Report of the Consultative Steering Group on the Scottish Parliament

LIST OF FIAG'S RECOMMENDATIONS

Terminology

1. In future, Government accounting should use simple language and community understood terms.

BUDGETARY PROCEDURES

2. The Scottish Parliament should adopt an annual procedure to scrutinise and approve the expenditure proposals of the Executive.

Committees

3. The Scottish Parliament should use a structure based on 3 Committee types. These are: Subject Committee, the Finance Committee and the Audit Committee.

Parliamentary Consideration

4. The whole Parliament should have the opportunity to scrutinise Budget Proposals and Budget amendments. The Subject and Finance Committee might also play an important role in scrutiny of the Executive's main budget proposals prior to consideration by the Plenary.

5. It should also be open to members to use forms of questions or enquiries although it is acknowledged that this is probably more effective in calling the Government to account in relation to policy questions than for specialised financial scrutiny.

Parliamentary controls through budget procedures

6. The Scottish Parliament should adopt broad principles as follows:

budget approval should be by way of primary legislation; there should be no expenditure without appropriation legislation; revised budgets are produced to reflect adjustments; no undue reliance on Budget approvals for providing underlying powers to undertake functions; an absolute (cash) limit to spending; annuality of agreed budget sums (but with arrangements to provide sensible carry forward); separate authority needed for overspends; emergency spending subject to Parliament's authority; no release of funds without legislative authority; and Parliamentary authority is required to apply receipts.

7. There should be a presumption that the flexibility to carry forward savings from one financial year to another should be passed to programme managers in order to influence management behaviour.

8. FIAG supports a regime (approved by the Parliament) which enables programme managers to retain current receipts to add to programme expenditure. A procedure will be required to decide which receipts should be available to sustain increased expenditure and which should be surrendered. Capital receipts above certain limits to be decided should be controlled.

Three Stage Framework

9. FIAG recommends a 3 Stage framework for budgeting approval:

Stage 1 _ A discussion of future strategy and priorities with public input through subject Committees. Debate to be supported by the Executive's publication of an annual report by 20 April setting out budget proposals for the year immediately ahead and provisional plans for two further years. The report should also cover policy objectives and some assessment of performance against past objectives. Stage 2 - Consideration of draft budget proposals by the Executive taking account of the outcome of Committees' considerations at Stage 1. Parliament would have the option of proposing an alternative budget, not involving more money in total than the Executive's proposals. This would not be binding on the Executive. Stage 3 - Consideration of the Executive's final budget proposals leading to approval or rejection by the Parliament by the start of the financial year.

Budget Documentation

10. Budgets are formal procedures but are nevertheless necessary in terms of securing the Parliament's formal authority for expenditure and as a means for checking the regularity of payments, etc.

11. Budgets should follow the internal structure of the Scottish Administration and hence align with Accountable Officer responsibilities.

12. The ambit is a useful concept and should be retained. However, FIAG recommends that this part of a Budget should be known as its "Scope" as this is a term which is more commonly understood.

13. The Budget spending proposals should cover all expenditure by the Executive which the Parliament has to approve, rather than all public expenditure in Scotland.

14. These proposals should also include, after consultation with the Parliament, expenditure which the Parliament has to approve but is not formally for the Executive to propose - notably expenditure by the Parliament itself and expenditure on judges' salaries.

15. The Executive should also report to the Parliament on the levels or expected levels of other public expenditure in Scotland, including expenditure decisions by local authorities, expenditure by Parliament and judges' salaries.

16. Each Budget proposal should be accompanied by a narrative (ie a financial memorandum) explaining the objectives which would set out proposed outputs and expected outcomes.

17. Budgets should be disaggregated to a lower level than that required by the Parliament for the purposes of financial control.

Interim spending approval

18. The Scottish Parliament should be invited to adopt an interim budget approval procedure to be used if the Parliament did not formally approve the Budget before the start of the financial year.

In-year changes

19. The Parliament should adopt arrangements that balance in-year flexibility for managers with Parliamentary control.

20. Budget amendments should:

be simpler to understand; provide more opportunities to present Budget amendments to Parliament if required; provide monitoring information in relation to expenditure; and provide better dovetailing between control mechanisms and statutory approvals.

Executive discretion in relation to in-year changes

21. The Executive should be allowed reasonable discretion to transfer funds with appropriate internal controls but they should be subject to the Parliament being informed of transfers on a regular basis and not just when accounts are prepared as now.

22. Budget transfers should be allowed between sections or subheads of a Departmental Budget but not between Departmental Budgets.

23. Departments should be allowed to automatically transfer up to 15% of receiving subheads or £50m whichever is the lesser.

24. The system for budget transfers should be reviewed in 2002.

Primary versus Secondary Legislation

25. FIAG recommends Standing Orders are developed to enable financial legislation to be passed more quickly than is normally the case eg by limiting opportunities for non-Government amendments.

26. In addition:

the Executive should give as much information as early as possible on proposals for use of the tax varying power; amendments by MSPs should be restricted to expenditure proposals (and should not include revenue or taxes); budget approval should be made using primary legislation; and in the event of Parliament rejecting the entire budget, fresh proposals must be brought forward before the expiry of the interim spending approval.

ACCOUNTING ARRANGEMENTS

27. The Scottish Parliament should adopt resource accounting and budgeting.

28. Resource budgeting should be implemented one year earlier than the Whitehall model as far as is practicable.

29. The Scottish Administration should provide a clear explanation, perhaps in a supporting memorandum of how the numbers in accounts differ from those that would have appeared in the old style cash accounts and how they relate to the (cash) sum paid into the Scottish Consolidated Fund by the UK Government.

Style and presentation of accounts

30. Accounts should be produced to cover all Government expenditure in Scotland.

31. In addition, separate work should be undertaken to distil these into more accessible versions.

32. A comparison with the previous financial year should be provided. This should be wide-ranging and cover financial and performance information.

33. Performance reporting will be an important part of resource accounting; and annual reports should be important. These should set out overall commentary on:

the overall budget strategy; the nature and objectives of each main programme; the outturns in previous years, including assessments of output and performance against objectives as well as financial outturns; the plans for the year ahead, as approved by Parliament; and the provisional plans for the two subsequent years.

34. FIAG recommends that separate volumes should be issued for each of the Executive's spending Departments.

Timing issues

35. The Scottish Parliament should set a statutory deadline of 31 December by which the preceding year's accounts must be published. Departments and the Auditor General might be invited to make progress against a target.

36. Executive Agency and (Scottish) Departmental Resource Accounts should be produced at the earlier possible date, ahead of the Consolidated Resource Account.

37. An interim report should be provided to the Parliament in May containing performance management information in relation to the financial year which will have just drawn to a close. The intention is that this information would inform the Scottish Parliament's consideration of resource allocation decisions throughout the early summer. This could be incorporated into the Annual Report that sets out the Executive's budget plans for the financial year ahead.

ACCOUNTABILITY

38. The Scottish Parliament should set up a similar system to that of "Accounting Officers" as used at by the UK Parliament. Senior officials within the Scottish Administration should be designated as "Accountable Officers". This term reflects more accurately the role such individuals would have in being accountable to the Parliament for the actions of the Scottish Administration. (Although the term "Accounting Officer" is well understood in Government circles it tends to indicate a more specialist financial role and is hence somewhat misleading to the lay person.) FIAG recommends that the head of the Scottish Administration is automatically designated as Principal Accountable Officer on appointment. He or she should then be responsible for appointing other Accountable Officers throughout the rest of the Administration. These officials could then be required to account for the actions of the Administration both to the Audit Committee and to any subject Committee considering a value for money report produced by the AGS.

39. FIAG recommends a mechanism whereby Committees are able to liaise with the Administration to ensure that, in addition to or instead of the Accountable Officer concerned, other relevant officials can be called to give evidence.

40. The system of accountability should be seen as a way of promoting a free flow of information between Parliament and the Administration and the sharing of good practice should be an integral part of the process.

AUDIT ARRANGEMENTS

Role of Committees in relation to audit

41. Vfm issues should be dealt with by the Audit Committee, on Subject Committee or a combination of the two as is appropriate.

42. The Auditor General should co-ordinate the programme and (as set out in statute), consult as appropriate.

43. Recommendations of Committee should not be binding on the Executive but the Executive should be required to publish a response within a specified timescale (FIAG recommends two months) and should be required to report progress on the actions that have been agreed.

Statutory audit of financial statements

44. The Scottish Parliament should be invited to set out in statute equivalent arrangements (to those at Westminster) for the audit of financial statements, together with a timetable for their presentation.

Audit of Regularity and Propriety

45. The Scottish Parliament should be invited to set out in statute a role for the Auditor General for Scotland in examining issues of regularity and propriety in public expenditure.

Performance Management

46. The auditor's new role should include the validation of performance measures within the context of financial audit and vfm work.

47. Auditors should be entitled to comment whether indicators that have been set are appropriate and complete in relation to policy objectives but they should not set indicators.

Audit Approach

48. The AGS should be invited to continue the development of good practice in public audit in Scotland.

Rights of access

49. The Scottish Parliament should be invited to legislate to afford the AGS an explicit right to require explanation as well as the right of access to documents of the Scottish Administration.

50. Existing audit arrangements for public bodies receiving grants from Ministers should be made more consistent by making the AGS or his appointee the statutory auditor for executive NDPBs, where this is within the competence of the Scottish Parliament.

51. There should be a statutory right of access for the AGS to all public bodies receiving funds directly or indirectly from the Scottish Consolidated Fund including public sector companies, with the exception of local authorities for whom separate arrangements should continue to apply.

52. Legislation should provide a consistent statutory right of access to the AGS to all local spending bodies, subject to any body being significantly dependent for its income from public funds or statutory levies.

53. When access to the records of contractors is required, this should be agreed during contract negotiations.

Delivery of audit functions

54. The Parliament should continue an audit arrangement which integrates financial audit and VFM.

55. The current staff of NAO in Scotland and the Accounts Commission should be merged to form one audit delivery agency, Audit Scotland.

56. The Auditor General's role should encompass the responsibilities of the Chief Executive of Audit Scotland.

57. There should be safeguards to protect the legitimate and distinctive interest of the Accounts Commission and the Controller of Audit.

58. There should be a single central support service unit, separate from Audit Scotland, reporting to the AGS, the Accounts Commission and the Controller of Audit. Either party would be able to withdraw from this arrangement if they had concerns about the unit's independence or effectiveness.

59. FIAG recommends a working group to look at the issues involving in setting up Audit Scotland. The early appointment of the AGS would help this process.

Appointment of the Auditor General for Scotland

60. The AGS should be appointed as early as possible.

61. Recruitment should be through open competition.

62. The criteria to be used in selecting the candidates should be published and should be included in the advertisement and particulars of the post.

63. A panel should be appointed to deal with the matter. It should be chaired by the Presiding Officer, who will appoint the other members of the panel having regard to overall party mix. The panel should include the respective chairs of the Public Accounts Commission and the Audit Committee. The Parliament should consider whether to include in its arrangements for the appointment of independent assessors to the panel.

64. Selection procedures should reflect Nolan principles.

65. The Parliament should set a salary for the AGS that is commensurate with similar posts elsewhere in the UK.

Public Accounts Commission

66. There should be a Public Accounts Commission, which would consist of Members of the Scottish Parliament. It would have commissioning and funding responsibilities in relation to public accounts.

OTHER ISSUES

Contingent Liabilities

67. There should be a constraint on the Executive's ability to enter into contingent liabilities, and the Scottish Parliament may wish to consider a limit, above which prior approval must be sought. It should be considerably higher than Westminster precedent.

Resource consequences of policy legislation

68. There should be standing orders that would 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 distinguish the implications for local government and compliance costs. This statement should be developed and scrutinised as part of the pre-legislative process.

69. Any opposition or backbench amendments to policy Bills having significant additional resource consequences should be subject to a special scrutiny procedure.

Temporary spending power of the Executive

70. Parliament should make 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.

71. 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. The Parliament's fixed budget is distinct from the arrangement at Westminster, and therefore, the Scottish Executive should be limited in the amount of advance it can access and also the time it has to report to Parliament and secure approval.

72. Normally, the Finance Committee (or sub-Committee/chair) should ratify Contingencies Fund expenditure in advance (except during the recess).

73. 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.

Scottish Parliamentary Corporate Body

74. FIAG believes that it is in the public interest that the Parliament designate an Accountable Officer in respect of the SPCB expenditure.

75. 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.

Monitoring and control of administrative expenditure

76. A single administration budget should be established for all core Departments' expenditure or administration.

77. 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 arrangements.

78. Distinct business units, such as Executive Agencies, should have a discrete budget with the Chief Officer of the body concerned being accountable to the Parliament for that budget. These organisations should have the discretion to manage their budget within the overall limits set by Parliament, subject to the general rules for switching resources within a budget. They should in principle be able to retain excess current receipts and use these to finance any new expenditure, including expenditure on administration.

79. The Executive should bring forward detailed proposals for internal controls over expenditure on administration, and these should be reported to Parliament along with the Executive's proposals for the use of delegations.

Detailed oversight of financial procedures

80. FIAG recommends detailed guidance is developed on financial procedures. However, normally it should not be necessary for the Parliament to be burdened with this. The Audit Committee should nevertheless receive copies of all guidance on which it could comment/amend if it chose.

MSP Training

81. FIAG recommends the SPCB develops a financial briefing package which will enable new MSPs quickly to gain a thorough understanding of how the Parliament's financial affairs are likely to be managed.