Foreword

About this document

i. This document updates the versión published in 2007. Like the origina, 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 fot the public sector to word 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 responsibilies, using new tecnology and adopting good
bussiness and its public servants to meet the ethical standards in this document and to opérate
transparently.

iv. As before, the main text of the documents is intended to be timeless. The Treasury will revise
the annexes from tie to time as the need arises. All the text is available freely on the [Link]
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 behalt 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; butare able to do so only where parliament grants the right to raise,
commit and spend resources. It falls to the Treasury to respet 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
servives 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 servies
Honesty impartiality openness accountability accuracy
Fairnes integrity transparency objectivity reliability
Carried out
In the spirit of, as well as to 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 Code applying 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 [Link]
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 [Link]:
 determines the policies of the departmental group;
 chairs the departmental board;
 allocates responsibilities among the ministers in the department;
 choose which áreas 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 miniter 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 Code 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 áreas 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 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 procedes. 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 [Link]

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 áreas. 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 toaccount 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 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
Standars(IFRS) to take account of the public sector context;
 Sets Accounts Directions for the different kinds of central government organisation whose accounts
are laid in parliament; and
 May also work through the Cabinet Office to set certain standards applicable acroos central
government, for example functional standards

3 [Link]
4 See the Consolidated Budgeting Guidance for more-
[Link]
 5 See Functional Standards – [Link] ([Link]).

1.5 Departments

1.5.1 Within the standards expected by parliament, and subject to the overall control and direction of their
ministers, depatments 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, tocontrol and account for the department´s businness.

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 setion 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 privide 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 impartialadvice. Should they be asked
to carry out duties which appear incompatible with this obligation, the accounting officer should take up with
the minister concerned (see also the Civil Service Code)

1.5.5 Departments often opérate with and through a variety of partners to deliver their ministers´ policies. It
is important that these relationships opérate 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 beeb used in practice. Further information
about the role of the NAO is avaiable on their website 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 propely prepared and are free of material
misstatements, and
- Confirmation that the undelying transactions have appropriate parliamentary authority;
 Value for money reports assessing the economy, efficiency and effectiveness which public
money has beeb deployed in selected áreas of public business. A programme of these
reviews covers a variety

6 It there is a change of AccountingOfficer 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.

7 [Link]

8 The NAO website address is [Link]

9 See Practice Note 10 of the Audit Practices Board on the FRC website at [Link]

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).

1 See section 5.3

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.

2 Delegations to ALBs should never be greater than the delegated limits agreed between the Treasury and
the sponsor department.

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

3 Through the Major Projects Authority, [[Link]

authority), using powers delegated by the Treasury
4 [Link]

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.

5 A more detailed description of value for money is at annex 4.4

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

TOAEnquiries@[Link] 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 [Link]. 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.

1 [Link]
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

2 [Link]/government/publications/accounting-officer-assessments

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 [Link] 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

3 [Link]
departmentsfor
both the code and the good practice guidance

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 [Link]

5 [Link]

 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

6 Eg ALBs should insure vehicles where the Road Traffic Act requires it

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 and/or standard
contracts to drive down prices.
 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.

7 Eg where private sector contractors take out single-site insurance policies because they are cheaper than
each individual party insuring themselves separately.

8 See annex 4.5.

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).

9 [Link]

10 [Link]

11 Eg Freedom of information act 2000, Data protection act 1998, Environment information regulations 2004
and the Re-use of public sector information regulations 2005.

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.

12 le has breached the Concordat - see annex 2.3

13 Under the Concordat

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

14 HMRC customer relationship manager or customer co-ordinator

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

15 [Link]

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,

16 The Concordat applies here in just the same way as to spending - see annex 2.3

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' [Link] 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).