes irrecoverable,
remedial treatment should be agreed with the Treasury and then notified to parliament.
5.8.4 The NLF cannot make a loss. So the interest rates charged on NLF loans, whether fixed
or variable, must be higher than the rates at which the NLF could raise funds for a similar
period. Early repayment is sometimes possible, eg if the borrower has windfall receipts, but
never simply to refinance on terms more favourable to the borrower because a fee is charged
to match the Exchequer costs when a loan ends early. This is because the NLF finances the
amount outstanding using money market instruments sold at the time the loan was made, and
must continue to service those instruments. So the Exchequer as a whole would make a loss if
the NLF offered cheaper replacement loans.
5.8.5 While NLF loans are repaid to the NLF, voted loans are repaid to the Consolidated
Fund. The treatment of repayments and interest payments in Estimates and accounts is
discussed in the Consolidated Budgeting Guidance, the Estimate Manual and the FREM. The
Treasury accounts for NLF transactions in the NLF's accounts. Any proposed write-offs must
be notified to parliament after obtaining Treasury agreement: see annex 5.5
5.9 External borrowing
5.9.1 Public sector organisations may borrow from private sector sources only if the
transaction delivers better value for money for the Exchequer as a whole. Because non-
government lenders face higher costs, in practice it is usually difficult to satisfy this condition
unless efficiency gains arise in the delivery of a project (eg PFI). Treasury agreement to any
such borrowing, including by ALBS, is also essential. Nevertheless it can sometimes be
expedient for public sector bodies to borrow short term, for example by overdraft.
5.9.2 When a sponsor department's ALB borrows, the department should normally arrange to
guarantee the loan to secure a fine rate. This is not always possible, eg when a guarantee
would rank as a state aid (see annex 4.7). A department which guarantees a loan normally16
needs a specific statutory power as well as Estimate provision. On exceptional occasions
temporary non-statutory loans may be possible. 5.9.3 The case for a guarantee should be
scrutinised as thoroughly as if indeed a loan were made. Since guarantees always entail
entering into contingent liabilities, parliament must be notified when a loan guarantee is
given, using the reporting procedures in annex 5.4.
5.9.4 Occasionally there is a case for an ALB to borrow in foreign currency in its own name
rather than the government's. Because this can affect the credit standing of the government as
a sovereign borrower, and may well cost more, it is essential to consult the Treasury
beforehand. The same principles apply to the borrowing of any bodies, such as subsidiaries,
for which a department's ALBS are responsible.

5.10 Multiple sources of funding

5.10.1 Sometimes public sector organisations derive funding from more than one source.
Examples of funding other than voted funds include national insurance contributions (which
are dedicated to the National Insurance Fund), lottery funding and charitable funding. All of
these alternatives usually come with specific conditions attached.
5.10.2 Organisations in this position should segregate and account separately for the different
streams of funding so that they can apply the relevant terms and conditions to each. In
particular, where a source of funding is designated to a particular purpose, it is rarely
appropriate to use another instead. In those circumstances switching is novel and contentious
and thus requires Treasury approval.
5.10.3 When there is doubt about how to handle multiple streams of funding, it is good
practice to consult the Treasury.

5.11 Cash management

5.11.1 The various organisations in central government together handle very large flows of
public funds. At the end of each working day, the Exchequer must either borrow from the
money market or place funds on deposit with the money market,
depending on the net position reached after balancing outflows to finance expenditure against
inflows from taxes and other sources.
5.11.2 So there is considerable advantage to be gained for the Exchequer as a whole by
minimising this net position. In practice this means gathering balances together at the end of
each working day. In aggregate all these accounts make up the Exchequer Pyramid, managed
by the Treasury. Most funds are held with the Government Banking Service.
5.11.3 It is essential for central government organisations to minimise the balances in their
own accounts with commercial banks. Were each to retain a significant sum in its own
account with such banks, the amount of net government borrowing outstanding on any given
day would be appreciably higher, adding to interest costs and hence worsening the fiscal
balance.
5.11.4 Each central government organisation should establish a policy for its use of banking
services. See annex 5.6 for guidance. Sponsor departments should also make sure that their
ALBS are aware of the importance of managing this aspect of their business efficiently and
effectively (see box 7.2).

5.12 Other financing techniques

5.12.1 Depending on its circumstances, purposes and risk profile, a public sector organisation
may consider using financial instruments provided by the commercial markets. Among these
techniques are foreign currency transactions and various hedging instruments designed to
control or limit business risks, for example those arising out of known requirements for
specific future purchases of market priced commodities. Mundane possibilities are use of
credit or debit cards, in order to secure faster settlements.
5.12.2 As with making decisions about other policies and projects, an organisation
considering using unfamiliar financing techniques should evaluate them carefully, especially
to assess value for money. The checklists in boxes 4.5 and 4.6 have reminders of factors that
may need to be considered. As such transaction(s) are almost always novel, contentious or
repercussive, it is essential to consult the Treasury.
5.12.3 Any organisation using a new or non-standard technique should ensure that it has the
competence to manage, control and track its use and any resulting financial exposures, which
may vary with time. In particular, departments should consult the Treasury before using
derivatives for the first time (and ALBs their sponsoring departments).
5.12.4 When assessing an unfamiliar financing technique, it is important to remember that
providers of finance and complex financial instruments intend to profit from their business.
And providers' costs of finance are always inferior to the UK government's cost of borrowing.
So it is usually right to be cautious about any novel techniques. The Treasury will always
refuse proposals to speculate. Offers which appear too good to be true usually are.
5.12.5 As with managing other business, parliament may ask accounting officers to justify
any decisions about use of financial transactions, especially if with hindsight they have not
achieved good value for money.
Finance glossary
Note: This glossary focuses in particular on financial terms relevant to the UK Government.
Accounting Officer
The senior official ultimately responsible for all spending of a government department or
arm's length body. The Accounting Officer for a government department is usually the
Permanent Secretary. The Accounting Officer must personally sign off the Annual Report
and Accounts of the body s/he has responsibility for, and may be called to appear before a
select committee to answer questions on financial management.
Accounts Direction
A written document instructing officials how to prepare accounts.
Accruals Accounting
A method of recording expenditure as it is incurred (i.e. when the activity which generates
the costs arises), and income as it is earned, rather than when cash is paid or received. This
method of accounting is now used in the UK throughout the public and private sectors (with
the exception of very small charities and businesses). In the public sector context it is also
sometimes known as 'Resource' accounting.UK Government Budgets (the DEL and AME
limits) are also set in accruals rather than cash terms, and although departments still have to
forecast cash movements, they are free to seek as high a cash requirement in their Estimates
as is necessary to support the accruals budgets allocated.
The principal advantage of accruals accounting over cash accounting (where cash movements
are all that is recorded) is that accruals accounting allows better financial management and
scrutiny by:
 matching expenditure in any period to revenues earned and obligations incurred in
that period; and
 matching the cost of assets to the period in which they are used or consumed, by
charging depreciation on them.
Administration budget
Budget limits controlling the resources set aside for the running costs (largely staff and
associated costs) of a government department, and which form part of its Resource
Departmental Expenditure Budget (DEL). Administration budgets are ring-fenced budgets,
set at the time of a Spending Review. The other part of the Resource DEL, outside of the
Administration Budget is referred to as programme expenditure. If the department's
administration budget is breached, the department's accounts will be qualified by the auditor
(see qualified accounts).