Spent force? Resource accounting and budgeting (RAB) was designed to bring the benefits of commercial accounting to the public sector. Five years on, Bill Aiken reviews progress and warns of a potential lost opportunity: the chance to focus on managing resources to deliver outputs.
As the 2004 strategic review wends its way through the committee stage, it's an appropriate time to compare progress against the government's original vision for resource accounting and budgeting (RAB) and assess whether this could be improved. To put this in context, we are talking about an annual spend of 500 billion [pounds sterling], with assets currently valued at 334 billion [pounds sterling].
We need to consider what RAB is supposed to achieve (ie, the three tenets of an RAB approach); how far the UK has moved towards this vision; the problems that have been faced; how other countries have fared; what remains to be done; what the imperative is to continue; and the benefits we could realise if we see it through.
In 1998 the Treasury produced a paper called "Resource accounting and budgeting: a short guide to the financial reforms". It spoke of the full implementation of RAB by 2001-02 and described three significant improvements that were needed:
* The full economic costs of government activities would be measured properly, capturing all cash and non-cash costs on an accruals basis.
* The planning and management of capital assets would be conducted properly.
* Departments would report on how resources were allocated to objectives.
The paper envisaged that these improvements would create the following:
* better management information;
* better decision-making on the allocation of resources;
* better management of working capital;
* an opportunity to focus more on outputs and outcomes;
* a link to objectives and performance;
* a more strategic approach to managing public expenditure;
The document cited precedents in New Zealand and Australia, the US and Canada, and other countries in Europe.
So how successful has the implementation of RAB been against these objectives? Fast forward to the end of last year, when the National Audit Office (NAO) produced the paper "Managing resources to deliver better public services". This report adopts a positive approach to its review and highlights best practice in a few organisations. It is worth looking carefully at some of the facts and figures it quotes. The preface states: "... departments and agencies we examined have made good progress in implementing accruals-based accounting ... to improve the information they have on their use of resources and consumption of assets."
That looks fine--until you preface the above quote, as the report does, with the words "Just over a quarter of ..." So that means three out of four departments and agencies are not making good progress.
It doesn't get better, either. The report identifies three key requirements for resources management:
* planning and decision-making to achieve defined outputs and outcomes;
* reliable and complete information on performance and consumption of resources;
* a clearly demonstrable impact--ie, visible improvements in the way that resources are used to deliver better public services.
It is informative to look closely at the underlying figures against these aspirations.
Planning and decision-making--allocating resources to key priorities and aligning them to targets.
* departments and agencies achieving this in full: 17 per cent--ie, eight out of 46;
* still using cash and omitting non-cash costs such as depreciation: just under 50 per cent.
Using better information to manage resources--implementing accruals-based accounting and using it effectively.
* making "good progress": 28 per cent;
* using occasional accruals-based management information, with budgetary control relying on a hybrid of cash and accruals: 37 per cent;
* relying mainly on cash, with a one-off year-end exercise to meet external reporting requirements: 35 percent.
Impact--making use of financial flexibilities (a slightly better situation here).
* secured Treasury approval to carry forward underspends: 37 per cent;
* offered similar flexibility to their partner organisations: 37 per cent.
But there has been little change in annual expenditure profile. In 74 per cent of cases there was still a higher proportion of capital and revenue spending in the last two months of the financial year.
RAB has been a challenging programme and it has faced a number of difficulties. So what are the key problems?
* Cultural resistance: a lack of senior management accountability and monitoring; a traditionally risk-averse culture; a continuing focus on inputs rather than outputs; and a lack of understanding of the skills required and benefits to be gained.
* Changing skill requirements: initial inexperience in forecasting on a resource basis; problems building the right qualifications and skills (even though the number of accountants in government service has tripled); the need for better project management; and the need for supporting systems.
* Incomplete or inaccurate cost information: poor performance measurement systems (including target-setting and reward systems, as well as tools such as scorecards); and the inherent difficulties, with multiple organisations and responsibilities, of managing and costing the complex public service delivery model.
* The timetable for change: the time needed to put all RAB's new concepts, information requirements and supporting systems in place was probably (and, possibly, knowingly) underestimated.
* The delay until the benefits emerge (Sir Andrew Likierman, then the head of the Government Accountancy Service, admitted that a full analysis would be possible "only once the new systems have been working for a number of years"): the conflicting priorities of target-setting, efficiency savings, modernising government and e-government.
These difficulties are not limited to public services. A consultant working at the Ministry of Defence, while supposedly helping one of its integrated project teams to assess costs, said: "We'll work it out in cash terms and then 'RAB-ify it'."
Apart from showing reckless disregard for the English language, this comment betrayed a total ignorance of the subject in question. RAB is not about notional "full-cost additions"; it's about knowing what resources you have, their value, and what they are used for.
But it's not all bad news. The NAO report does highlight best practice in some organisations. This makes encouraging reading and provides a benchmark for other bodies. It is also true that RAB implementation is designed to address a number of the key problems. Public service agreements move departments to an output focus, there is a clear separation of revenue and capital spend and there is a recognition of the difference between medium-term (three-year) spending and in-year spending.
The NAO has made the following recommendations about how departments can drive the programme through.
* Develop a focused leadership (including an innovative but ask-aware culture).
* Align the targets and resource allocations of key organisations.
* Recognise and manage assets.
* Develop integrated accounting and information systems, supported by skilled staff.
* Invest in long-term capacity-building (target the weakest links in the supply chain).
* Seek assurances on the capability of supporting organisations.
* Use resource information to release your resources to the front line.
So is it all worth the effort? There is a lively ongoing debate about the value of RAB. A number of commentators have pointed out that, although it's an efficiency-based initiative, it has never been tested to see whether its benefits will exceed its costs. Some have questioned the whole concept of applying the commercial standards of production-based firms to the more nebulous, policy-orientated and heavily networked public services. Others have raised doubts about the efficacy of using this approach in local government in Italy (1), New Zealand and Australia (2), and also in the UK and Europe.
Even so, work overseas has progressed rapidly. New Zealand has a well embedded, albeit parallel, planning process called "Managing for outcomes". Australia offers strong guidance on "Outcomes and outputs management", linking planning and performance management cycles inextricably. And Canada offers "Managing for results". Even the European Commission is planning to adopt RAB next year.
So it seems that significant progress has been made. It's not an easy path, but there is continuing pressure on the public services to be transparent and to focus on delivery. The Gershon review reinforces this approach. Sir Peter Gershon talks of fragmented delivery, duplication and inefficiency--and of "hard decisions ahead". Those decisions can be made only with a clear view of required outputs, driven by customer needs and priorities.
We need to get the accruals right. We must recognise our assets and their costs. We must plan and manage on an output basis. This is where we will realise RAB's true benefits--when we can model and cost our outputs, we can then identify the changes in activities and recognise the effect this has on our input resources. Only then will we be able to realise the vision: changing the way that government departments operate by managing resources to deliver better public services.
Next month Bill Aiken will describe a framework for success in output management by linking strategy to performance management.
FURTHER INFORMATION New approaches to management accountancy in publicly funded organisations" is a CIMA Mastercourse that takes an innovative look at the ways In which financial managers in the public sector can implement modern management accountancy techniques in their organisations. It will be presented by David Allen, past president of CIMA and chairman of the financial and management accounting committee of the International Federation of Accountants. Call 020 8849 2244 of e-mail firstname.lastname@example.org for open-access programme dates or to run this course in-house.
"Cost reduction with improved services and performance" is a CIMA Mastercourse that will update you with an approach that has enabled public-sector organisations to reduce overhead costs while improving their services. It will be presented by Jack Marsden, an independent consultant with extensive experience of operating cost reduction programmes in the public sector. Call 020 8849 2244 or e-mail email@example.com for details of the open-access course (25 June at Castle Donington and 2 November in Bristol) or to run this course in-house.
E Anessi-Pessina and I Steccolini, Accruals Accounting in Italian Local Governments: Is It Working? Can It Work? SDA-Boccini University, 2003.
J Guthrie, "Application of accrual accounting in the Australian public sector: rhetoric or reality?" Financial Accountability & Management, Vol 14, No 1, 1998.
Bill Aiken FCMA is a founding director of Tribal Government Consulting, a group of consultants who came together from global companies with a common agenda: "consulting with a conscience". They provide financial and performance management services to the public sector. He can be contacted at: firstname.lastname@example.org
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|Title Annotation:||Finance Resource Accounting And Budgeting|
|Publication:||Financial Management (UK)|
|Date:||Apr 1, 2004|
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