| 7. OTHER ISSUES |
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| Contingent Liabilities |
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| 7.1 A guarantee or indemnity
given by a Minister of the Crown is a legally enforceable undertaking. And,
a letter or general statement of comfort, while not necessarily giving rise
to a legal obligation, may nevertheless impose a moral obligation on the
Government. |
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| 7.2 At Westminster agreements
have been reached between the Government and the PAC which has established
conventions which ensure, as far as possible, that Parliament is not asked
to authorise the provision of funds to meet liabilities of which it has
not had reasonable notice and for which no justification has previously
been provided. |
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| 7.3 Where a non-statutory liability
could exceed £100,000, Parliament should be notified in accordance with
the procedure agreed with the PAC. After obtaining Treasury approval, a
Department which proposes to give a guarantee or indemnity must lay before
the House of Commons a minute describing the amount and duration of the
guarantee or indemnity and the body or bodies involved, and any other relevant
information. Members of Parliament have the opportunity to raise questions
and an undertaking cannot proceed until these have been answered. |
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| 7.4 FlAG has considered whether
an equivalent procedure is required for Scotland in the recognition that
the procedures described above relate to the procedures against the background
of cash accounting systems. The Group recognise that resource accounting
would mean, in future, that provision would have to be made in the accounts
for liabilities likely to mature. Nevertheless, FIAG recommends there
should be some constraint on the Executive's ability to enter into such
liabilities, and the Scottish Parliament may wish to consider a limit above
which prior approval must be sought It is also recommends that this limit
should be set considerably higher than the Westminster precedent - £lm might
be reasonable. |
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| Resource consequences of policy legislation |
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| 7.5 In paragraph 3.12 FlAG recommends
that, in order to be properly authorised, expenditure should have the backing
of both policy and budget legislation, i.e. Parliament should have approved
the powers to undertake the activity and a budget to cover its cost. |
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| 7.6 Frequently, however, the
passing of policy legislation will create unavoidable commitments to incur
additional expenditure in the future. This is especially likely where the
legislation creates new rights for the public. (Some legislation may of
course save money.) If the Parliament is to retain control of its overall
priorities going forward, it is desirable that there should be as good information
as possible about the probable resource consequences of policy legislation. |
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| 7.7 FIAG recommends that
standing orders should require the Executive to provide, for all legislative
proposals, as full a statement as possible on their resource implications,
including timescales and margins of uncertainty. The information should
also distinguishthe implications for local government and compliance costs.
This statement should be developed and scrutinised as part of the pre-legislative
process. |
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| 7.8 Amendments which opposition
or backbench members may wish to propose to policy legislation, may have
resource consequences in excess of the s intentions. It is for consideration
whether such amendments should be in order. In Westminster, if a bill creates
a charge on public funds, a Money Resolution will be required which needs
the approval of the Financial Secretary to the Treasury on behalf of the
Crown. This sets a limit to the expenditure that may be authorised under
the bill. Amendments which would have financial requirements going beyond
the Money Resolution are out of order and therefore cannot be voted on.
This is consistent with the long-established Westminster convention that
Parliament can refuse to allow the Executive to spend money but cannot make
the Executive spend money it has not asked for. |
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| 7.9 CSG will need to consider
whether it wishes to follow the Westminster approach in this respect or
whether it would wish to give Parliament more scope to initiate. As
a minimum, FIAG considers it essential that any opposition or backbench
amendments to policy bills having significant additional resource consequences
are subject to a special scrutiny procedure. |
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| Temporary spending power for the Executive |
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| 7.10 There is a requirement to
provide funding to meet sudden, unexpected needs. In most cases, this will
require additional expenditure on areas where spending already takes place.
For example, in the event of a natural disaster, it may be necessary to
supplement grants to a local authority, For this reason, FIAG recommends
that Parliament makes arrangements to set aside each year, a Reserve. This
would consist of money that will be held back to deal with any crises that
arise. |
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| 7.11 In addition to supplementing
existing activities in the event of unexpected need, there are occasions
when the Executive requires advances to tide it over in relation to urgent
matters which have yet to receive Parliamentary approval. The Treasury operates
a Contingencies Fund which enables repayable advances to be made to Departments
for such services in anticipation of later approval by Parliament. Repayment
must be made following the necessary Parliamentary authority - usually through
Supplementary Estimates in the same or following year. Issues from the Contingencies
Fund are subject to the limit set on the capital of the Fund by the Contingencies
Fund Act 1974. Under the Act, the maximum capital of the Fund is fixed at
2% of the total authorised expenditure in the preceding financial year. |
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7.12 FlAG has considered whether
the Scottish Parliament should be advised to establish a Contingencies Fund
and if so, how this might be operated. FlAG is clear that:
- the Parliament should make arrangements
for a Contingencies Fund to cope with the need to spend money on areas
where there is no authority for expenditure;
- normally, the Finance Committee (or
sub-committee/chair) should ratify Contingencies Fund expenditure in
advance (except during the recess); and
- the use of Contingencies Fund is to
be disclosed, even if the Scottish Parliament is in recess and a report
made to the Finance Committee as soon as possible.
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| 7.13 There should be no doubt
as to the distinction between the Reserve and the Contingencies Fund. The
Reserve is an unallocated part of the total Budget available. It may be
used as circumstances dictate. The Contingencies Fund is a more technical
concept, being a means of spending money in advance of formal parliamentary
approval. Use of the Contingencies Fund would still require budgetary "cover".
This might come from the Reserve. But equally it might come from reallocations
of existing Budget approvals. |
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| The Scottish Parliamentary Corporate Body |
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| 7.14 The Scottish Parliamentary
Corporate Body (SPCB) will oversee the administration of the Scottish Parliament.
The concept of the SPCB is derived, in part, from the House of Commons Commission,
which is established as a corporate body for the purposes of appointing
the Parliamentary staff and the corporate officers of the House of Commons
and House of Lords established by the Parliamentary Corporate Bodies Act
1992. The SPCB will carry out its functions under directions issued by the
Parliament and will have powers to appoint staff, hold or acquire property,
to enter into contracts on behalf of the Parliament and to provide any necessary
services. In short, it will be responsible for all aspects of the 'housekeeping'. |
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| 7.15 Section 21 of the Scotland
Act provides for the establishment, membership and functions of the (SPCB).
The membership of the corporate body consists of the Presiding Officer,
elected from among the MSPs, and 4 Members of the Parliament who will be
appointed in accordance with standing orders. The SPCB's main function is
to provide the Parliament with the property, staff and services required
for the Parliament's purposes. Expenses of the Corporation will be payable
out of the Scottish Consolidated Fund and receipts by the Corporation shall
be paid into the Fund. Therefore, the SPCB will be covered by the provisions
of section 70 of the Act, relating to financial control, accounts and audit.
However, the SPCB will not be caught by section 70(1)(e) in relation to
accountability, since this refers only to the Scottish Administration (which
does not include the SPCB). FIAG believes that it is in the
public interest that the Parliament designate an Accountable Officer in
respect of SPCB expenditure and so recommends. It is appropriate that the
senior officer of the SPCB (the Clerk) is appointed as the Accountable Officer,
and have the associated responsibilities. |
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| 7.16 FIAG recommends
that, in common with other Parliaments, there should be some special procedures
for determining how much money the Parliament spends on its own administration
and on public audit |
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| 7.17 The procedures need to recognise
that, in contrast with the Executive's own programmes, the Executive should
not be in the lead in proposing how much should be spent on parliamentary
oversight and scrutiny of its own activities, or on public audit. |
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| 7.18 The procedures need also
to discourage excessive spending by the Parliament on its own activities,
by giving the Executive an opportunity and a responsibility, to make its
views known on the Parliament's proposals and by requiring a separate vote
on these items of the Budget if there is disagreement between the Parliament
and the Executive on what an appropriate level of expenditure would be. |
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| 7.19 A possible way of handling
this within the budget procedure might be: |
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| Stage 1: The Executive's forward
planning figures would include working assumptions about parliamentary
and public audit expenditure. The Parliament would have the opportunity
to comment as part of the discussion on priorities. |
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| Stage 2: The Executive's preliminary
draft budget would again include working assumptions. The Parliament would
be able to make its own proposals. |
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| Stage 3: In contrast with the
procedure for expenditures by the Executive, the Executive would be
obliged to incorporate the Parliament's own proposals for its own expenditure
and for public audit within its detailed budget proposals. If
however the Executive believes that these items of expenditure should be
set at different levels, it will say so in a suitable memorandum and will
indicate what it believes the different levels should be. The Parliament
will then decide between its own earlier proposals and the levels preferred
by the Executive in a separate vote before the main budget vote. |
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| 7.20 A procedure on these lines
would respect the respective rights and responsibilities of the Parliament
itself and the Executive within a framework of transparency. The Executive
would not be in the position of determining the Parliament's expenditure
on its own activities and on public audit. But the possibility of a specific
vote, and the attendant publicity, should act in practice as a helpful restraining
influence in the Parliament's own proposals. |
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| Monitoring and control of administrative expenditure |
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| 7.21 Under Westminster arrangements,
expenditure on administration is controlled through a running cost limit
agreed with Treasury for the whole of the Scottish Block. Running costs
are separately identified on the face of the relevant Votes, but control
of running costs within Votes is an administrative function exercised by
the Treasury. In broad terms, all expenditure on administration, whether
related to programme activities or not, is classified as running costs and
subject to strict limits at the Block level. Currently there is an overall
administration budget for the core Departments of The Scottish Office (e.g.
the Development Department). Running costs are allocated from this budget
to each individual Department. Different arrangements are in place for Associated
Departments (such as the General Register Office for Scotland) and Executive
Agencies of The Scottish Office. (Executive Agencies are discrete business
units which carry out specific functions on behalf of the Secretary of State.
Each one is "parented" by one of the core Departments.) Associated
Department and Executive Agency running costs are separately identified
on the face of the relevant Votesand transfers of running costs between
these Votes, or The Scottish Office Administration Vote, require budget
amendments. |
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| 7.22 FlAG does not consider there
is a need to continue with a system whereby a specific limit is placed on
the overall level of expenditure on administration. The recommendations
for Parliamentary scrutiny of the Executive's budget proposals made elsewhere
in this report are equally applicable to administrative expenditure, and
a further tier of control would be unnecessary. The recommended system will
provide Parliament with more opportunity to scrutinise the Executive's planned
spending on administration than under current arrangements. However, FlAG
recognises the need for the Executive to have some flexibility to deal with
changing pressures in-year, particularly between core Departments. For this
reason, FlAG considers that provision for administrative expenditure for
all core Departments should be contained within a single budget. This would
allow the Executive discretion to determine how best to allocate this budget
between Departments. Once agreed by Parliament, the budget could only be
changed through formal budget amendment procedures or by the application
of receipts in excess of the budget forecast. (FlAG recommends a different
approach when dealing with the administrative expenditure of Associated
Departments and Executive Agencies - see paragraph 7.25.) |
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| 7.23 However, FlAG considers
that the Parliament should be able to scrutinise individual Department's
budget proposals for, and actual spending on, administration. The proposed
administration budget should therefore show the planned spending on administration
for each Department, as far as it is practical to apportion these costs.
Similarly, each Department's budget document should show its planned spending
on administration. This disaggregation should be for illustrative purposes
only, with control operating at the level of the overall administration
budget. Reporting of expenditure should also be at the Departmental level. |
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7.24 In summary, FlAG recommends
that:
- a single administration budget should
be established for all core Departments' expenditure on administration;
and
- for information purposes, administration
expenditure should be disaggregated as far as possible to individual
Departments, with planned and actual expenditure shown in their budgeting
and reporting documents.
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| 7.25 FlAG considers that different
arrangements are required for Associated Departments and Executive Agencies.
Under the present system, Associated Departments' administration costs are
identified in their own budget and Executive Agencies' administration costs
are identified within their "parent" Department's budget. Given
that these bodies have executive responsibilities and operate under a framework
which requires them to produce corporate plans and to report on and review
their operations at a detailed level, FlAG does not consider it would make
sense for these bodies' administration budgets to be aggregated with those
of core Departments. Rather, FlAG considers it would be appropriate for
these bodies each to have a single budget for all categories of expenditure. |
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| 7.26 However, in order that the
Parliament is able to scrutinise their planned expenditure and past performance,
the budget document should show planned expenditure on |
| administration separately from
other categories of planned spending. Budget proposals should include unit
cost information and other appropriate performance indicators relating to
planned expenditure on administration. Reporting information should be provided
on the same basis. |
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| 7.27 Consistent with proposals
for Executive discretion contained elsewhere in this report, FlAG considers
that Executive Agencies and Associated Departments should have the flexibility
to switch resources in-year between different budget headings within their
overall budget. Budget switching should be restricted consistent with the
general recommendations in this report (up to 15% of the receiving subhead
or £50 million, whichever is the lesser). FlAG also considers that
the same principles on the use of receipts should apply to administration
as with any other budget heading, namely that current receipts raised in
excess of those forecast (ie because of increased activity) may be retained
by the body and used to finance new spending on administration or on any
other category of expenditure. |
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7.28 In summary, FlAG recommends
that:
- distinct business units such as Executive
Agencies should have a discrete budget, with the Chief Officer of the
body being accountable to Parliament for that budget;
- Executive Agencies and Associated Departments
should have the discretion to manage their budgets within the overall
limit agreed by Parliament, subject to the general rules adopted for
switching resources within a budget; and
- these bodies should, in principle,
be able to retain excess current receipts and use these to finance any
new expenditure, including expenditure on administration.
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| 7.29 FlAG recognises that within
the overall arrangements recommended for expenditure on administration,
the Executive may wish to impose additional internal rules and control systems.
In particular, FlAG notes that the Executive may wish to introduce specific
restrictions on the use of excess receipts, and may wish to place additional
restrictions on budget switching in the case of Executive Agencies which
administer large amounts of programme expenditure. |
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| 7.30 In addition, FlAG notes
that two Executive Agencies, Registers of Scotland (RoS) and the Scottish
Agricultural Science Agency, are currently operating under different arrangements
from the rest. RoS operates as a Trading Fund and SASA operates under net
running cost arrangements. FlAG considers that the detailed arrangements
for these particular organisations are primarily a matter for the Executive
to consider, but notes the possibility that the arrangements recommended
for other Executive Agencies may not be practical for these two. |
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| 7.31 FIAG recommends that
the Executive brings forward detailed proposals for internal controls over
expenditure on administration, and that these are reported to Parliament
along with the Executive's proposals for use of delegations. |
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| Detailed oversight of financial procedures |
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| 7.32 At the UK level, the relationship
between Parliament, Treasury and the Executive regarding detailed financial
procedures is set out in a detailed manual entitled Government Accounting.
This has been developed and has become established over the years. The advice
it contains extends over a wide spectrum. At one end it covers important
matters of constitutional propriety, such as the 1932 Concordat between
the Public Accounts Committee and the Treasury, which deals with the need
for continuing functions exercised by Departments to be covered by specific
statutory authority. It also includes other procedures which have been agreed
with the Public Accounts Committee, for example for notifying Parliament
of proposals to enter into contingent liabilities. |
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| 7.33 At the other end of the
spectrum, it covers guidance on accounting systems and operating procedures
of common application, which are in the interests of good administration
and Departments are required to take such guidance into account in developing
their systems. (Government Accounting is currently being revised.) |
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| 7.34 In addition to Government
Accounting, separate guidance is contained in The Scottish Office Finance
Manual. This builds on Government Accounting and provides guidance on the
operation of the financial procedures used in The Scottish Office. |
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| 7.35 The issue for FlAG, is the
extent to which Parliament should be involved in developing such guidance,
or whether this might be delegated to the Finance Department (or equivalent)
to develop, against the background of the broad principles which FlAG has
recommended throughout this Report. |
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| 7.36 In any event considerable
work will have to take place to revise the current Government Accounting
both to take account of the new financial arrangements to be put in place
following devolution, and also to take account of the development of resource
accounting and budgeting. |
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| 7.37 FIAG believes it is
probably not necessary for the Parliament to be burdened by the development
or approval of the detailed guidance at a time when ft will be pressed in
relation to deciding its higher level principles. However, the Audit Committee
should receive copies of all guidance on which it could comment and amend
should it choose. In addition, the Audit Committee could also initiate the
development of guidance in relation to matters of concern or good practice. |
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| MSP Training |
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| 7.38 While it is possible that
some MSPs will be familiar with public financial management, many will not
have this level of knowledge. Since the scrutiny of public expenditure will
be a key task for all MSPs, there is a need to ensure that they have the
opportunity to learn the skills needed for this task. |
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| 7.39 FlAG therefore recommends
that the SPCB develops a financial briefing package which will enable new
MSPs to gain quickly a thorough understanding of how the Parliament's financial
affairs are likely to be managed. |
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