Governance

1. Governance

2. Governance • By the end of this session, you will have a better appreciation of financial governance including in particular: • Standards of conduct and behaviour • The concepts of regularity and propriety • MoD governance responsibilities and delegation • Novel or contentious issues And will have had a chance to see and discuss how these concepts operate in practice

4. The Seven Principles of Public Life • Selflessness • Integrity • Objectivity • Accountability • Openness • Honesty • Leadership (First Report of the Committee on Standards in Public Life – 1995)

5. Regularity and Propriety • Regularity – resource consumption should accord with the relevant legislation, the relevant delegated authority and Managing Public Money (Compliance with appropriate authority) • Propriety – patterns of resource consumption should respect Parliament’s intentions, conventions and control procedures, including any laid down by the Public Accounts Committee (Standards of conduct, behaviour and governance)

6. The characteristics of proper behaviour • It follows the rules and seeks approval where this is required • It puts in place and follows clear procedures • It resolves any conflict of interests • It does not use public money for private benefit • It is even-handed • There are records • It is transparent – it can accept scrutiny

7. Seven tests of propriety • Is the expenditure in the best interest of your organisation? • Does the expenditure comply with approved procurement rules and policies? • Will there be a valid business benefit to the organisation from the expenditure and not just personal benefit to an employee? • Is the expenditure within approved budget? • Is the expenditure necessary? • Is the expenditure reasonable, meaning, does it fully meet the identified and agreed needs? • Has the expenditure been properly authorised?

8. HM Treasury • “Parliament expects the Treasury to control all other Departments in matters of finance and public expenditure” • “Parliament looks to the Treasury to make sure that: • Departments use their powers only as it (Parliament) has intended, and • Revenue is raised, and the resources so raised spent, only within the agreed limits.” Managing Public Money

9. Delegations to MoD No expenditure may be incurred by the MOD or its Agencies without the approval of the Treasury. To remove the need to seek Treasury approval for every new financial commitment, the Treasury has agreed certain levels and categories of expenditure within which the Department may normally incur commitments without reference to the Treasury, provided these costs can be met from within existing budgetary limits. (JSP 462 Chapter 3)

10. Delegations to MOD There are no circumstances where it is appropriate to incur expenditure which may conflict with legislation (including European legislation which may cover some of our activities) and the spirit of legislation, Treasury guidance (including Managing Public Money which is a key source setting out the general principles associated with delegations), or which is novel, contentious or repercussive. Only the Treasury… may approve expenditure which is novel, contentious or repercussive, or in some other way at odds with its guidance. No expenditure may be incurred which is illegal. Similarly, expenditure must not be incurred if the TLBH holds insufficient funding to meet the spending commitment – even if the expenditure is within his delegated authority. (JSP 462 Chapter 3)

11. Novel or Contentious? Novel expenditure is on goods and services not previously supplied or purchased, for which MoD has no funding authority, or for which there are no existing rules to suggest the proper course of action. Contentious expenditure does not constitute value for money and/or is likely to cause public or political controversy or repercussions for others such as other departments. (JSP 462 Chapter 18)

12. Public Accounts Committee • “The (Public Accounts) Committee’s role is to hold the Government to account for the stewardship of all public funds and assets and the achievement of propriety and value for money in Government spending” • “Parliament’s intention when authorising expenditure is that the funds should be managed with impartiality, honesty, the avoidance of personal gain, waste and extravagance” • “There is no reason why a proper concern for the sensible conduct of public business and care for the honest handling of public money should not be combined with effective programmes for promoting economy and efficiency”

13. Public Accounts Committee • MOD needs a more robust approach to engagement with the NAO and PAC • 2* sponsors of NAO VFM studies. 1* subject matter experts. • Make sure that the facts are right • Challenge NAO conclusions/inferences if we disagree with them • Make sure the corporate MOD view is adequately reflected in reports • Senior Responsible Owners (SROs) can expect to be held to account by the PAC

14. The Accounting Officer • Jon Thompson is MoD Accounting Officer • “…someone who may be called to account in Parliament for the stewardship of the resources within the organisation’s control” • Regularity and propriety • Selection and appraisal of programmes and projects • Value for money • Management of opportunity and risk • Learning from experience • Accurate accounting • Supported by DG Finance (David Williams) – Process Owner for Financial Management • Ministerial Directions – Repatriation of hostage bodies, Basra memorial wall dedication, Remploy contract, Armed Forces Memorial. Unaffordable or unfeasible expenditure requires a Direction. No directions since May 2010.

15. Directors of Resources • One for each Top Level Budget – mainly 2* level • Answerable jointly to TLB holder and DG Finance • Advise TLB holder on the most efficient management of resources • Ensure finance and accounting processes and systems are operating effectively • Issue instructions and guidance to finance staff • Ensure finance staff have the necessary skills • Ensure TLB is managed in accordance with Managing Public Money with particular regard to regularity and propriety

16. Delegation • Delegations are personal and derive ultimately from PUS • Everyone exercising delegated financial powers is accountable eventually to PUS • All finance staff have a line of responsibility to their D Res • Automatically outside delegated authority if: • Novel or contentious • Cannot be contained within control totals • The Budget Manager does not concur

17. “This might look bad….” • Parties/entertainment of any type - Christmas, celebration (25th anniversary of RNSTS) • Christmas cards and decorations • Acceptance of hospitality and gifts – tickets to sporting events; opportunities for lobbying at social events. “Might reasonably be seen to compromise their personal judgement or integrity” • Government Procurement Card – a good thing or not? Issues – Wasting taxpayers’ money. “Jollification” at the taxpayer’s expense. Transparency. Compliance with Bribery Act 2010 and Constitutional Reform and Governance Act 2010.

18. Conflicts of interest and loyalty • Trusteeships and outside appointments • Service Museums/War Graves Commission – part of MOD or independent charities? • Targeting contractors for support for non-public bodies. Sponsorship. • Non-competitive award of grants and grants-in-aid. Issues – Lack of transparency. Failure to separate public and non-public funds. Suspicion of undue influence. Lack of effective control over arms length bodies.

19. Acting outside MOD authority • Underwriting pension deficits and redundancy costs • Failure to obtain indemnities/insurance for non-core activity. Risk remains with MOD. • Issuing guarantees to contractors • Tax avoidance Issues – Liabilities not authorised by Treasury/Parliament. Financial risk assumed by MOD with no means of covering that risk. Cost savings which end up costing more in the long run – poor value for money.

20. Non-core or borderline activity • Support for defence exports • Project Bloodhound – use of MOD assets and manpower • Memorials • Non MOD organisations on MOD property – Highlanders Museum • Orang utans Issues – Using taxpayers’ money for non-public benefit or for non-defence purposes. Need to record expenditure or failure to charge as a gift or subsidy.

21. Giving stuff away for nothing or too cheaply • Gifts of equipment • Military support to other Govt Departments – RAF flights, supplies, use of Service manpower • Subsidising OGDs and non-core business • Use of Defence estate without proper authority and charging Issues – Failure to get a proper return on assets funded by the taxpayer. Failure to recover the full costs due to MOD and therefore subsidizing other Govt Depts. Compromising MOD’s Spending Review position.

22. Inadequate audit trails, records and controls • Encroachments • Government Procurement Card • Control mechanisms in MOD IT systems compromised to save cost – increased risk of financial loss (T&S/Overtime fraud) • Misuse of personal payments systems Issues – Lack of transparency; lack of control; failure to withstand scrutiny

23. Friday afternoon cases • Sunken treasure • The £250,000 door stop

24. Key Questions • Could I (or PUS) defend this before the PAC? • Could I (or PUS) defend this action in public?

25. Don’t bend or break the rules Don’t deceive or knowingly mislead Don’t allow a conflict of interest to affect, or appear to affect, decisions Don’t use public money for private benefit or for others Do comply with the rules Do put in place and follow clear and up to date procedures Do seek approval, if needed, first from the right person Do record the reasons for decisions Be honest, impartial and even-handed Dos and Don’ts