Report on the Response to the Executive's Review of the Financial Process in Northern Ireland

report-on-the-response-to-the-executives-review-of-the-financial-process-in-northern-ireland.pdf (7.96 mb)

Membership

The Committee has eleven members, including a Chairperson and Deputy Chairperson, with a quorum of five members. The membership of the Committee during the current mandate has been as follows:

Mr Conor Murphy MP (Chairperson)

Mr Dominic Bradley (Deputy Chairperson)

Mrs Judith Cochrane

Mr Leslie Cree MBE

Mr Paul Girvan

Mr David Hilditch

Mr William Humphrey

Mr Ross Hussey

Mr Paul Maskey MP *

Mr Mitchel McLaughlin

Mr Adrian McQuillan

* Mr Maskey replaced Ms Caitríona Ruane with effect from 12 September 2011.

List of Abbreviations and Acronyms used in the Report

ALB - Arm's-length Body

AME - Annually Managed Expenditure

BRG - Budget Review Group

CAL - Culture, Arts and Leisure

CFP - Committee for Finance and Personnel

CLG - Chairpersons' Liaison Group

DEL - Departmental Expenditure Limit

DFP - Department of Finance and Personnel

ETI - Enterprise, Trade and Investment

HM - Her Majesty

HSSPS - Health, Social Services and Public Safety

IMF - International Monetary Fund

MoU - Memorandum of Understanding

NDPB - Non-departmental public body

NI - Northern Ireland

NIAO - Northern Ireland Audit Office

NICS - Northern Ireland Civil Service

OECD - Organisation for Economic Co-operation and Development

OFMDFM - Office of the First Minister and deputy First Minister

PAC - Public Accounts Committee

PfG - Programme for Government

PSA - Public Service Agreement

RfRs - Requests for Resources

UK - United Kingdom

Table of Contents

List of Abbreviations and Acronyms used in the Report

Report

Executive Summary

Key Conclusions and Recommendations

Introduction and Background

Consideration of the Review Recommendations

List of Appendices to the Report

Appendix 1

Minutes of Proceedings (Extracts)

Appendix 2

Minutes of Evidence

Appendix 3

Memoranda and Correspondence from DFP

Appendix 4

Written Submissions and Correspondence

Appendix 5

Research Papers

Executive Summary

The Northern Ireland Executive's current budget and financial process has been open to criticism in terms of being convoluted and repetitive, with a lack of transparency and read-across between the Budgets, Estimates and Accounts, which has caused frustration for Assembly Members and committees. The Committee has long called for a settled and effective budget process which affords sufficient time for meaningful engagement with Assembly Members, committees and the wider public. While recognising that the Executive's budget is developed within the context of a wider UK control and management framework, the Committee welcomed the Executive's decision to commission the Department of Finance and Personnel to undertake a review, with the aim of establishing a simplified budget process model which meets the requirements of the devolved administration.

The Department of Finance and Personnel's Review of the Financial Process in NI discussion paper was issued to all key stakeholders on 10 October 2011. The paper set out fifteen initial recommendations for discussion, related to key issues and concerns. The response set out in this Report fulfils the Committee's unique role in co-ordinating the Assembly's response to budget and financial issues. To inform the response, the Committee commissioned research on a range of issues, including the presentation of fiscal data, budget system laws and strategic budget stages; and, on the latter issue, legal advice was provided by Assembly Legal Services. The Committee also invited comments from the other applicable Assembly committees, the Chairpersons' Liaison Group and the Northern Ireland Audit Office.

The Review recommendations have been broadly welcomed by the Committee, and by other Assembly committees and stakeholders. It is recognised that addressing the misalignments between the Budget, Estimates and Accounts and bringing all non-voted expenditure in Budgets within coverage of the Estimates will go some way to enhance transparency and accountability to the Assembly. The concept of setting out an ideal Budget timetable, which affords time for the Assembly to input to an early strategic phase, was also considered important. The Committee must stress, however, that an early strategic phase is one of the most influential stages in the budget process and, as such, is an essential requirement rather than an aspiration. In the longer term, the effectiveness of this stage will also serve to increase the potential for streamlining the latter stages in the budget process.

The Committee has highlighted concerns and queries with some of the Review recommendations and would request further consultation and assurance in this regard, including: appropriate safeguards for changes to Assembly voting controls; the level of detail to be provided in respect of departmental expenditure lines; the presentation of information in the various financial publications; and consolidation of non-departmental public bodies and other arm's-length bodies within the accounting boundaries. In addition, the Committee believes that there should be firm, visible linkages between the Programme for Government and budget allocations, and is unable to endorse any recommendations to the contrary. Finally, in terms of providing for an effective early strategic phase in the budget process in particular, it is the Committee's intention to explore the merits of a "Budget Process Agreement" between the Executive and Assembly, which is underpinned in the Assembly's Standing Orders, compared to the option of statutory provision, possibly through a Committee Bill.

Key Conclusions and Recommendations

1. The Committee would wish to highlight at the outset that most of the Review recommendations have been broadly welcomed, both in the submissions received from the other Assembly committees and stakeholders and by the Committee itself. As such, the comments in this co-ordinated response tend to focus on the specific Review recommendations where particular concerns have been identified or proposals made. The Committee believes that further examination of these issues will help to elucidate the arguments in respect of the proposed reforms. In looking forward to the Department's response on these matters, the Committee would also welcome a clearer analysis of the overall cost implications of the proposed reforms. (Paragraph 7)

2. The Committee endorses the recommendation of its predecessor that "relevant financial documents, including Budgets, Estimates and Resource Accounts are simplified and harmonised to increase transparency." The Committee also concurs with the view of the Education and Regional Development committees that the implementation of Review Recommendation 1 would enhance transparency and accountability to the Assembly and that the changes will "further afford statutory committees potential for greater and more indepth scrutiny of the budgetary processes." (Paragraph 10)

3. The Committee calls on the Department of Finance and Personnel to extend consolidation beyond Executive non-departmental public bodies to include other types of arm's-length bodies, which form an important element of some departmental expenditure remits. (Paragraph 13)

4. Following up on the recommendation of its predecessor in 2008 that the benefits of Account NI should be rolled out to non-departmental public bodies and other arm's-length bodies as far as is practical, the Committee calls on the Department to set out the business case for the fuller integration of these bodies within the Account NI system as part of the proposed consolidation process. (Paragraph 16)

5. While strongly supportive of the aim of Review Recommendation 2, the Committee sees benefit in the consolidation of non-departmental public bodies within the accounting boundaries being informed by the outcome of the review of arm's-length bodies which the Executive's Budget Review Group is leading. This would help to avoid the inefficient use of time and resources by departments and non-departmental public bodies in preparing for consolidation now only for the body to be wound up at a later stage. Members would therefore urge the Minister to press for the review of arm's-length bodies to be concluded expeditiously. (Paragraph 19)

6. Accepting that additional misalignments are likely to be identified going forward, the Committee is supportive of Review Recommendation 3 and looks forward to considering details of such additional misalignments and the related assessments of the impact of any proposed further changes. (Paragraph 22)

7. In recognising that the proposals to bring all non-voted expenditure and income in Budgets within the coverage of Estimates will aid transparency and scrutiny and align with international best practice, the Committee welcomes Review Recommendation 4. (Paragraph 25)

8. Given the risks attaching to Review Recommendation 5, that the Assembly votes "Net"controls in the Estimates and Budget Act, the Committee's support for this proposal is subject to further detail and assurance from the Department of Finance and Personnel to satisfy members that the "appropriate safeguards" will indeed be established so that firm control is maintained over the use of income by departments. The Committee also considers that the proposed changes would increase the need for systematic in-year scrutiny of departmental income generation by the respective Assembly committees and that formal arrangements would have to be put in place to facilitate this, including provision of the necessary information by departments. (Paragraph 32)

9. The Committee agrees that the level of detail currently provided in departmental expenditure plans often does not provide meaningful information on key areas of public spending, and welcomes any proposals that will simplify and harmonise information, increase transparency and ensure that expenditure is more readily scrutinised. While there was also general support for the thrust of Review Recommendation 6 from other Assembly committees, it was noted that further consultation will be required with the Assembly on the level of the breakdown proposed. (Paragraph 34)

10. The Committee firmly believes that there should be clear, visible linkages between Budget allocations and the Programme for Government, and is unable to endorse Review Recommendation 7. In noting the difficulties cited by the Department of Finance and Personnel in linking spending to priorities and outcomes, the Committee is mindful of previous evidence from the Department which runs contrary to the current proposal that "performance outcomes and the delivery of the Programme for Government should not be directly attributable to allocations in budgets", including the advice that the Account NI system had the capability to map expenditure to outputs and outcomes. The Committee, therefore, reiterates the call by its predecessor that work is undertaken to exploit the Account NI system to its full potential in this regard. (Paragraph 42)

11. The Committee has long called for better read-across between the published financial documents which accompany the different stages of the budget process and members welcome any moves towards this end. In noting that the NI Audit Office intends to discuss the presentation of the Estimates further with the Department of Finance and Personnel, the Committee recommends that these discussions also consider how the Resource Accounts may be further improved from the example provided in the discussion paper, particularly in terms of being user friendly and supporting Assembly scrutiny. Members look forward to being apprised of any subsequent proposals in this regard. (Paragraph 46)

12. The Committee endorses the view of its predecessor that budget allocations should be driven by priorities, not the other way around. In this regard, it supports the recommendation that the Budget should be developed in the context of a Programme for Government agreed by the Executive. Moreover, the Committee considers that it is not simply "desirable" but is in fact essential that a draft Programme for Government is developed prior to, or at least in tandem with, a draft Budget and wishes to see this reflected in any agreed Budget framework. (Paragraph 50)

13. The Committee welcomes the proposal in Review Recommendation 10 to include an early strategic phase and sufficient time for consultation with Assembly committees and other stakeholders within a Budget timetable. However, given that an early strategic phase is one of the most informative and influential stages in the Budget process, members are firmly of the view that it is a requirement, rather than an ideal which will just take place "if circumstances and time permits". In noting that the discussion paper itself states that "even if the Westminster Spending Review outcome and the NI Block allocation is not yet known, this early strategic phase could still take place in order to inform the later stages of the Budget", the Committee believes it essential that the caveat is removed from this Review recommendation. (Paragraph 55)

14. The Committee concurs with those committees that welcomed the principle of setting out an ideal Budget timetable, and notes that Assembly research indicates that elements included in the timetable proposed in Review Recommendation 11 are in line with international best practice. (Paragraph 57)

15. The Committee recommends that consideration is given to following the approach of the Scottish Government in undertaking public consultation at the formative pre-draft budget stage, which could either remove or reduce the time required for public consultation once the draft Budget has been agreed by the Executive. This Department of Finance and Personnel-led public consultation could be scheduled to align with Assembly committees' engagement with departments, so that the outcome of the public consultation is available to inform the Committee's co-ordinated report and the Take Note debate at the pre-draft budget stage. (Paragraph 59)

16. The Committee would reiterate the findings from its predecessor that it is not appropriate for Assembly committees to lead the consultation on departmental expenditure plans as inferred in the discussion document, particularly as they do not have the authority to act on the outcome of such consultation. (Paragraph 61)

17. It is the Committee's intention to further explore the merits of the Budget Process Agreement, proposed in Review Recommendation 12, as compared to the potentially more robust option of statutory provision, which would have a particular focus on facilitating a pre-draft budget scrutiny stage and would possibly take the form of a Committee Bill. Considerations around both options will be set out in a discussion paper on which views will be sought from all relevant stakeholders. While the general principle behind Review Recommendation 12, in terms of formalising the budget process, was welcomed by a number of the other committees who responded to the discussion paper, the majority have indicated that they wish to await the outcome of the Committee's work in this regard before making any final decisions. (Paragraph 67)

18. In terms of Review Recommendations 13 and 14, the Committee agrees with the Department of Finance and Personnel position that the latter stages of the current budget process are convoluted and repetitive. The potential to streamline the process exists, but only in the context of a reformed budget process which provides unequivocally for a formal pre-draft budget phase, affording the Assembly and its committees an opportunity to influence budgetary matters at an early stage. The Committee will therefore wish to consider this matter further once a reformed process has been developed and trialled. (Paragraph 70)

19. The Committee supports Review Recommendation 15, that the Rates Order should be debated alongside the expenditure plans for the next financial year, as set out in the Budget Bill, and believes that an integrated approach to considering revenue and spending plans will further underpin Assembly scrutiny. (Paragraph 74)

Introduction and Background

1. In February 2011, the NI Executive agreed a Terms of Reference for a Review of the Financial Process in NI, to be taken forward by the Department of Finance and Personnel (DFP). Aimed at bringing forward a streamlined financial framework that is more efficient, transparent, open to scrutiny by and accountability to the Assembly, the strategic aims of the review are:

• "To align the Budget, the Estimates and the Accounts as far as practicable to improve transparency; and
• To synchronise the presentation of the Budget, the Estimates/departmental expenditure plans, the Budget Bills, the Rates legislation and the Accounts in order to create a single co-ordinated public revenue and expenditure process."[1]

2. The Committee received an initial presentation from DFP officials on 22 June 2011 which outlined the difficulties with the current financial process and related publications, and issues which would be considered within the Review. The presentation highlighted a range of matters for consideration by the Assembly, including: the controls that should be voted by the Assembly; the level of detail to be included in publications; presentation of the Main Estimates and related Budget Bill as the final stage of the Budget process; and the possibility of incorporating the Budget process in Assembly Standing Orders or in legislation.[2] A subsequent evidence session was held on 21 September 2011, when the Committee received an update on the progress of the Review. The Official Report of the evidence session is provided at Appendix 2. Members were advised that a discussion paper setting out initial recommendations would be brought forward for consideration by key stakeholders. The paper was subsequently issued on 10 October 2011.

The Committee's Approach

3. Early in this Assembly mandate, the Committee considered and endorsed recommendations made by its predecessor in its Report on the Executive's Draft Budget 2011-15[3] and the Third Report on the Inquiry into the Role of the Assembly in Scrutinising the Executive's Budget and Expenditure.[4] The recommendations sought to facilitate and strengthen the role of the Assembly in scrutinising the Executive's budgets and expenditure, and were developed in consultation with other committees in the last mandate. In particular, the recommendations aimed to:

• establish a regularised budget process, with a key pre-draft budget scrutiny stage;
• improve the provision of financial information to committees and allow sufficient time for scrutiny; and
• strengthen the support for committees and members in financial scrutiny.

The Committee has been mindful of these recommendations and the work of its predecessor in its consideration of the proposals put forward in the Review discussion paper.

4. As a first step to increasing awareness of the public expenditure system and support for Members and committees in financial scrutiny, the Committee hosted an "Overview of the Public Expenditure System" workshop on 18 October 2011, to which all Assembly Members and committee secretariat staff were invited. At the event, DFP officials provide an overview of the public expenditure system, to assist both individual Members and committees in budget scrutiny. Given that the discussion paper had been issued directly to Members as key stakeholders, a short briefing on the Review of the Financial Process was also provided.

5. In line with convention from the previous mandate, the Committee has continued with the approach of co-ordinating the Assembly's response to budget and financial issues. To inform this Report, comments on the discussion paper were invited from applicable Assembly committees and the Chairpersons' Liaison Group (CLG). The responses from the other committees have been referenced below, with the full submissions included at Appendix 4. The Committee would wish to draw attention to the point made by CLG in respect of the complexity of the issues under consideration and the potential difficulties that committees may face in responding to such issues, and notes the suggestion that "perhaps DFP could have found alternative ways to interact with committees and take their views other than in writing."

6. To assist its deliberations on the proposals arising from the Review, the Committee commissioned research on a range of budget and financial matters, including the presentation of fiscal data, budget systems laws and strategic budget stages. The Committee agreed that the recommendations made in the Research and Information Service briefing paper, DFP's Review of Financial Process: considerations for improving the budget process,[5] should be taken forward in parallel with the Executive's Review. Assembly Research also undertook a critical analysis of the recommendations put forward in the DFP discussion paper. The Research and Information Service briefing papers are provided at Appendix 5.

Consideration of the Review Recommendations

7. The Committee would wish to highlight at the outset that most of the Review recommendations have been broadly welcomed, both in the submissions received from the other Assembly committees and stakeholders and by the Committee itself. As such, the comments in this co-ordinated response tend to focus on the specific Review recommendations where particular concerns have been identified or proposals made. The Committee believes that further examination of these issues will help to elucidate the arguments in respect of the proposed reforms. In looking forward to the Department's response on these matters, the Committee would also welcome a clearer analysis of the overall cost implications of the proposed reforms.

8. The following commentary considers the Review recommendations individually and sets out a Committee position in each case.

9. The DFP discussion paper notes that there are a number of ways in which the Budget, Estimates and Accounts are misaligned, estimating that only about 60% of expenditure is aligned across these frameworks. It states that

"Budget high level controls are net Resource DEL and AME and net Capital DEL and AME while Estimate/legislative controls are currently by Requests for Resources (RfRs) for net resource plus the accruing resources (total of operating and non-operating) while capital is not voted, except within the cash requirement."[6]

As a consequence, departments budget against one set of controls within the Budget, but account for spend against different controls set in the Estimates. To align the controls, DFP proposes that each department's budgetary controls are authorised by the Assembly, together with its overall cash requirement. This would "simplify the process for budgeting, voting and accounting for departmental spend within the same limits", and would also serve to increase transparency and accountability to the Assembly.

10. In regard to this issue, the Committee endorses the recommendation of its predecessor that "relevant financial documents, including Budgets, Estimates and Resource Accounts are simplified and harmonised to increase transparency."[7] The Committee also concurs with the view of the Education and Regional Development committees that the implementation of Review Recommendation 1 would enhance transparency and accountability to the Assembly and that the changes will "further afford statutory committees potential for greater and more indepth scrutiny of the budgetary processes."[8]

11. A further misalignment between the Budgets, Estimates and Accounts occurs in respect of non-departmental public bodies (NDPBs). While the full spend and income of the majority of NDPBs is included in the Budget, only the cash grant-in-aid for Executive NDPBs is in the Estimates or the Resource Accounts.[9] DFP considers that this is one of the primary reasons for misalignment between the Budget and Estimates, and therefore recommends that NDPBs are brought within the Estimates and Accounting boundaries. The discussion paper stresses that the distinctive characteristics of NDPBs will remain unchanged and they would "continue to be separate corporate identities with statutory responsibilities and independent in their executive decision-making in line with their responsibilities." The Committee sees this as an important assurance, given the need to ensure that consolidation does not inadvertently undermine the function of the NDPB model.

12. The NI Audit Office (NIAO) notes a potential benefit of such a change would be closer working between departments and their NDPBs, greater integration of financial reporting and increased accountability and financial monitoring. The Committee also notes that accountability to the Assembly for NDPB funding and expenditure would be improved and that a sponsor department could be called to account for overspending by an NDPB, which is not the case at present. The proposed change should also enhance the transparency of the flow of resources from departments to their NDPBs.

13. While there are potential benefits to the proposal, a number of issues have also been raised. While generally supportive of the recommendation, the Committee for Culture, Arts and Leisure (CAL) is concerned that it relates only to Executive NDPBs. It points out that 80% of the CAL Department's budget is managed by arm's-length bodies (ALBs), which do not all have NDPB status. The CAL Committee therefore requested clarification on whether consideration has been given to including all ALBs within the proposals rather than just those defined as Executive NDPBs. Similarly, while not opposed to the principle of the recommendation, the Regional Development Committee cites NI Water as "an example whereby the constituted organisation and the application of NDPB budgetary and accounting values are in conflict." In circumstances such as these, that Committee considers that "application of appropriate budgetary and governance processes must be addressed in the first instance rather than encouraging closer alignment of NDPB budget processes." Given the concerns raised by some of the other Assembly statutory committees, the Committee calls on DFP to extend consolidation beyond Executive NDPB's to include other types of ALBs, which form an important element of some departmental expenditure remits.

14. The DFP discussion paper itself also points out a number of practical issues regarding the consolidation of NDPBs into the accounting boundaries, primarily in respect of the closing and laying of accounts and the administrative burden for NDPBs and departments, particularly in the early years of any changes. It also notes that there could be implications for NIAO in ensuring that the accounts of consolidated NDPBs are audited in time for faster closing; NIAO states that it will consider these resource implications as part of its future corporate planning process. DFP considers that

"the problems are not insurmountable with careful planning and…the benefit of alignment between Budgets, Estimates and Accounts would outweigh any short term difficulties."

15. Assembly research has noted that there may be additional administrative costs in respect of consolidation, when departments and NDPBs may already be facing budgetary pressures. In addition, NIAO has highlighted a number of other risks associated with the proposed changes. From its perspective, there would be concerns regarding the quality of financial management and reporting, which may have a knock-on effect on the audit process. It also notes that the Account NI system "does not currently offer a full consolidation solution; many NDPBs do not use this system and in some cases the financial systems in use currently require upgrade." In this respect, the Committee notes that, in response to the Executive's Draft Budget 2008-11, its predecessor called for consideration to be given to the potential for extending the scope of shared services (including Account NI) beyond the NI Civil Service (NICS) to the wider public sector, including NDPBs.[10] In its response, the Department assured the previous Committee, as far back as March 2008, that:

"Whilst Account NI's initial focus is on the migration and stabilisation of the NICS departments to the new Account NI service, both the Contractor and the Authority (DFP/NICS) would be keen to pursue opportunities to provide this service to other public sector bodies."[11]

16. Following up on the recommendation of its predecessor in 2008 that the benefits of Account NI should be rolled out to NDPBs and other ALBs as far as is practical, the Committee calls on the Department to set out the business case for the fuller integration of these bodies within the Account NI system as part of the proposed consolidation process.

17. The DFP discussion paper makes reference to the Review of ALBs which is being led by the Executive's Budget Review Group (BRG), noting that this "will consider options for abolition, merger or integration within departmental structures." There is no indication, however, as to whether DFP considers that this process should be completed in advance of departments and NDPBs proceeding with consolidation as recommended. When the Committee sought an update on the Review of ALBs in September 2011 it subsequently received advice via the Committee for the Office of the First Minister and deputy First Minister (OFMDFM) stating that:

"The responses received from departments on the Review of Arm's Length Bodies are being analysed. Following this, the First Minister and deputy First Minister intend to bring a paper to a future meeting of the Budget Review Group (BRG) and the views of the Group will inform the recommendations which they, as joint chairs of BRG, ultimately bring to the Executive."[12]

18. The Committee notes that, while the review and rationalisation of ALBs is incorporated in the priority to deliver high quality and efficient public services within the draft Programme for Government (PfG) 2011-15, no timescale for completion has been specified. As such, at its meeting on 11 January 2012, the Committee agreed to seek a further update from OFMDFM on progress in concluding this review.

19. In its submission, the Public Accounts Committee (PAC) cautioned that it will be costly to proceed with consolidations using the current structure, if reorganisations that require further realignment occur within a short time. NIAO also stated that"it is important that any restructuring or machinery of government changes take place before commencing consolidation." In agreeing with these concerns, while strongly supportive of the aim of Review Recommendation 2, the Committee sees benefit in the consolidation of NDPBs within the accounting boundaries being informed by the outcome of the review of ALBs which the Executive's Budget Review Group is leading. This would help to avoid the inefficient use of time and resources by departments and NDPBs in preparing for consolidation now only for the body to be wound up at a later stage. Members would therefore urge the Minister to press for the review of ALBs to be concluded expeditiously.

20. The DFP discussion paper notes that a number of other misalignments will remain even after the consolidation of NDPBs as proposed by Review Recommendation 2, including, for example, notional charges and capital grants to the private sector. On this latter point, members note that Assembly research points out that the International Monetary Fund's (IMF) code of good practices on fiscal transparency states that:

"Government relationships with the private sector should be conducted in an open manner, following clear rules and procedures."[13]

21. In evidence to the Committee, DFP officials indicated that they would wish to eliminate all misalignments; if that is not achievable, they will be reduced as far as possible.

22. Accepting that additional misalignments are likely to be identified going forward, the Committee is supportive of Review Recommendation 3 and looks forward to considering details of such additional misalignments and the related assessments of the impact of any proposed further changes.

23. At present, not all expenditure included in the Budgets or Accounts is voted in the Estimates. The DFP discussion paper states that the reason for this is that "separate standing legislative authority already exists for this expenditure and, therefore, further annual authorisation by the Assembly is not correct or necessary." It therefore proposes to include non-voted spend within the Estimates so that it aligns with the Budget.

24. During an evidence session with DFP officials, members were concerned to learn that, under existing arrangements, approximately 25% of all expenditure is not voted. Departmental officials advised that this is related in part to capital spend and also to NDPB expenditure as discussed at paragraphs 11 to 19 above. In this regard, members are aware from Assembly research that the IMF code of good practices on fiscal transparency states that "the budget documentation, including the final accounts, and other published fiscal reports should cover all budgetary and extra-budgetary activities of the central government."[14]

25. In recognising that the proposals to bring all non-voted expenditure and income in Budgets within the coverage of Estimates will aid transparency and scrutiny and align with international best practice, the Committee welcomes Review Recommendation 4.

26. The DFP discussion paper notes that, under the current process,

"Budgets are approved by the Assembly net of any departmental income that is classified as being within Budgets. However, departments can only retain the income (and related cash) if the Assembly has approved, through the Estimates process and the related Budget Act, the use of the income on related services – the Assembly , therefore places limits on both net resources and on income (accruing resources) – thereby voting 'Gross' spend."[15]

27. The discussion paper therefore proposes that Estimates and the Budget Act are instead voted on a "net" basis. In evidence to the Committee, DFP officials recognised that a consequence of this measure would be weakened accountability for the Assembly; however, DFP argues that measures could be put in place to mitigate against this, such as:

• the provision of gross data, including details regarding resource and capital income, in the Estimate for information purposes only; and
• listing the types of income that could be retained and used to finance services within a department in the Estimates and the related Budget Act. In this way, Departments would be unable to generate income from a source not approved by the Assembly. While a limit on income would no longer be set, formal Assembly and legislative control on the types of income would rest with the Assembly.

28. In the briefing paper, Presenting fiscal data: gross or net?, Assembly research found that international best practice is for data to be reported on a gross basis.[16] In response, DFP officials contended that best practice guidance such as that by the Organisation for Economic Co-operation and Development (OECD) and the IMF relates more to fiscal policy management for national governments. It does not apply in the context of a devolved administration where the vast majority of funding is allocated by HM Treasury, which also imposes the rules relating to public expenditure.[17]

29. At present, a department can only use income it generates up to the level approved by the Assembly. Income received in excess of this limit must be returned to the Consolidated Fund. Members note that the proposed changes would mean that a department would be able to keep any income it generates, provided it is within the ambit of the department and within the net voted limit. In NIAO's opinion, the proposal

"runs contrary to the tighter controls proposed at Recommendation 1. Whilst there are potential benefits to the proposed change, there are also some risks which could arise from an increased focus on income generation and reduced control by the Assembly."

30. In follow up correspondence with the Committee, NIAO also advised that, if Review Recommendation 5 is accepted "it is imperative that DFP introduce administrative controls over income generation by departments … Furthermore, it is important that appropriate controls over virement of income are in place as a safeguard."[18]

31. The Committee notes that one of the risks highlighted by Assembly research is that departments may increase charges rather than seeking to improve the efficiency of service delivery. Similarly, in recognising that departments may increase the focus on income generation, PAC stated that "it is important they continue to seek best value for money in any income generation activities they undertake."

32. Given the risks attaching to Review Recommendation 5, that the Assembly votes "Net"controls in the Estimates and Budget Act, the Committee's support for this proposal is subject to further detail and assurance from DFP to satisfy members that the "appropriate safeguards" will indeed be established so that firm control is maintained over the use of income by departments. The Committee also considers that the proposed changes would increase the need for systematic in-year scrutiny of departmental income generation by the respective Assembly committees and that formal arrangements would have to be put in place to facilitate this, including provision of the necessary information by departments.

33. The DFP discussion document considers that "the reader should readily understand, at an acceptable level of detail, how much public funding is being spent on each main service in a department".[19] In many instances, however, this is not the case. The document specifically refers to the position in respect of the departments of Education and Health, Social Services and Public Safety (HSSPS), with some lines of expenditure of up to £3 billion. To improve transparency and accountability, a more meaningful level of information should be provided. The Department notes, however, that related issues must be taken into consideration in this regard; for example, movements between spending area/expenditure lines requires Executive approval at monitoring rounds, but departments must be able to have sufficient flexibility to manage budgets and emerging pressures. The Review discussion document therefore argues that it is important to strike a balance "between achieving an acceptable level of detail in the expenditure lines and preserving the ability of departments to manage their budgets without having to constantly revert to the Executive".[20]

34. The Committee agrees that the level of detail currently provided in departmental expenditure plans often does not provide meaningful information on key areas of public spending, and welcomes any proposals that will simplify and harmonise information, increase transparency and ensure that expenditure is more readily scrutinised. While there was also general support for the thrust of Review Recommendation 6 from other Assembly committees, it was noted that further consultation will be required with the Assembly on the level of the breakdown proposed. On this latter point, the Committee for Regional Development suggest that this should be taken forward by DFP via CLG and CFP.

35. The DFP discussion paper notes that the PfG and its Public Service Agreement (PSA) targets are becoming more high-level and cross cutting and, as a result, it is difficult to map them meaningfully to particular spending areas. To disaggregate budgets to this level "may not be possible or practical or an efficient use of resources". It also contends that any department could link a bid to a PSA as they are so high level and that "in effect, to meet bids because they are linked to a PSA target could encourage inefficiencies in that spending area". The proposal from the Department is that, while PSA targets and outcomes should be monitored and departments held accountable, "performance should not have any direct link to funding inputs".

36. The Committee notes that this position appears to represent a shift in DFP thinking in this regard; the Review of the NI Executive Budget 2008-11 Process, completed by DFP in March 2010, included the following recommendations:

• "Recommendation 1: An exercise should be conducted at the start of the next Budget process to seek to determine the level of public expenditure underpinning actions to deliver each Public Service Agreement in the Programme for Government (PfG).
• Recommendation 7: Every departmental spending proposal should clearly state the impact on the respective PSA target, if successful."

The predecessor Committee welcomed both of these recommendations, but believed that the latter should be extended to also cover the reporting stage to "enable performance to be tracked at a departmental level in terms of inputs, outputs and outcomes."[21]

37. Members are also mindful that the Review discussion paper was published before the Executive had prepared its draft PfG 2011-15, which is currently out to public consultation. It is noted that the draft PfG does not contain accompanying PSAs similar to the previous PfG and that the majority of the "Key Commitments" set out in the draft PfG are attributable to a single Department, each with attached milestones/outputs to be achieved up until 2015. While the Executive's approach to delivery and reporting on PfG 2011-15 has yet to be announced, the Committee would welcome clarification on whether there is now an opportunity to adopt a system of reporting performance outcomes which would address some of the difficulties of mapping meaningfully to particular spending areas, as cited in the Review discussion paper.

38. The Committee notes that, in his statement to the Assembly on 17 January 2012 on the 2011-12 January Monitoring Round, the Finance Minister advised that his officials would be undertaking a comparison of departments' current financial positions and their original allocations in the Budget 2011-15. The Minister stated that this "will provide the Executive with an opportunity to review departmental allocations for 2013-14 and 2014-15 in light of the PfG priorities."[22] In the Committee's opinion, the Minister's statement suggests that a link can therefore be drawn between budget allocations and PfG priorities.

39. Almost all of the Assembly committees that responded to the discussion paper commented specifically on this recommendation. The majority expressed concern with the recommendation and were of the view that there should be strong links between spending and priorities, and that mechanisms should be in place to enable effective scrutiny in this regard. The Regional Development Committee had a slightly different view and, while it considered that budget allocations should not be totally disassociated from the PfG, was "content…that a closer alignment of budget allocations to individual departmental corporate plans is a more appropriate level and would endorse any progress towards this."

40. Committees also considered it important that the linkages should enable performance and outcomes to be measured against inputs, with the CAL and Enterprise, Trade and Investment (ETI) committees, in particular, advocating a move towards a more outcome-based approach. Assembly research has indicated that many countries currently use forms of outcome-based budgeting, and points to a project undertaken by the Scottish Government to develop a methodology to align resources to outcomes. It is the intention of the Committee to take further evidence in this regard. In the meantime, members would also point out that the lack of linkage between objectives and spending allocations hinders Assembly statutory committees in fulfilling their function of advising on departmental budgets. For instance, without linkage committees cannot identify the funding that is being channelled to objectives that are not being delivered. If they were in a position to do so, they could advise on whether spending in the particular areas should be cut out altogether, or increased, to enable non-achievement to be addressed.

41. It should also be noted that the predecessor Committee, in considering an outputs and outcomes approach, queried with DFP whether the existing financial systems in departments and Account NI were sufficiently aligned with PSA targets and indicators to provide information on inputs, outputs and outcomes. In its response, the Department confirmed that the Account NI system is capable of this, as it "allows departments to 'map' expenditure and report the record level of detail and which budget allocations are held on the Resource Budget Management … system".[23] It was considered that the mapping and provision of such information would support Assembly scrutiny; and presumably the integration of Executive NDPBs within the Account NI system, discussed under Review Recommendation 2, would also provide committees with a more complete picture.

42. The Committee firmly believes that there should be clear, visible linkages between Budget allocations and the PfG, and is unable to endorse Review Recommendation 7. In noting the difficulties cited by DFP in linking spending to priorities and outcomes, the Committee is mindful of previous evidence from DFP which runs contrary to the current proposal that "performance outcomes and the delivery of the Programme for Government should not be directly attributable to allocations in budgets", including the advice that the Account NI system had the capability to map expenditure to outputs and outcomes. The Committee, therefore, reiterates the call by its predecessor that work is undertaken to exploit the Account NI system to its full potential in this regard.

43. The discussion paper notes that, in addition to alignment of the Budget, Estimates and Accounts, improved presentation of information is required to increase transparency and read-across among the different related publications. It is proposed that the Estimates are redesigned to include expenditure that is currently not voted as part of the Estimates process.[24] [25]The format of Resource Accounts will also be revised to better align with the presentation of the Estimates.[26]

44. In its submission, NIAO considers that, in terms of improving transparency, it is as important to improve the presentation of information within the published documents as it is to reduce and correct misalignment between the various frameworks. The example of the revised Resource Accounts attached to the DFP discussion paper is still complex, not readily understood or meaningful to many readers. In NIAO's opinion "there is the opportunity to review the format of the resource accounts with a view to making them more meaningful to the reader."

45. As just one specific example of an area where the Resource Accounts format could be improved, the Committee would highlight section 2.1 of the illustrative Resource Accounts appended to the Review discussion paper. While this sets out details of Administration and Programme Outturn for the given year, it does not provide for a breakdown of the prior-year figures in this regard, which would assist committees in scrutinising departmental administrative expenditure in particular. Members note that this relates to an issue identified by the predecessor Committee when it raised concern around the decision to abolish the programme of administrative cost controls in the Executive's Budget 2011-15 and instead delegate responsibility in this area from DFP centrally to individual departments. The predecessor Committee saw risks in this in terms of reducing the level of transparency and safeguards available for protecting expenditure on frontline services and considered that statutory committees should have a focus on departmental administrative expenditure going forward. Provision of the necessary comparative information is therefore one example of an area where the format of Resource Accounts should be improved.

46. The Committee has long called for better read-across between the published financial documents which accompany the different stages of the budget process and members welcome any moves towards this end. In noting that NIAO intends to discuss the presentation of the Estimates further with DFP, the Committee recommends that these discussions also consider how the Resource Accounts may be further improved from the example provided in the discussion paper, particularly in terms of being user friendly and supporting Assembly scrutiny. Members look forward to being apprised of any subsequent proposals in this regard.

47. The DFP discussion paper refers to concerns expressed by the previous Committee for Finance and Personnel and Assembly members about the development of budgets in the absence of a Programme for Government. It notes that

"the need for the formulation of a Programme for Government prior to or at least, in tandem, with the development of a Budget is an opinion that has been expressed repeatedly in many forums."[27]

48. Members note from Assembly research that this proposal would better align the Budget process to international good practice. In addition, it is noted that this requirement is already included within legislation at Section 64(1) of the Northern Ireland Act 1998 and Paragraph 20 of Strand 1 of the Belfast/Good Friday Agreement. Assembly research pointed out, however, that that the recommendation is somewhat qualified, as DFP has stated that the development of a budget after, or in parallel with, a PfG is "desirable",[28] not a necessity.

49. In its response, the Regional Development Committee stated that it "would accept that a strict development of PfG and budgets in parallel might not be absolutely possible". It goes on to say, however, that the interrelationship between the two requires that they are developed in close proximity to one another. For its part the Audit Committee also saw the proposal in Review Recommendation 9 as a sensible approach; however, it pointed out that Executive budgets include expenditure that falls outside PfG, including expenditure for the purpose of holding the Executive and its departments to account. The Audit Committee considered that

"removing the NIAO from DFP and the Executive's remit underlines and strengthens the NIAO's independence in holding departments, executive agencies and other public bodies to account for their use of public money."

50. The Education Committee indicated strong support for this recommendation, and further recommended that it be extended to "place a requirement on departments to publish an Implementation Plan which is linked to the PfG." A number of statutory committees had previously indicated support for a similar recommendation in the DFP Review of the NI Executive Budget 2008-11 Process, which stated that "the PfG should be developed to a timetable slightly in advance of the Budget." The Committee endorses the view of its predecessor that budget allocations should be driven by priorities, not the other way around. In this regard, it supports the recommendation that the Budget should be developed in the context of a PfG agreed by the Executive. Moreover, the Committee considers that it is not simply "desirable" but is in fact essential that a draft PfG is developed prior to, or at least in tandem with, a draft Budget and wishes to see this reflected in any agreed Budget framework.

51. The DFP discussion paper states that "where circumstances and time permit it should be possible, and desirable, to include an early strategic stage in the Budget timetable". It makes reference to external factors which have influenced the previous two budget processes: devolution in May 2007 which resulted in the development of the 2008-11 Budget in a short timespan; and the 2010 Westminster election which gave rise to a change of government and a later-than-usual Spending Review announcement in October 2010, thereby constricting the Budget process. Notwithstanding this, it goes on to say that

"Even if the Westminster Spending Review outcome and the NI Block allocation is not yet known, this early strategic phase could still take place in order to inform the later stages of the Budget".

52. The discussion paper specifies that, at this stage, each committee should:

• "identify and challenge pressures facing departments";
• "rank priorities for expenditure in order against the PfG"; and
• "identify plans to meet any pressures within the current or a reduced funding envelope."

It is also proposed that the Committee for Finance and Personnel would fulfil its conventional function of leading on this phase and producing a report on behalf of the Assembly. This report could be used to inform a "Take Note" debate, which would enable the Assembly to debate spending priorities and potential revenue raising measures in advance of the development of the Executive's draft Budget.

53. The Committee is mindful of the concerns raised by statutory committees about the lack of engagement with their respective departments during previous budget and financial processes. In its response to the DFP Review of the NI Executive Budget 2008-11 Process, the previous Committee considered that "greater influence can be brought to bear on spending plans at the earlier stages in the process", and was therefore supportive of recommendations in that review relating to early engagement with both Assembly committees and key stakeholders.[29]

54. While there was general support for Review Recommendation 10 and, in particular, the inclusion of an early strategic phase to allow consultation with committees, the majority of those committees who responded to the discussion paper expressed grave concern that this is heavily qualified by the phrase "if circumstances and time permits." The CAL Committee pointed out that this caveat in fact contradicts the assertion that that a Budget timetable will be "strictly adhered to by all concerned".

55. The Committee welcomes the proposal in Review Recommendation 10 to include an early strategic phase and sufficient time for consultation with Assembly committees and other stakeholders within a Budget timetable. However, given that an early strategic phase is one of the most informative and influential stages in the Budget process, members are firmly of the view that it is a requirement, rather than an ideal which will just take place "if circumstances and time permits". In noting that the discussion paper itself states that "even if the Westminster Spending Review outcome and the NI Block allocation is not yet known, this early strategic phase could still take place in order to inform the later stages of the Budget",[30] the Committee believes it essential that the caveat is removed from this Review recommendation.

56. The discussion paper proposes a timetable which would see the final Budget agreed by the Executive and approved by the Assembly by the end of December. The timetable incorporates an early strategic phase prior to the publication of a draft Budget, and also allows time for consultation on the draft Budget. Completion of the process by the end of December would allow departments sufficient time to plan and allocate their budgets in advance of the new financial year.

57. The previous CFP repeatedly called for a Budget timetable to be set out which included each of the key milestones in the process. Thus, the Committee concurs with those committees that welcomed the principle of setting out an ideal Budget timetable, and notes that Assembly research indicates that elements included in the timetable proposed in Review Recommendation 11 are in line with international best practice.

58. The DFP discussion paper suggests that the early strategic phase and the Take Note debate could be led by CFP on behalf of the Assembly. By convention, the Committee has taken this role in previous budget processes, as it ensures that the Assembly's response is not disjointed, and also that consideration is given to the strategic financial position and high level cross-cutting issues. It is the Committee's opinion that this practice will continue and it will publish co-ordinated reports on behalf of all Assembly statutory committees as part of future budget processes; further consideration will also be given to how this Committee function might be codified in formal procedures. The Committee also agrees with the Agriculture Committee's assertion that timely access to relevant information is necessary to enable statutory committees to fulfil their scrutiny role effectively. The issue of information provision is considered below under Review Recommendation 12.

59. The Review discussion paper highlighted "the fact that Northern Ireland is the only jurisdiction in the UK that carries out a formal public consultation on its Budget proposals" and cited this as imposing "further constraints in terms of having to factor in sufficient time for a public consultation".[31] Members note from Assembly research that the Scottish Government did in fact consult on its budget plans but that it took the approach of early (pre-draft) engagement with the public. In this regard, the Committee recommends that consideration is given to following the approach of the Scottish Government in undertaking public consultation at the formative pre-draft budget stage, which could either remove or reduce the time required for public consultation once the draft Budget has been agreed by the Executive. This DFP-led public consultation could be scheduled to align with Assembly committees' engagement with departments, so that the outcome of the public consultation is available to inform the Committee's co-ordinated report and the Take Note debate at the pre-draft budget stage.

60. Concerns were raised by a number of committees, including Agriculture, HSSPS, ETI, Justice and Social Development, with the apparent suggestion in the discussion paper that statutory committees will lead the pre-draft Budget consultation and that this "may preclude the need for later public consultation."[32] This echoed concerns raised in response to the specific recommendations in the DFP Review of the NI Executive Budget 2008-11 Process that:

"Assembly Committees should have the lead role in the consultation on the Executive's draft Budget proposals, with responses to the Executive co-ordinated by the Committee for Finance and Personnel."[33]

61. Those committees which commented specifically on this aspect consider that it is the duty of a department to consult on its budget proposals, as with any other public policy area. Additionally, as pointed out by the HSSPS Committee, committees "have no authority in terms of allocating money." In this regard, the Committee would reiterate the findings from its predecessor that it is not appropriate for Assembly committees to lead the consultation on departmental expenditure plans as inferred in the discussion paper, particularly as they do not have the authority to act on the outcome of such consultation.

62. The discussion paper notes that an Assembly research paper prepared for the Committee called for the formalisation of the budget process in legislation or the Assembly's Standing Orders. In respect of legislation, the discussion paper states that the Budget framework is provided in the Northern Ireland Act 1998 (the 1998 Act). Section 64 of the 1998 Act requires the Finance Minister to lay a draft budget, which has been agreed by the Executive, before the Assembly. A definitive date for this is not included, but it must be before the beginning of each financial year. DFP cautions against formalising the budget process in primary legislation for a number of reasons:

• The 1998 Act is Westminster legislation, and the ability of the Assembly to amend it is very limited;
• Unforeseeable/external factors may prevent dates which are specified in legislation from being met. It will therefore be necessary to include provisions to amend such dates which would, in DFP's opinion, "rather defeat the purpose of the original provision";
• The Executive may be deemed to be in default if deadlines were not met.

63. The discussion paper therefore proposes a two-fold approach, whereby a Budget Process Agreement would define key stages and administrative arrangement for the budget process, which could be reflected in the Assembly's Standing Orders. It considers that such an approach:

"would ensure the timetable is clear to all parties and would require adherence by all concerned and the timely publication of all documentation. This approach would also spell out the ground rules for engagement between Committees and departments and their Ministers, including full and timely engagement by all concerned, thereby underpinning the provisions of the 1998 Act and the Ministerial Code."

It also notes that that the Assembly could amend Standing Orders to provide for "accepted unavoidable slippage."

64. The issue of an agreement – or Memorandum of Understanding (MoU) – between the Executive and the Assembly was considered in the predecessor Committee's Third Report on the Inquiry into the Role of the NI Assembly in Scrutinising the Executive's Budget and Expenditure,[34] with specific regard to the provision of information. Consideration was given to recourse in the event of non-compliance with a MoU by departments and it was recommended that:

"the wording of Standing Order 42(2)is reviewed to determine if an amendment is required to clarify that CFP should have regard to wider considerations, including the views of the other appropriate committees and compliance by departments with the MoU, when deciding whether to grant accelerated passage to budget bills."

65. The concerns around lack of engagement by departments, which were raised by a majority of statutory committees in the last mandate, have been well documented by the predecessor Committee. It has already become evident, however, that some departments are still failing to meet the needs of their committees in terms of the provision of financial information. This was highlighted to the Committee in correspondence from CLG on 7 November 2011 in relation to departmental monitoring round submissions. CLG expressed major concerns regarding "the lack of sufficient detail provided in some departmental submissions to allow committees to effectively carry out their budget scrutiny obligations and the timing of receipt of submissions".[35] On 21 November 2011, in its submission on the Review, CLG again highlighted common concerns expressed by chairpersons, including "that any outcome of the review should:-

• recognise that a committee requires financial information in sufficient time to allow it to undertake proper budget and financial scrutiny; and
• that the information provided should have adequate detail to allow a committee to effectively carry out its budget scrutiny obligations."[36]

66. While the proposed Budget Process Agreement could be potentially wider in scope than the MoU previously considered, members would question whether Review Recommendation 12, as set out, is sufficiently robust. DFP argues against including dates in legislation as they may need to be amended to take account of any unforeseen or external circumstances, but in such cases Standing Orders could easily be amended (or suspended). Initial advice from the Assembly's Legal Services suggests that statutory provision, specifically to facilitate a pre-draft budget scrutiny stage, could be made which would be sufficiently flexible to allow for unforeseen or external factors as noted by DFP. In addition, Assembly research found that:

"…good practice guidance suggests…that the overall budget and financial process should be established in statute, but that some of the detail should be left in subordinate legislation, or to the Assembly's Standing orders.

In relation to Standing orders, however, there is a note of caution. Whilst good practice suggests these should be used for formalising a legislature's internal rules for organisational arrangements for budget approval and review, the Assembly should: Avoid using such regulations [i.e. Standing Orders] as substitutes for general budget procedures and restrictions that should be in law, not internal parliamentary regulations.

So, whilst Standing Orders may be used to frame how the Assembly conducts budget scrutiny internally, they should not be relied upon to establish the principal stages or timing of a future process."[37]

67. It is the Committee's intention to further explore the merits of the Budget Process Agreement, proposed in Review Recommendation 12, as compared to the potentially more robust option of statutory provision, which would have a particular focus on facilitating a pre-draft budget scrutiny stage and would possibly take the form of a Committee Bill. Considerations around both options will be set out in a discussion paper on which views will be sought from all relevant stakeholders. While the general principle behind Review Recommendation 12, in terms of formalising the budget process, was welcomed by a number of the other committees who responded to the discussion paper, the majority have indicated that they wish to await the outcome of the Committee's work in this regard before making any final decisions.

68. The DFP discussion paper considers that "currently the Budget process followed by the Estimates and legislative stage is convoluted and repetitive." The final Budget is debated and approved by the Assembly in December or January. However, the Vote on Account must be taken in February to enable departments to ensure that public services continue during the early part of the new financial year, until the Main Estimates are presented in June. In addition, the first in-year monitoring round is presented around the same time as the Main Estimates, "amending the very plans that have not yet completed formal Assembly approval through the Estimates and Budget Bill." The discussion paper therefore proposes that the Main Estimates and the related Budget Bill are presented as the Final Stage of the Budget in January, which would negate the need for a Vote on Account. In this respect, it would be necessary to ensure that the Budget Bill would receive Royal Assent before the start of the new financial year. It is therefore proposed that, given the involvement of the Assembly and its committees at the earlier stages in the Budget process, consideration could be given to reducing the time taken for passage of Budget Bills by, for example, removing the Further Consideration Stage and the 10 day rule.

69. The discussion paper points out that the streamlining of the end stages of the Budget process in this way could present considerable difficulties for departments. The requirement to produce Main Estimates, January monitoring round and the Spring Supplementary Estimates at the same time, together with related legislation "could prove to be an intolerable burden and a risk that needs to be weighted up carefully." These changes should therefore not be considered until Budgets and Estimates have been aligned and the new Budget process has been successfully implemented.

70. There was general support from other committees for this recommendation, though it is noted that the Committee for Education welcomed proposals to streamline the process in this way provided that the opportunities to consider and debate budgets and financial issues were not reduced. In terms of Review Recommendations 13 and 14, the Committee agrees with the DFP position that the latter stages of the current budget process are convoluted and repetitive. The potential to streamline the process exists, but only in the context of a reformed budget process which provides unequivocally for a formal pre-draft budget phase, affording the Assembly and its committees an opportunity to influence budgetary matters at an early stage. The Committee will therefore wish to consider this matter further once a reformed process has been developed and trialled. In the meantime, and given the caveat included at Recommendation 10, as currently drafted, that a strategic stage will be included in a budget timetable "where circumstances and time permits", the Committee cautions against any amendment to Standing Orders to facilitate a truncated passage of a budget bill.

71. The discussion paper points out that, despite the fact that the Budget and the Estimates take rates income into consideration, the Rates Order is currently debated separately from the Budget Bill and in advance of the new financial year. It argues that "this public income strand of the rates should…be part of the entire financial process in order to minimise any risk that it may be treated as a separate emotive issue by the Assembly, divorced from expenditure plans." As primary legislation would need to be amended to combine the two into one piece of legislation, it is therefore proposed that the Rates Order and Budget Bill are co-ordinated to "positively link the two strands of public finances."

72. The Committee for Education advised that it understands that good practice would be to consider all revenue issues alongside the Budget. The Committee for Regional Development also agreed there should be closer alignment, "particularly as greater responsibilities, but not necessarily budgets, are being delegated to local authorities."

73. Assembly research noted that the current budget process focuses principally on expenditure, with less consideration afforded to the revenue side. In that respect, the proposal to link the Regional Rates Order more closely to the Budget is to be welcomed. In addition, Assembly research pointed out that deliberations in respect of the devolution of Air Passenger Duty and corporation tax powers means that greater attention will need to be paid to revenue forecasts.

74. The Committee supports Review Recommendation 15, that the Rates Order should be debated alongside the expenditure plans for the next financial year, as set out in the Budget Bill, and believes that an integrated approach to considering revenue and spending plans will further underpin Assembly scrutiny.

[1] Review of Financial Process in NI discussion paper, Annex A – Terms of Reference, Appendix 3.

[2] A copy of the presentation is provided at Appendix 3.

[3]http://archive.niassembly.gov.uk/finance/2007mandate/reports/Report_44_09_10R_vol1.html

[4]http://archive.niassembly.gov.uk/finance/2007mandate/reports/report_61_10_11R.htm

[5] Research and Information Service briefing paper, DFP's Review of Financial Process: considerations for improving the budget process, List of Recommendations, Page 214, Appendix 5.

[6] DFP discussion paper, paragraph 14(b)' Appendix 3.

[7]http://archive.niassembly.gov.uk/finance/2007mandate/reports/Report_66_09_10R.html

[8] Committee for Regional Development, Appendix 4.

[9] The Review discussion paper explains that "Currently advisory NDPBs and tribunals are aligned in Budget, Estimates and Accounts", paragraph 24.

[10]http://archive.niassembly.gov.uk/finance/2007mandate/execreport.htm

[11]http://archive.niassembly.gov.uk/finance/2007mandate/reports/dfp_response.htm

[12] See Appendix 4

[13] Research and Information Service Research Paper, The Executive's Review of the Financial Process in Northern Ireland: a critical analysis of DFP's discussion paper, Appendix 5.

[14] Research and Information Service Research Paper, The Executive's Review of the Financial Process in Northern Ireland: a critical analysis of DFP's discussion paper, Appendix 5.

[15] DFP discussion paper, paragraph 49, Appendix 3.

[16] Research and Information Service briefing note, Presenting fiscal data: gross or net?, Appendix 5.

[17] Official Report, 21 September 2011, Appendix 2.

[18] See NIAO letter of 6 January 2012, Appendix 4.

[19] DFP discussion document, paragraph 59, Appendix 3.

[20] DFP discussion document, paragraph 62, Appendix 3.

[21]http://archive.niassembly.gov.uk/finance/2007mandate/reports/Report_66_09_10R.html

[22]http://www.niassembly.gov.uk/Assembly-Business/Official-Report/Reports-11-12/17-January-2012/

[23]http://archive.niassembly.gov.uk/finance/2007mandate/reports/report_61_10_11R.htm, para 108.

[24] An example of the redesigned Estimate is provided at Annex D to the DFP discussion paper, Appendix 3.

[25] A brief synopsis of the proposed Main Estimate Structure is provided at Part 2.8 of the Research and Information Service Paper, The Executive's Review of the Financial Process in Northern Ireland: a critical analysis of DFP's Discussion Paper, Appendix 5.

[26] An example of the redesigned Resource Accounts is provided at Annex E to the DFP discussion paper, Appendix 3.

[27] DFP discussion paper, paragraph 86, Appendix 3.

[28] DFP discussion paper, Executive Summary - Initial recommendations for discussion, Appendix 3.

[29]http://archive.niassembly.gov.uk/finance/2007mandate/reports/Report_66_09_10R.html

[30] DFP discussion paper, Paragraph 92, Appendix 3.

[31] DFP discussion paper, Paragraph 89, Appendix 3.

[32] ibid

[33]http://archive.niassembly.gov.uk/finance/2007mandate/reports/Report_66_09_10R.html , paragraphs 56-59

[34]http://archive.niassembly.gov.uk/finance/2007mandate/reports/report_61_10_11R.htm

[35] See CLG letter of 7 November 2011, Appendix 4.

[36] See CLG letter of 21 November 2011, Appendix 4.

[37] Research and Information Service Briefing Paper, DFP's Review of Financial Process: considerations for improving the budget process, Appendix 5.

Appendix 1

Minutes of Proceedings

Wednesday, 25 May 2011
Room 30, Parliament Buildings

Present: Mr Conor Murphy MP MLA (Chairperson)
Mr Dominic Bradley MLA (Deputy Chairperson)
Mrs Judith Cochrane MLA
Mr Leslie Cree MBE MLA
Mr Paul Girvan MLA
Mr Ross Hussey MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA
Ms Caitríona Ruane MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor)
Mr Dominic O'Farrell (Clerical Officer)

Apologies: Mr David Hilditch MLA
Mr William Humphrey MLA

10.09am The meeting opened in public session.

10. Overview of Public Expenditure System

Members received an overview briefing on the public expenditure system from Michael Brennan, Head of Central Expenditure Division, DFP; Agnes Lennon, Central Expenditure Division, DFP; and Joanne McBurney, Central Expenditure Division, DFP.

Agreed: the DFP officials will provide the Committee with the timetable for the Review of the Financial Process.

[EXTRACT]

Wednesday, 1 June 2011
Room 30, Parliament Buildings

Present: Mr Conor Murphy MP MLA (Chairperson)
Mr Dominic Bradley MLA (Deputy Chairperson)
Mrs Judith Cochrane MLA
Mr Leslie Cree MBE MLA
Mr Paul Girvan MLA
Mr David Hilditch MLA
Mr William Humphrey MLA
Mr Mitchel McLaughlin MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor)
Mr Dominic O'Farrell (Clerical Officer)

Apologies: Mr Ross Hussey MLA
Mr Adrian McQuillan MLA
Ms Caitríona Ruane MLA

10.06am The meeting opened in public session.

3. Matters Arising

Overview of Public Expenditure System

Members noted the Terms of Reference for the DFP-led Review of Financial Process in NI.

Agreed: to request that DFP schedules an overview briefing on public expenditure for all MLAs and committee staff immediately after the summer recess.

4. Legacy Report of Predecessor Committee

The Committee considered a copy of the Legacy Report of its predecessor Committee.

Report on the Executive's Draft Budget 2011-15

Members noted the Executive Summary and Key Conclusions and Recommendations from the predecessor Committee's Report on the Executive's Draft Budget 2011-15.

Agreed: to seek a written response to the Report from DFP in advance of the evidence session on the Review of Financial Process, scheduled for 15 June 2011.

Budget Scrutiny Inquiry

The Committee considered the Executive Summary and the Key Conclusions and Recommendations from the predecessor Committee's Third Report on the Inquiry into the Role of the Assembly in Scrutinising the Executive's Budget and Expenditure.

Agreed: to request that DFP provides an analysis setting out how the applicable conclusions and recommendations from this report and from the previous Committee's Report on the Executive's Draft Budget 2011-15 have been or could be incorporated into the Terms of Reference for the Review of Financial Process.

[EXTRACT]

Wednesday, 15 June 2011
Room 30, Parliament Buildings

Present: Mr Conor Murphy MP MLA (Chairperson)
Mr Dominic Bradley MLA (Deputy Chairperson)
Mrs Judith Cochrane MLA
Mr Leslie Cree MBE MLA
Mr Paul Girvan MLA
Mr William Humphrey MLA
Mr Ross Hussey MLA
Mr Mitchel McLaughlin MLA
Ms Caitríona Ruane MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor)
Mr Dominic O'Farrell (Clerical Officer)

Apologies: Mr Adrian McQuillan MLA

10.05am The meeting opened in public session.

3. Matters Arising

DFP: Response to Committee's queries relating to the Review of Financial Process and the work of the Budget Review Group

The Committee noted a reply from DFP to the Committee's queries on the terms of reference for the Review of Financial Process and the work of the Budget Review Group.

Agreed: to inform its input to the DFP-led Review of Financial Process, the Committee will commission an Assembly research paper on budget processes in other jurisdictions and international best practices, which will be considered at the meeting on 22 June 2011.

[EXTRACT]

Wednesday, 22 June 2011
Room 21, Parliament Buildings

Present: Mr Conor Murphy MP MLA (Chairperson)
Mr Dominic Bradley MLA (Deputy Chairperson)
Mrs Judith Cochrane MLA
Mr Leslie Cree MBE MLA
Mr Paul Girvan MLA
Mr David Hilditch MLA
Mr William Humphrey MLA
Mr Ross Hussey MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA
Ms Caitríona Ruane MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor)
Mr Dominic O'Farrell (Clerical Officer)

11.00am The meeting opened in public session.

4. Review of Financial Process – Assembly Research Briefing

Members received a briefing from Assembly Research on the Executive's Review of Financial Process.

Agreed: that Assembly Research will provide additional information as requested during the briefing.

Agreed: to forward the research paper to DFP, requesting that the recommendations are taken forward in parallel with the Executive's Review of Financial Process, and for the Department to progress this with the Executive.

Agreed: to copy the Research paper to the Chairpersons' Liaison Group (CLG) and the other relevant Assembly committees, explaining the Committee's decision and advising that a briefing for all MLAs on public expenditure will be held in the autumn.

11.30am Mr Girvan left the meeting.

[EXTRACT]

Wednesday, 14 September 2011
Room 30, Parliament Buildings

Present: Mr Conor Murphy MP MLA (Chairperson)
Mr Dominic Bradley MLA (Deputy Chairperson)
Mr David Hilditch MLA
Mr William Humphrey MLA
Mr Paul Girvan MLA
Mr Paul Maskey MP MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Ms Roisin Fleetham (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor)
Mr Dominic O'Farrell (Clerical Officer)

Apologies: Mr Leslie Cree MBE MLA
Mr Ross Hussey MLA

10.04am The meeting opened in public session.

12. Committee Work Programme

The Committee noted a Research paper on Budget System Laws which members will receive a briefing on at next week's meeting.

Agreed: to copy the research paper to DFP.

[EXTRACT]

Wednesday, 21 September 2011
Room 30, Parliament Buildings

Present: Mr Dominic Bradley MLA (Deputy Chairperson)
Mrs Judith Cochrane MLA
Mr Leslie Cree MBE MLA
Mr David Hilditch MLA
Mr Paul Girvan MLA
Mr Paul Maskey MP MLA
Mr Mitchel McLaughlin MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Ms Roisin Fleetham (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor)
Mr Dominic O'Farrell (Clerical Officer)
Mr Colin Pidgeon (Research and Information Service)

Apologies: Mr Ross Hussey MLA
Mr William Humphrey MLA
Mr Adrian McQuillan MLA
Mr Conor Murphy MP MLA (Chairperson)

10.04am The meeting opened in public session.

4. Budget System Laws – Assembly Research Briefing

The Committee received a briefing from Assembly Research and Information Service on the Research paper, Budget System Laws: principles and good practice.

10.13am Mr Paul Girvan joined the meeting.

Agreed: that Assembly Research will be commissioned to undertake comparative research in this area at a later date if required.

5. Presenting Fiscal Data: Gross or Net? – Assembly Research Briefing

The Committee received a briefing from Assembly Research and Information Service on the Research paper, Presenting fiscal data: gross or net?

Agreed: that follow-up information requested by the Committee will be provided by Assembly Research.

6. Review of Financial Process - DFP Evidence Session

The Committee took evidence from the following DFP officials: Mike Brennan, Head of Central Expenditure Division and Agnes Lennon, Central Expenditure Division. The session was recorded by Hansard.

Agreed: that DFP officials will provide an overview briefing on the public expenditure system for all MLAs and committee staff on 18 October 2011. The event will include a briefing on the Executive's Review of the Financial Process.

13. Any Other Business

Budget Process

Agreed: to commission Assembly research on the process for setting budgets in other devolved administrations and the impact that spending reviews have on these processes in terms of the time available for parliamentary scrutiny.

Agreed: to request an early copy of the discussion document on the Review of the Financial Process for Committee consideration and comment in advance of the document being circulated to all MLAs.

[EXTRACT]

Wednesday, 5 October 2011
Room 30, Parliament Buildings

Present: Mr Conor Murphy MP MLA (Chairperson)
Mr Leslie Cree MBE MLA
Mr Paul Girvan MLA
Mr David Hilditch MLA
Mr William Humphrey MLA
Mr Ross Hussey MLA
Mr Paul Maskey MP MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Ms Roisin Fleetham (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor)
Mr Dominic O'Farrell (Clerical Officer)
Miss Aine Gallagher (Bursary Student)
Mr Colin Pidgeon (Assembly Research and Information Services)

Apologies: Mr Dominic Bradley MLA (Deputy Chairperson)
Mrs Judith Cochrane MLA

10.04am The meeting opened in public session.

4. Options for strategic budget stages – Assembly Research briefing

The Committee received a briefing from Assembly Research and Information Services.

Agreed: to forward the research paper to DFP, asking that the Committee's ongoing work on this issue is taken into account in relation to the Department's discussion paper on the Executive's Review of Financial Process.

Agreed: that the Committee Clerk and Researcher have informal discussions with Assembly Legal Services to establish the feasibility of the various options in advance of any formal legal advice being sought by the Committee.

Agreed: following discussion with Legal Services, to circulate the research paper to the other relevant Assembly committees to update them on this cross-cutting issue and to invite comments.

[EXTRACT]

Wednesday, 12 October 2011
Room 30, Parliament Buildings

Present: Mr Dominic Bradley MLA (Deputy Chairperson)
Mrs Judith Cochrane MLA
Mr Leslie Cree MBE MLA
Mr Paul Girvan MLA
Mr David Hilditch MLA
Mr William Humphrey MLA
Mr Ross Hussey MLA
Mr Paul Maskey MP MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Ms Roisin Fleetham (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor)
Mr Dominic O'Farrell (Clerical Officer)
Miss Aine Gallagher (Bursary Student)
Mr Colin Pidgeon (Assembly Research and Information Services)

Apologies: Mr Conor Murphy MP MLA (Chairperson)
Mr Mitchel McLaughlin MLA

10.08am The meeting opened in public session.

4. Draft DFP Paper on the Executive's Review of the Financial Process

Members considered a draft discussion paper on the Review of the Financial Process, which will be issued to all MLAs by DFP.

Agreed: the Committee will co-ordinate a response from the appropriate Assembly committees to the discussion paper and a commissioning letter in this regard will be considered at next week's meeting.

Agreed: Research and Information Services will prepare a briefing note, providing an analysis of the DFP discussion paper, which will inform the Committee's co-ordinated response to the Department.

Members were reminded that the Committee's event on the Overview of the Public Expenditure System will be held on Tuesday 18 October 2011 at 12.45pm in the Long Gallery, Parliament Buildings.

10.21am The Committee moved into open session

[EXTRACT]

Wednesday, 19 October 2011
Room 30, Parliament Buildings

Present: Mr Conor Murphy MP MLA (Chairperson)
Mrs Judith Cochrane MLA
Mr Leslie Cree MBE MLA
Mr Paul Girvan MLA
Mr David Hilditch MLA
Mr William Humphrey MLA
Mr Mitchel McLaughlin MLA
Mr Aidan McQuillan MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Ms Roisin Fleetham (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor)
Mr Dominic O'Farrell (Clerical Officer)
Miss Aine Gallagher (Bursary Student)

Apologies: Mr Dominic Bradley MLA (Deputy Chairperson)
Mr Ross Hussey MLA
Mr Paul Maskey MP MLA

10.07am The meeting opened in public session.

3. Matters Arising

Executive's Review of the Financial Process – Discussion paper

Members noted a request for written responses to the DFP discussion paper on the Executive's Review of the Financial Process, for issue to other applicable Assembly committees.

5. Pre-draft Budget Scrutiny – Legal Advice

This item was deferred for consideration from Matters Arising.

Agreed: to formally request legal advice from Assembly Legal Services on the feasibility of legislating to provide for a statutory process which would enhance the Assembly's financial scrutiny, in particular at pre-draft Budget stage.

[EXTRACT]

Wednesday, 16 November 2011
Room 30, Parliament Buildings

Present: Mr Conor Murphy MP MLA (Chairperson)
Mr Dominic Bradley MLA (Deputy Chairperson)
Mrs Judith Cochrane MLA
Mr Leslie Cree MBE MLA
Mr David Hilditch MLA
Mr William Humphrey MLA
Mr Paul Maskey MP MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA

In Attendance: Mr Hugh Farren (Assembly Clerk)
Mrs Sinead Kelly (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor)
Mr Dominic O'Farrell (Clerical Officer)
Miss Aine Gallagher (Bursary Student)
Mr Colin Pidgeon (Assembly Researcher)

Apologies: Mr Ross Hussey MLA
Mr Paul Girvan MLA

10.08am The meeting opened in public session.

6. Executive's Review of the Financial Process Discussion Paper – Assembly Research briefing

11.43am Mr David Hilditch joined the meeting

11.43am Mr William Humphrey left the meeting

The Committee received a briefing from Assembly Research and Information Service on the discussion paper 'The Executive's Review of the Financial Process'.

11.55am Mr William Humphrey joined the meeting

12.01pm Mrs Judith Cochrane left the meeting

12.14pm Mr Paul Maskey left the meeting

Correspondence from Chairpersons' Liaison Group (CLG)

Members noted that CLG had raised concerns regarding departments not providing sufficient information or time for committees to scrutinise monitoring round positions.

Agreed: that this issue be included in the Committee's response to the Executive's Review of the Financial Process, in the context of consideration of statutory provision to ensure engagement and information flow to committees.

Agreed: to hear additional evidence to inform the Committee's final response to the Executive's Review of the Financial Process from:

• the NI Audit Office on the implications of the proposed reform; and
• the Scottish Executive on its proposed move to outcome-based budgeting.

Agreed: that Assembly Research and Information Service will follow up on a number of issues discussed to further inform the Committee's final response to the Executive's Review.

[EXTRACT]

Wednesday, 23 November 2011
Room 30, Parliament Buildings

Present: Mr Conor Murphy MP MLA (Chairperson)
Mr Dominic Bradley MLA (Deputy Chairperson)
Mr Leslie Cree MBE MLA
Mr David Hilditch MLA
Mr William Humphrey MLA
Mr Ross Hussey MLA
Mr Paul Girvan MLA
Mr Paul Maskey MP MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Mrs Sinead Kelly (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor)
Mr Dominic O'Farrell (Clerical Officer)
Miss Aine Gallagher (Bursary Student)
Mr Colin Pidgeon (Assembly Researcher)

Apologies: Mrs Judith Cochrane MLA

10.04am The meeting opened in public session.

3. Matters Arising

Executive's Review of the Financial Process

Agreed: to copy any responses received from other Assembly committees to DFP in advance of the Committee's final response to the Executive's Review of the Financial Process being agreed.

[EXTRACT]

Tuesday, 29 November 2011
Room 30, Parliament Buildings

Present: Mr Conor Murphy MP MLA (Chairperson)
Mrs Judith Cochrane MLA
Mr Leslie Cree MBE MLA
Mr David Hilditch MLA
Mr William Humphrey MLA
Mr Ross Hussey MLA
Mr Paul Girvan MLA
Mr Paul Maskey MP MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mrs Sinead Kelly (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor)
Mr Dominic O'Farrell (Clerical Officer)
Miss Aine Gallagher (Bursary Student)

Apologies: Mr Dominic Bradley MLA

10.09am The meeting opened in public session.

10.10am Mr Mitchel McLaughlin joined the meeting

3. Matters Arising

Request for advice from NI Audit Office on Review of Financial Process

Members noted the briefing paper from Assembly Research regarding the advice required from the NI Audit Office on the Review of Financial Process

Agreed: to forward the paper to the Audit Office for a response.

[EXTRACT]

Wednesday, 7 December 2011
Room 30, Parliament Buildings

Present: Mr Conor Murphy MP MLA (Chairperson)
Mr Dominic Bradley MLA
Mrs Judith Cochrane MLA
Mr Leslie Cree MBE MLA
Mr William Humphrey MLA
Mr Ross Hussey MLA
Mr Paul Girvan MLA
Mr Paul Maskey MP MLA
Mr Mitchel McLaughlin MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mrs Sinead Kelly (Assistant Assembly Clerk)
Mr Dominic O'Farrell (Clerical Officer)
Miss Aine Gallagher (Bursary Student)

10.04am The meeting opened in public session.

5. Briefing by Assembly Legal Services on the Budget Process

The Committee received a briefing from Jonathan McMillen of Assembly Legal Services on the Budget Process.

Agreed: that the legal advice would be used as a basis for informing the Committee's response to relevant recommendations in the DFP discussion document on the Executive's Review of the Financial Process.

Agreed: that Secretariat staff would prepare a draft policy discussion document on establishing a pre-draft budget scrutiny stage, to be used to consult other stakeholders, including relevant Assembly committees.

11.46am The meeting moved into open session

11.46am Mr Paul Maskey left the meeting

[EXTRACT]

Wednesday, 18 January 2012
Room 30, Parliament Buildings

Present: Mr Conor Murphy MP MLA (Chairperson)
Mr Dominic Bradley MLA (Deputy Chairperson)
Mrs Judith Cochrane MLA
Mr Leslie Cree MBE MLA
Mr David Hilditch MLA
Mr William Humphrey MLA
Mr Mitchel McLaughlin MLA
Mr Paul Girvan MLA
Mr Paul Maskey MP MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mrs Sinead Kelly (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor)
Mr Dominic O'Farrell (Clerical Officer)
Ms Aine Gallagher (Bursary Student)

Apologies: Mr Ross Hussey MLA

10.04am The meeting opened in public session

5. Executive's Review of the Financial Process – Final Consideration of the Committee's co-ordinated Response

Members considered a final draft of the report on the Committee's co-ordinated response to the Executive's Review of the Financial Process.

10.57am Mr Bradley returned to the meeting

Agreed: that paragraphs 1 – 6 stand part of the Report;

Agreed: that paragraph 7 stands part of the Report;

Agreed: that paragraphs 8 – 10 stand part of the Report;

11.00am Mr Maskey left the meeting

Agreed: that paragraphs 11 – 13, as amended, stand part of the Report;

11.06am Mr McQuillan returned to the meeting

Agreed: that paragraphs 14 – 16, as amended, stand part of the Report;

11.10am Mr Maskey returned to the meeting

Agreed: that paragraphs 17 – 19 stand part of the Report;

Agreed: that paragraphs 20 – 22 stand part of the Report;

Agreed: that paragraphs 23 – 25 stand part of the Report;

Agreed: that paragraphs 26 – 32 stand part of the Report;

Agreed: that paragraphs 33 – 34 stand part of the Report;

Agreed: that an additional paragraph is inserted after paragraph 37;

Agreed: that paragraphs 35 – 41 stand part of the Report;

Agreed: that paragraphs 42 – 45 stand part of the Report;

Agreed: that paragraphs 46 – 49 stand part of the Report;

Agreed: that paragraphs 50 – 54 stand part of the Report;

Agreed: that paragraphs 55 – 56 stand part of the Report;

Agreed: that paragraphs 57 – 58 stand part of the Report;

Agreed: that paragraphs 59 – 60 stand part of the Report;

Agreed: that paragraphs 61 – 66 stand part of the Report;

Agreed: that paragraphs 67 – 69 stand part of the Report;

Agreed: that paragraphs 70 – 73 stand part of the Report;

Agreed: that the Executive Summary stands part of the Report, subject to a consequential amendment;

Agreed: that the Appendices stand part of the Report;

Agreed: that the Report, as amended, be the Second Report of the Committee for Finance and Personnel to the Assembly for session 2011-12;

Agreed: that the Report on the Response to the Executive's Review of the Financial Process in NI, as amended, be printed.

Agreed: to table a motion for a plenary debate on the Report. The draft wording of the motion will be considered at the Committee's meeting on 25 January 2011.

Members were advised that typescript copies of the agreed Report will be laid in the Business Office within 24 hours for the attention of all MLAs. Printed copies of the report will be issued to all MLAs in advance of the plenary debate.

11.24am The Committee moved into public session

[Extract]

Appendix 2

Minutes of Evidence

21 September 2011

Members present for all or part of the proceedings:

Mr Dominic Bradley (Deputy Chairperson)
Mrs Judith Cochrane
Mr Leslie Cree
Mr Paul Girvan
Mr David Hilditch
Mr Paul Maskey
Mr Mitchel McLaughlin

Witnesses:

1. The Deputy Chairperson: I welcome Mike Brennan, the head of the central expenditure division of the Department of Finance and Personnel (DFP), and Agnes Lennon, who is also an official in that division. I refer members to the briefing paper in their information packs and to the recommendations in the research paper 'Review of Financial Process: considerations for improving the budget process'.

2. The Committee requested that the five key recommendations in the research paper be taken forward by DFP in tandem with the Executive's review. Those recommendations were that a Budget calendar should be specified in advance to allow time for adequate consultation and that there should be a strategic phase in advance of the publication of the draft Budget to allow the Assembly to debate revenue issues and spending priorities. In addition, a formal stage should be included for reconsidering the Budget in the light of emerging pressures and for considering developments that may affect allocations in-year and across years. It was also recommended that there should be detailed documentation that is produced in good time and that the framework for a new Budget process should have a statutory footing.

3. Those recommendations were in keeping with the proposals from the previous Committee's inquiry into strengthening the Assembly's role in budgetary scrutiny. Last June, DFP advised the Committee that many of the conclusions and recommendations from the previous Committee's report could be addressed within the existing terms of reference for the Executive's review.

4. I invite Michael and Agnes to make their opening statements.

5. Mr Michael Brennan (Department of Finance and Personnel): I will begin with a few comments that pick up on what emerged from the Research and Information Service briefing paper, which was discussed earlier. We may be able to provide some further insight to help members with what are quite important issues.

6. The Deputy Chairperson: Two issues emerged: the 25% of expenditure that is not approved by the Assembly, and the pros and cons of gross and net reporting.

7. Mr Brennan: OK, I will provide some insight into the complexities of those two issues. I will also make the point that we, as DFP officials, share the Committee's exasperation at the length of time that it has taken to progress the review. We have had the terms of reference for the review sitting with the Executive for many, many, many months, and we got the final green light to progress it only in February 2010.

8. Since then, we have had a lot of work progressing on a range of issues, and we advised the Committee in June of where we were. Since then, and over the summer holiday period, we had meetings with several Departments and the Northern Ireland Audit Office (NIAO) about progressing the review. We have also engaged with the Departmental Solicitor's Office (DSO) on a number of issues to do with the legislative impacts of the review.

9. We noted the recommendations of the Finance Committee's June paper, and we have had subsequent discussions with the Committee Clerk and, indeed, the Research and Information Service team. With regard to the process, our plan now is to issue a consultation paper to key stakeholders on the initial proposals in the next few weeks. Those key stakeholders would obviously be the Committees, the Audit Office and the Departmental Solicitor's Office. We will do that just to take their views on the key issues as they emerge in the review, and we will invite them to make their responses to us by the end of November.

10. Obviously, this Committee is at the centre of that engagement, because it really is the conduit for the Assembly's view on the best way to progress. So, we especially welcome its views. We will then take those views to the Finance Minister and ask him to present a paper to the Executive on the way forward.

11. Agnes will go into more detail on the gross versus net issue and the 25% capital control issue. However, if we look at international best practice, we will see that reports on the way forward from, for example, the Organization for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF) tend to say that best practice for national sovereign Governments is fiscal policy management. There are a number of reasons why that is not really appropriate in the Northern Ireland case. For example, this is a devolved Administration where 90-odd per cent of the Budget allocated comes from the Treasury through the Barnett formula. In addition, the public expenditure rules are imposed on the three devolved Administrations by the Treasury. So, there are significant constraints, and the IMF research, which is discussed in the briefing paper, would not actually apply.

12. A key paper to look at is the Treasury's statement of funding policy for the devolved Administrations. That sets the framework for identifying the discretion that, for example, Mitchel talked about in the previous session with regard to introducing new taxes and revenue-raising powers. That paper is the starting point in finding out what flexibility the Executive and Assembly may have for raising new revenue.

13. On the issue about whether the review should recommend a gross or a net approach, it is important to highlight that a key aim of this financial review is the need for greater transparency and the ability to align closely Budgets, Estimates and accounts. That is particularly the case for the Committee, given the comments that it has relayed to us. There are some significant advantages in moving to voting on a net basis, and Agnes will set some of those out.

14. At the minute, we vote gross, but it is important to make the point that the Assembly imposes limits on the income that Departments accrue. So, it is not as though Departments are suddenly left with complete and utter discretion as to what they do with the income, how much they raise and whether it is valid. For example, valid income is determined in the ambit that the Assembly approves in the Estimates for Departments.

15. Ms Agnes Lennon (Department of Finance and Personnel): I appreciate the Committee's concerns, and I am glad to note that it has fears about the change of control that we will probably propose from gross to net. That probably means that the Assembly will have weakened control and accountability. On the other hand, there are many measures that we can put in place to counteract that. As Mike said, one of those measures would be to put into the ambit and the legislation that you vote in the Budget Act a list of the types of income that a Department could bring in. That Department would have to live within those types. If that were exceeded, it would be an Excess Vote situation, and that Department would be accountable to the Assembly.

16. There are some other means that we could introduce to mitigate and control that. At the moment, the gross, the income and the net are shown in part 2 of the Estimates. We would continue to do that so that the Assembly would be fully informed of the income against each spending area. Even though it may not be voted as a limit, that information would be readily available to the Assembly.

17. The Northern Ireland budgetary framework is unique in that we run monitoring rounds, which does not happen in the rest of the United Kingdom. In a monitoring round, the existing monitoring rules mean that any additional unplanned income that Departments bring in must be declared as a reduced requirement. I think that that is quite right. Some people touched on maximising income. However, if you let a Department bring in additional income, the Executive, from a central perspective, may want to spend that additional income on something other than what that Department considered important. So, the budgeting framework in Northern Ireland already sets a fairly tight control on accruing resources or income. Again, that would mitigate the effects of moving from gross to net.

18. As well as that framework, there is a lot of other guidance out there. For example, 'Managing Public Money' sets out guidelines about fees and charges, which one member referred to. Also, given that Departments are statutory bodies, if a Department were to bring in any new type of income, legislation would have to be brought to the Assembly anyhow. Therefore, the Assembly would have total control over that new type of income, as is happening with the plastic bag tax. It is not that you would be giving up total control of all income; far from it. A lot of controls would still be in place that would mitigate the effects of moving from gross to net. As Mike said, the main reason would be that we budget on a net basis, and you are going to have a huge misalignment if you do not vote on a net basis. One of the complaints that we have heard from Assembly Members is that the Budget document and the Estimates do not tally, which they would if we vote on a net basis.

19. Mr Girvan: Thank you for that information. However, it differs somewhat from what we get from Whitehall. The Westminster Committee met to discuss this matter, and it advised going down the route of the gross approach. I appreciate where we are coming from here. I am seeing the positives of the situation, but what would be the effect if, for argument's sake, some receipts were received late in the financial year? At that point, we would already be through part of our stage. If some money came into a Department late in the year as a capital receipt for the disposal of an asset or whatever, would it be included? We would be going through the process of setting our Estimates or whatever we were dealing with on our spend for the next year. Could that be carried forward if it comes in late in that year? What way would that work?

20. Ms Lennon: Even at the moment with voting gross and setting a limit on the accruing resources, if a Department brought in any receipts above that amount, obviously we are not going to not allow Departments to bring in additional receipts. We would encourage it.

21. At the moment, that would go back to the centre — the Consolidated Fund. Voting gross or net would not make any great difference. If Departments brought income in quite late, such as in the last four or five weeks of the year after the monitoring rounds and after the spring Supplementary Estimates (SSEs) and the Budget Act had been passed, they could possibly spend it in the Department, but —

22. Mr Girvan: Do you believe that going over to the net approach would produce a more realistic assessment of the actual spend?

23. Ms Lennon: It would, but we would show the gross and the net income figures in the Estimate. The information would still be there, but we do not propose to diminish those in any way.

24. Mr Brennan: It would mean that, when the Budget document is produced by the Executive and validated by the Assembly, the meaning of the allocations for the Budget process and what is replicated in the Estimates could be seen in a much more transparent way.

25. Mr Girvan: Does the monitoring round process that we go through in Northern Ireland give us the safeguards that would allow us to move ahead?

26. Ms Lennon: We have much more control, yes.

27. Mr Cree: I think that Michael has hit on the main point. The essential issue must be that everything should be easily understood without the need to refer back to legislation to determine what is in this or that clause. Everything should be in one set of papers so that a middle accountancy student could understand it. That is the purpose of the exercise. We must make things as simple as we can. We must avoid jargon and have clear notes on where everything is. That is what we want.

28. Ms Lennon: That is our aim.

29. Mr Brennan: Agnes has already started work with her supply teams for the Departments on constructing what a new Estimate may look like under the new approach. That would make it much easier to follow the logic of the whole process.

30. The Deputy Chairperson: I am sure that we would all welcome that.

31. Mr McLaughlin: That is quite helpful. Although I am frustrated that the process has taken so long, I appreciate how complex it is. It would appear from Michael and Agnes's report that there is an end product. There may be some benefit in considering detailed briefings or even training workshops for MLAs who are interested in the subject matter, particularly on the new system as it comes through, because we would want it to be given it a fair wind.

32. There are questions that we could speculate about, but I am trying to resist that temptation, because you could think of a number of what-if scenarios. One thing that is certain to confront us is the need to generate new revenues. The implications, if any, should individual Ministers bring schemes forward, should be explained in some detail. I can see that, in some circumstances, that may involve a fairly complex consideration of issues, perhaps involving European competition law in some instances or Treasury rules in others. I am not sure of the limits; we will deal with a paper subsequently on the Budget exchange mechanism. The limits are quite tight, and I wonder what would happen to some of the schemes, particularly asset disposal schemes, given that they all have a certain elasticity. We cannot just predict that we can do this when we hope to, and we have already found that out with the asset disposal process. So, the exercise will not be without its complications.

33. To finish on the point I started with, it will be important that we facilitate Members' understanding of the new process. It will certainly enhance participation and a sense of ownership and responsibility for the decisions that are made.

34. Mr Brennan: As I understand it, the Committee has organised a session with all MLAs for 18 October.

35. The Deputy Chairperson: That is correct.

36. Mr Brennan: We are going to do a presentation in two parts. The first part will be a summary presentation on the public expenditure system, similar to the one that we gave to the Committee in early June, and the second part will be on the details of the financial review. We will have to go into considerable detail in the presentation on the public expenditure system. I referred to the Treasury's statement on funding policy, because that defines the discretion that the Executive have on revenue-raising powers. As you know, Ministers and the Budget review group are looking at that.

37. The Executive have significant discretion on where they can raise revenue, whether that is through a plastic bag tax or car parking charges. The difficulty comes when you get into excepted matters and fiscal powers, such as air passenger duty and corporation tax. Then you are into, for example, issues over EU state aids and the Azores judgement. That is where the complexities come in.

38. The Executive and Assembly have a wide range of powers for revenue raising, as opposed to fiscal powers. It is important to distinguish between them, and we will do that in the presentation on 18 October. We will also try to draw out in our presentation for MLAs the importance of issues such as gross versus net when it comes to the financial review.

39. Mr McLaughlin: An issue occurred to me when Agnes was speaking, and the plastic bag tax is an example of it. I was thinking of cases where we pass legislation that gives effect to the Assembly's mind. I presume that, in subsequent Budgets, the bag tax could change and could go either up or down, but that that would not require legislation. So, there is the initial consideration about the Assembly's needing to legislate to do certain things, but there is then the situation with what happens subsequently in other Budget rounds. I assume that you would use the existing legislation, but you may vary the rates.

40. Mr Brennan: The principle is similar to what we do with the regional rate. That varies on a year-to-year basis, and the revenue stream varies accordingly. Similarly, with things such as MOT charges, the decision that the Department of the Environment (DOE) takes on that determines the revenue stream that the Executive accrue.

41. Mr P Maskey: I am new to the Committee, and I am trying to get my head round some of the issues, so this might sound like a silly question. I take it that legislation for the plastic bag tax is required because you are asking the private sector to collect the money. Is that correct? The private sector has to pass the charge on to individuals, because if you go into a shop and are given a bag, you have to pay for it, so you are asking the private sector to implement the measures. If a Department or an arm's-length body of a Department were introducing a similar charge, would legislation be needed in that case?

42. Ms Lennon: Northern Ireland Departments are statutory bodies, so they cannot carry out any service without the statutory authority to do so. They must have a legislative basis for delivering the service, no matter what it is.

43. Mr Brennan: DOE does not have the legislative ability to levy the bag tax, because the relevant legislation has not gone through the Assembly.

44. Mr P Maskey: So, legislation has to be made for every revenue-raising measure. Is that correct?

45. Mr McLaughlin: Unless it is already covered.

46. Ms Lennon: Exactly; unless the measure has a statutory basis already.

47. Mr P Maskey: Can one piece of legislation not do away with all that?

48. Ms Lennon: Your Departments are statutory bodies, and they must have statutory authority to deliver every service. A Minister cannot just decide to deliver a service.

49. The Deputy Chairperson: Have you finished on that topic?

50. Ms Lennon: Yes. Perhaps there is just one issue to touch on. The income that Departments can keep and the income that we are talking about voting has to have related spend; income can be brought in and kept by a Department only if there is related expenditure. Otherwise, it goes to the Consolidated Fund.

51. Mr Girvan: That last point helps to answer my question. Departments could increase charges for a function. In some cases, those charges could be used to cover up their inefficiencies with their bottom lines. I am wondering what mechanism could be put in place to ensure that that does not happen and that Departments are not increasing their revenue-generating powers to offset some of their inefficiencies.

52. Mr McLaughlin: Do you think that could happen?

53. Mr Girvan: Definitely; I have run a business.

54. Ms Lennon: There are very strict rules on charging in 'Managing Public Money', as well as under the Treasury fees and charges guidance. At the most, that should be for full cost recovery. So there are already rules on that.

55. Mr Girvan: My point is that they can say that it is for full cost recovery through whatever means possible. I can think of one instance in particular, which I would not be happy to raise here — I might raise it in Paul's Committee later — where an over-inflated bureaucracy has been generated that costs a fortune to run and administer. Therefore, it has been deemed that, to cover that bureaucracy, are actual costs can be put forward and added on as a reasonable charge to the public. A mechanism is needed to ensure that the process is not being used to mask or cover inefficiency. By going down the net route, I wonder whether that would leave the opportunity to do that.

56. I appreciate that we are —

57. Ms Lennon: I do not imagine that it would make any difference in that particular scenario, but the safeguards that are in place are that, for example, DFP Supply would have an interest in such cases, and the Assembly Committees would have a role in challenging that.

58. The Deputy Chairperson: What about the 25% of expenditure that is not approved by the Assembly? I understand from the research paper that that is mostly capital spend.

59. Ms Lennon: A portion of it is capital spend, and another large portion is to do with non-departmental public bodies (NDPBs). The sum that the Assembly votes includes only the cash grant to the public body for that year, not the full resource consumption. The full spend and income of the arm's-length body is in the Budget, whereas in the Estimate, only the cash grant is voted. Bringing the NDPBs within the accounting boundary, which is a path that we would like to follow if it is acceptable to the Assembly and the Executive, would do away with quite a lot of that.

60. The Deputy Chairperson: Is that proposal in your consultation paper?

61. Mr Brennan: That is the major difference, particularly where our earlier point about the lack of transparency between the Budget position and the Estimates is concerned.

62. Mr Cree: You said "quite a lot". What about the others?

63. Ms Lennon: I do not have the figures on that in front of me, I am afraid.

64. Mr Cree: The aim is to do it all, is it not?

65. Ms Lennon: Yes, I hope to align everything. The aim of the project is to align and vote absolutely everything, but I am not sure as yet whether we can do that for all areas of expenditure. Hopefully, however, that will be the case.

66. Mr McLaughlin: Yes, you started that line of questioning, Deputy Chairperson. I am one behind you.

67. The Deputy Chairperson: I was going to move on to the consultation document.

68. Mr McLaughlin: In that case, have all the causes of that gap in the Budget process been identified? The NDPBs are the major part of it, but there are other sources of that difficulty. Have they been identified and specified as well?

69. Ms Lennon: Yes, they have. We are working on that, and that work will be ongoing over the next months. I will not say that, in the discussion paper that we will produce in October, we will have all the answers, but we will certainly work towards them over the next months. Areas such as the National Insurance fund, the social fund and the notional charging that we do across Departments will be investigated. We hope to get solutions to all those misalignments.

70. Mr McLaughlin: It is probably important to remind ourselves that this important information was volunteered by these two officials at an earlier meeting. It has helped everyone to get their heads around just how difficult it is to take a comprehensive approach.

71. The Deputy Chairperson: At the beginning, when I introduced you, I outlined the recommendations from the research paper. Let me summarise them. The first was a Budget calendar, the second was a strategic phase and the third was the formal stage. The fourth was a detailed breakdown of expenditure plans, and the fifth was that the framework process should be set out in primary legislation. Does your consultation paper cover those five recommendations?

72. Mr Brennan: We will address them, but I can give some initial observations on the complications that we see in them. For example, on the first issue of a Budget calendar, Scotland and Wales have a specific date set — I think they must have Budgets by 1 January. The difficulty that we have here is that we have commitments to engage in a public consultation process, but those do not exist in Scotland or Wales. I wonder how we would have addressed 1 January, say, as a set date by which a Budget had to be produced for the year just past, when, for example, the outcome of the UK national spending review was not announced until 20 October. Normally, DFP's ideal scenario for the timescale for a Budget is that there is a draft Budget by early September. However, the outcome of the UK spending review, which determines 95% of the resources for the Executive, was not announced until 20 October. That is what worries me about setting specific dates.

73. From our perspective, we would love the Committee to recommend setting a concrete date deadline. It focuses minds, because it means that you have to have something tabled at the Executive and on through. We would welcome a specific date, but I can see the complexities and the complications that would emerge either from a Treasury allocation as part of a national spending review or, shall we say, delay in the Executive.

74. The second recommendation relates to a strategic phase. The main benefit of having a strategic consideration of the Budget is that it sets out the main priorities and aims, and where allocations are going to be prioritised. Effectively, that should be the Programme for Government. There is a difficulty with specifying a strategic phase; for instance, where would we have been in this Budget if we had to formally wait for a Programme for Government?

75. It was also recommended that there should be a formal reconsideration stage of the Budget in the budgetary year. I suggest that we already have that, because, as Agnes mentioned, we have monitoring rounds. That is when the Executive strategically reallocate resources as reduced requirements come in or as pressures emerge in other Departments, for instance. The Executive reprioritise their resources. There used to be four such rounds, but there are three in-year strategic reconsiderations on the Budget now: June, October and January.

76. I agree that documentation should be made available in good time, and I do not see how anyone could dispute the logic of that. In many ways, this Committee's work is strategically important, because it allows us to relay views to our Minister and helps shape papers of his that go to the Executive. Many times in the past, our Minister has criticised his colleagues who did not make information available to the other Statutory Committees. So, I think that there is strong logic in that recommendation.

77. The Deputy Chairperson: What about the final recommendation, which says that the budgetary process should be set out in primary legislation? Judging from what you said, I think that that might present you with difficulties.

78. Ms Lennon: We, as officials, would like that, but we would also like to know the view of the Committee and the Assembly. When we issue the discussion paper, perhaps you would like to canvass other Committees' so that you can get a view across the Assembly. Is it the view of the Assembly and this Committee that you would like dates set in legislation? Or, is another option that Standing Orders should be amended to set specific dates? Or, is it the Assembly's view that you would have an agreement with the Executive? We, as officials, would love the calendar; we would love dates to be set in legislation. However, we have to be practical, but we would like to know the view and the will of the Assembly on that before we go to the Executive.

79. The Deputy Chairperson: The Committee has not come to a final conclusion, and we have not made recommendations to the Assembly as yet. We are still at the stage of gathering information and research on the matter.

80. Mr Girvan: Michael alluded to getting the information and final figures from Westminster. That is a key factor. We are tied until that information comes through. Is there a possibility of getting it any earlier in the day? If there is, we could sit down, work to that timetable and work back from it and set firm dates. I see that as a key factor in allowing us to set those dates.

81. Mr Brennan: It is, but, unfortunately, you will be at the whim of whatever timing the UK Government want to impose on spending reviews. The spending review outcome is usually announced in July, but, in July this year, we realised that it would be late, so, in an attempt to assist the Executive and, indeed, the Committee, we produced forecasts, which we gave to the Committee, on what we thought the review would deliver. In past years, even when the Treasury gave us the spending review outcome in July, the timing to get the Executive to agree a draft Budget in September was still very tight. October was completely illogical for our internal timescales, and the Treasury took no cognisance of our difficulties. I do not know how you could force the UK Government to commit to a formal agreement on delivery.

82. Mr Girvan: You mentioned the model that they work to in Scotland, but they have different powers. Is that correct?

83. Mr Brennan: They also do not have the same commitments to make on, for example, consultation processes.

84. Mr Girvan: The benign dictatorship comes in here.

85. Mr McLaughlin: Differing priorities in the Westminster Government mean that those difficulties could occur any year. If we were looking at the Budget process itself, I wonder what the merits would be of having a four-year Budget process with a Budget performance review in the intervening years. That could review the Budget and the Programme for Government. It is not that controversial for an incoming Government to end up implementing the outgoing Government's Programme for Government for the first year or maybe even the first 18 months. Therefore, a four-year Programme for Government cycle that reflects the four-year term here but that does not kick in until year 2 — it runs into year 1 of the subsequent term — would give you some degree of control over the impact of external factors, such as different priorities applying in Westminster.

86. At the moment, we just bob about like a cork in the water; if they do something, we have to firefight. Getting involved, understanding and being transparent and accountable are sound notional ideas, but complex issues become even more complex and confusing when external factors must be balanced. For example, I am not sure that we need three monitoring rounds, and I was never convinced that we needed four. To all intents and purposes, some of them are useful only because they force Departments to get their books in order before they are looked at and because they encourage Departments to be up front with performance figures and spending profiles. However, that could be done equally well with two monitoring rounds, with the result that space could be freed up for an in-term Budget review process that could adapt and adjust to changing conditions. Therefore, while looking at the timeliness of the process, we should consider, in a fairly open-minded way, what would maximise the Assembly's ownership of the process.

87. I do not think that each new intake of MLAs and Ministers taking a ground-zero approach gives us the type of control, continuity and strategic perspective that we need. Maybe a minimum of a one-year overlap would make your reforms more applicable and manageable, as well as allowing for a strategic perspective, because you really need to look two or three terms ahead by taking a 10- or 12-year perspective.

88. Mr Brennan: Yes, particularly on the capital side where infrastructure development is concerned.

89. The other complication that you talked about is the four-year cycle here. However, this was the first year in which the UK delivered a four-year spending review— normally, it is three years — and the expectation is that they will stick to that going forward.

90. Mr McLaughlin: They could change it again.

91. Mr Brennan: Indeed. I agree with your point about monitoring rounds. Logic suggests that we need only two monitoring rounds, and, if that were to be the case, you would go for October and January, which would tie in with the final SSEs. The October round would be a mid-year review. In effect, you would have all the resources, and you would have to address all the issues from the end of the previous financial year and whatever reduced requirements and pressures that would have emerged in the first six months. Therefore, it could be quite a strategic assessment.

92. The Deputy Chairperson: OK, thanks. Is it the plan to launch the consultation paper on Tuesday 18 October?

93. Ms Lennon: Yes, we hope to issue it that week.

94. The Deputy Chairperson: So, will it be available to the MLAs during that briefing?

95. Ms Lennon: Yes, we will have it for the MLAs at that session. We hope to issue it to the Departments, the Audit Office and the other key stakeholders. It is more of a discussion paper that will contain some initial recommendations, which we would like responses to.

96. The Deputy Chairperson: Will you give us a flavour of the type of issues for discussion that will be highlighted in that paper?

97. Ms Lennon: It will deal with the process that we have been discussing here and with the recommendations from this Committee, so it will deal with the whole Budget process. We will deal in some detail with the whole misalignment, which is probably not of particular interest to the Assembly or the Committee but of more interest to the Departments and certainly to the Audit Office. It will also address the issue of bringing NDPBs into the accounting boundaries. As I said, the Audit Office and Departments are particularly interested in that.

98. We will deal with the vote issue, that is, the pros and cons of whether we move from a request for resources to voting the Budget limits of resources and capital, that is, departmental expenditure limits (DEL) and annual managed expenditure (AME). We will look at the net versus gross issue and make a recommendation on that. Publications will attach a sample Estimate and a sample new resource account.

99. The Deputy Chairperson: When you say that that is a "discussion document", does that mean that it will not follow the usual consultation format, which affords people the opportunity to respond to various sections and raise questions and so on?

100. Ms Lennon: On the use of the term "consultation", I do not want anyone to think that it is a public consultation. It is not, and we will not be following the 12-week format. It is really just a consultation with key stakeholders — Departments, the Audit Office, the Committee and across the Assembly.

101. Mr Brennan: It is important to make the point that the issues here are so incredibly complex that all of us, including key stakeholders, are struggling to get our minds round how to take some of these things forward. From our perspective, the critical stakeholder is this Committee and its relaying of the Assembly's views. We need your views before we can even go to our Minister to shape this. That is why there is a six or seven-week window to elicit views from your Committee, the Audit Office and departmental finance teams.

102. The Deputy Chairperson: Thank you very much. I remind members that the information briefing for MLAs on the financial process will be on Tuesday 18 October in the Long Gallery. Is a time set for that?

103. The Committee Clerk: There is the possibility of lunch at around 12.45 pm, with the briefing to start about 1.15 pm. That will be firmed up.

104. The Deputy Chairperson: Are members content with that?

Members indicated assent.

105. The Deputy Chairperson: OK. I thank the witnesses very much.

Appendix 3

Memoranda and Papers
from DFP

Assembly Section
Craigantlet Buildings
Stormont
BT4 3SX
Tel No: 02890 529147
Fax No: 02890 523600
Email: Norman.Irwin@dfpni.gov.uk

Mr Shane McAteer
Clerk
Committee for Finance and Personnel
Room 419
Parliament Buildings
Stormont

Our Ref: CFP5,6&7 /11-15

8 June 2011

Dear Shane,

At the meeting on 1 June, Members raised two issues to be brought to the attention of the Department. The first was in relation to the Terms of Reference for the Review of the Financial Process and the second was relating to the work of the Budget Review Group.

It is important to note that the Terms of Reference for the Review of the Financial Process were endorsed by the Executive collectively in February 2011. They are, therefore, not DFP's to alter or amend unilaterally.

However, looking at the conclusions and recommendations from the previous Committee's reports, it is clear that many of these could be addressed within the existing Terms of Reference.

Over the coming months the Committee will be a key stakeholder, on behalf of the Assembly, in delivering the Review of the Financial Process. This will provide an important platform for the Committee to reflect their two previous reports. This Review is an opportunity for significant reform and, building on the lessons learned in the last mandate, to design a financial process and publications that meet the needs of the Assembly.

Yours sincerely,

NORMAN IRWIN

DFP Presentation

Briefing Paper for the Committee for Finance and Personnel

21 September 2011

From: Norman Irwin

Date: 8 September 2011

Summary

Business Area: Public Spending Directorate, CFG
Issue: Review of the NI Financial Process
Action Required: To note

Introduction

The purpose of this briefing note is to update the Committee on progress of the Review of the Financial Process over the summer months.

Progress

• A list of establishing legislation of NDPBs has been compiled and forwarded to the Departmental Solicitors' Office (DSO) seeking advice on any barriers, contained within the legislation, to bringing them within the Estimates and accounting boundaries. In addition, advice has been sought on the wider legal implications of consolidating NDPBs. The NI Financial Framework is enshrined primarily in the Northern Ireland Act 1998 and the Government Resources and Accounts Act (NI) 2001 (GRAANI 2001). GRAANI 2001 may preclude the consolidation of NDPBs within the Estimates and accounting boundaries and amendments will probably be required – therefore, DSO advice requested in order to inform the Review.
• There is ongoing consideration of all misalignments between Budgets, Estimates and Accounts and possible solutions further explored.
• Further consideration was given to voting the Budget controls and the pros and cons of voting 'Net' examined, with a view to better alignment.
• A meeting with the NI Audit Office took place in August to discuss the Review and implications for the Audit Office of consolidating NDPBs within the accounting boundary.
• The Estimates have been reviewed and redesigned with a view to transparency with the Budget and Accounts.
• The recommendations in contained within the Assembly Research paper were considered as was the scoping of the practicalities and risks of presenting Estimates and the related Budget Bill as the final stage of the Budget process.
• The first meeting of Departmental Working Group is planned for 29 September 2011 to discuss the practicalities of alignment of Budgets, Estimates and Accounts and to commence work on developing solutions.
• The Department is currently drafting a Discussion Paper, with initial proposals on the key issues, for circulation in October to key stakeholders.

Review of the Financial Process in Northern Ireland
(Commissioned by the NI Executive on 10 February 2011)

Discussion Paper for Key Stakeholders
(Issued 10 October 2011)

Responses Due 30 November 2011

Index

Executive Summary

Introduction

The Executive's public revenue and expenditure process takes place in the context of the wider UK control and management framework. The current process has existed in Northern Ireland for a considerable time and is based on an outdated Westminster model.

The various components of the process serve different purposes and have developed over the years in individual directions resulting in significant misalignment between Budgets, Estimates and Accounts. Therefore, while based on the same basic dataset, the figurework in Budgets, Estimates and Accounts, although reconcilable, does not meet the Assembly's expectations in relation to transparency. Assembly members have expressed frustration with trying to understand sets of financial information that are calculated on a different basis and/or different boundaries, making it difficult to track spend from plans to outturn. This also limits the ability of Committees and members to challenge departments effectively.

The Executive considered it was time to take stock and review the entire financial process with the objective of agreeing a simplified and streamlined process tailormade to meet the requirements of the devolved administration. This is an opportunity, within the lifetime of this Assembly, for significant reform of frameworks, publications and procedures that have existed for decades in Northern Ireland, with a view to a transparent public expenditure process improving accountability to the Assembly.

Initial Recommendations for Discussion

Having considered the views of key stakeholders and the available evidence the initial recommendations, at this first stage, are set out below. It must be emphasised that these recommendations, while indicating a direction of travel, are largely an effort to focus minds on the key areas for improvement and to kindle debate on the issues and possible reforms.

Recommendation 1: Assembly controls should change to reflect the alignment of Budget, Estimates and Accounting boundaries. The concept of Requests for Resources (RfRs) should be abolished and the Assembly should instead vote, as applicable, each department's:

• Resource DEL
• Capital DEL
• Resource AME
• Capital AME
• Net Cash Requirement.

Currently for each department the Assembly authorises, via the Estimates and the Budget Bill, resource spend by Requests for Resources (RfRs) as well as the Net Cash Requirement. In Budgets the expenditure controls are resource and capital DEL and AME. In order to align Estimates and Accounts with Budgets and improve transparency and accountability to the Assembly, the proposed approach is to vote the Budget controls in future.

Recommendation 2: NDPBs are consolidated within the Estimates and Accounting boundaries in order to improve alignment and transparency.

Currently the full expenditure (including non cash spend such as depreciation) of Executive NDPBs is included in Budgets, but not in Estimates or Accounts – instead the cash grant to the NDPB is included in Estimates and Accounts. This results in one of the largest misalignments between the three frameworks. The proposed solution is to consolidate Executive NDPBs within the Estimates and Accounting boundaries. The groundwork required for consolidation would be an administrative burden on departments and impact on faster closing and laying of Resource Accounts, but the benefit of alignment in terms of transparency would outweigh these difficulties.

Recommendation 3: DFP should continue to work with departments to find solutions, where possible, to all other misalignments between Budgets, Estimates and Accounts.

Other less significant areas of misalignment between Budgets, Estimates and Accounts would require DFP to continue to work towards their resolution in order to achieve the aim of full alignment.

Recommendation 4: All non-voted expenditure and income within Budgets (eg Consolidated Fund Standing Services) is brought within the coverage of Estimates in the Part II Subhead Detail.

Not all expenditure that appears in Budgets and Resource Accounts is voted annually in the Estimates, nor should it be, because separate standing legislative authority already exists. Particular types of expenditure such as statutory salaries and expenditure from specific Funds, such as the National Insurance Fund fall within this bracket. The proposed approach is to include such non-voted expenditure within the Part II Subhead Detail of the Estimate in order that the total figurework will align with the Budget and transparency is improved.

Recommendation 5: The Assembly votes 'Net' controls in the Estimate and Budget Act in line with budgetary controls, with details of income shown in the Estimates and appropriate safeguards in place so that firm control is maintained over the use of income by departments.

Currently Budgets are approved by the Assembly 'net' of departmental income while Estimate approval is 'gross' in that the net resources and the income are both approved. The proposal is for the Assembly to vote Estimates 'Net' in future, consistent with the Budget. However, details of the income would continue to be provided to the Assembly in Part II of the Estimate. In addition, in order to maintain Assembly control over the types of income departments could retain and use on related services, this information would be included in the Budget Act and in the ambit of the Estimate.

Recommendation 6: Spending Areas in Departmental Expenditure Plans should be re-structured in such a way as to be meaningful and informative to the reader and indicative of the range of services delivered by the Department. Spending Areas should be used in all publications.

A common frustration expressed by Assembly members and others is the lack of comprehensive information on spend on public services, as currently provided by the expenditure lines of some departments. In the interests of transparency and accountability a meaningful split of the services delivered should be shown in all publications. It is proposed, therefore, that departments' budgets should be re-structured into spending areas that are informative and meaningful to the public.

Recommendation 7: Performance outcomes and the delivery of the Programme for Government should not be directly attributable to allocations in budgets but should be monitored and delivered regardless of budget inputs.

It is often stated that there should be linkages between expenditure plans and outcomes, including to PSA targets. However, it has proved, in the past, impractical to map spending areas to PSA targets in any meaningful way. Budgets would need to be disaggregated to a level that would produce a web of confusing information. The driver of PSA targets should be performance and the efficient delivery of the target, not the amount of funding allocated to it. It is concluded performance should not be considered to have any direct link to funding inputs.

Recommendation 8: The Estimates and Resource Accounts should be revised as shown in Annexes D and E.

The misalignments that currently exist between Budgets, Estimates and Accounts, and addressed in the preceding recommendations, should resolve most of the frustration caused by publications of financial information produced from different datasets and boundaries. In addition, the Estimates have been redesigned and simplified somewhat to allow the Budget figurework to be traced through to the Estimate. The revised Estimates and Accounts are attached to the Discussion Paper for comment.

Recommendation 9: That the Budget should be developed in the context of a Programme for Government agreed by the Executive.

The Committee for Finance and Personnel and Assembly Members have expressed concern regarding the development of a Budget in the absence of a Programme for Government. It is concluded that the formulation of a Programme for Government prior to or, at least, in tandem with the development of a Budget is desirable.

Recommendation 10: That, if circumstances and time permits, the Budget timetable should include an early strategic phase, allow sufficient time for consultation by Committees and with the public and be strictly adhered to by all concerned.

The Committee for Finance and Personnel strongly argue for an early strategic phase in the Budget process to enable the Assembly to engage with departments and external stakeholders at the outset and then thoroughly debate the issues and influence the development of the Budget, which, in turn, could pay dividends at the later stages of the process. Discussion and challenge by Committees with departments around their Budget pressures, their priorities of spend and their plans to live within budgets would be a key component of this early phase. The Committee for Finance and Personnel could lead at this early stage taking evidence from DFP on the expected funding envelope, coordinating the reports from the other Committees and presenting a strategic overview of the financial position to the Assembly for debate in late May.

Recommendation 11: An 'Ideal' Budget timetable would be (presuming the development of a Programme for Government prior to or slightly in advance of the Budget):

The Committee for Finance and Personnel strongly argue for the advance publication of a Budget timetable to facilitate early engagement by Committees with departments and allow time for adequate consultation. In addition, departments require agreement of a Budget by December in order to allow sufficient time to plan ahead and allocate their budgets, both internally and to arms length bodies, well in advance of the new financial year. The proposed timetable above includes key dates in the Budget process and allows for an early strategic phase followed by a Draft Budget in the early autumn and a Final Budget agreed by 31 December.

Recommendation 12: A Budget Process Agreement should be made between the Assembly and the Executive and the Assembly's Standing Orders should be amended to reflect this Agreement and specify Budget Procedures.

The Committee for Finance and Personnel recommends the formalisation of the Budget process in legislation or the Assembly's Standing Orders. However, the Budget framework is already enshrined in the Northern Ireland Act 1998 at an appropriate level – it would not be advisable to include detail or key deadlines in primary legislation. Therefore, a twofold approach of a Budget Process Agreement between the Assembly and the Executive reinforced by the appropriate detail in the Assembly's Standing Orders is proposed.

Recommendation 13: In due course, consideration should be given to streamlining the end stage of the Budget process by introducing the Main Estimates as the final stage of the Budget process in December/January.

Currently the Final Budget should be agreed by the Executive and debated and approved by the Assembly around December/January. A Vote on Account is then taken to allow expenditure to continue into the new financial year with the Main Estimates presented, debated and approved in June around the same time that the first monitoring round is amending those Estimates. It would be desirable to streamline the process by introducing the Main Estimates and related Budget Bill as the final stage of the Budget process in December/January. However, any risks to the process and the funding of departmental spend have to be considered, therefore, such a refinement of the process could only be introduced after a revised Budget process was firmly established and proven to deliver. Nevertheless, such a streamlining of the end stage of the process should be considered as soon as practicable.

Recommendation 14: In due course, in light of involvement of the Assembly in the early strategic stage of the Budget and throughout its development, an amendment of Standing Orders to facilitate a truncated passage of Budget Bills through the Assembly should be considered.

The Budget Bills are the final legal stage of the Budget and monitoring rounds already debated at length in the Assembly. In recognition of this the Assembly's Standing orders currently make provision for accelerated passage of Budget Bills. An early strategic phase in the Budget process, as suggested earlier, with robust Assembly involvement throughout could enable the further acceleration of the Budget Bills. This would be especially pertinent if Recommendation 14 was taken forward and Royal Assent required in good time for the beginning of the financial year.

Recommendation 15: The Rates Order should be debated alongside the expenditure plans for the next financial year, as set out in the Budget Bill.

This public income strand of the rates should, arguably, be an integral part of the entire financial process in order to minimize any risk that it may be treated as a separate emotive issue by the Assembly, divorced from expenditure plans. Bearing in mind that the expenditure plans in the Budget and Estimates are predicated on the planned income from the rates, the scheduling of the Rates Order and the Budget Bill could be synchronised to positively link these two strands of public finances. However, it would not be proposed, at this stage, to combine the two into one piece of legislation.

Next Steps

Responses to the recommendations in this Discussion Paper are invited by 30 November 2011 to:

Financial.Review@dfpni.gov.uk

All stakeholders are encouraged to respond. Following consideration of all the responses a report will be prepared to the Executive with final recommendations on the way forward. Following Executive discussion and approval of the way forward the recommendations will be brought to the Assembly by the Finance Minister, on behalf of the Executive, for debate and approval.

The current timetable for the discussion in the Assembly is the spring of 2012 following which plans for implementation will begin while any legislative changes required will be drafted and progressed through the Assembly. The earliest date for implementation envisaged at the moment is 2014-15 with the presentation of consolidated revised Estimates to the Assembly in June 2014 and production of consolidated 2014-15 Resource Accounts in the summer of 2015.

Section 1 - Introduction

Background

1. The local devolved administration has been through one Budget period and is now in the first year of its second Budget - Budget 2011-15. Therefore, at this stage, after a settling in period of familiarisation with the public expenditure system, the Executive considered it appropriate to take stock and review the financial process in Northern Ireland with a view to achieving a transparent and streamlined process that better suits the needs of the Executive and the Northern Ireland Assembly.

2. To this end, the Executive agreed on 10 February 2011 the Terms of Reference for such a Review (attached at Annex A). A small Review team was set up within DFP and work commenced including early consultation with key stakeholders to identify some of the difficulties with the current process and to explore possibilities for improvement. Those consulted included departments, the Northern Ireland Audit Office, Account NI and the Committee for Finance and Personnel on behalf of the Northern Ireland Assembly.

3. This document is the result of that early evidence gathering, analysis and consultation. It endeavours to identify the problems with the current Financial Process, examine the issues and areas of concern and make initial recommendations for improvement in order to stimulate further debate and responses from key stakeholders. It must be emphasised that these initial proposals are a 'work in progress' to inform and encourage debate and any final recommendations for a new financial framework will be subject to Executive and Assembly approval. Therefore, following consideration of the responses to this discussion paper, a final report to the Executive will be prepared in the new year with recommendations on the way forward. Following Executive approval the recommendations will be brought to the Assembly for debate and approval.

4. Responses are invited on each of the recommendations in this discussion paper or on any additional areas of concern that are relevant to this Review. Please send all comments by 30 November 2011 to:

Financial.Review@dfpni.gov.uk

Current Process

5. The current financial process in Northern Ireland has existed for many years and is based on the Westminster model. The diagram attached at Annex B depicts the current Northern Ireland Budget, Estimates and Accounts cycle - the shaded blue sections represent one complete cycle as described in the next three paragraphs.

6. Following the important engagement with Assembly Committees on departmental positions, the formal Assembly stages begin with the presentation of a draft Budget to the Assembly in the autumn followed by Assembly approval of the final Budget in December/January. Once the final Budget is approved, the process continues with a Vote on Account for the next financial year and an associated Budget Bill being taken through the Assembly. This provides the necessary statutory authority for departments to commit expenditure until the introduction of the Main Estimates and Budget Bill in the Assembly three months into the financial year. Monitoring rounds then take place in-year, culminating in Spring Supplementary Estimates and a final Budget Bill in February.

7. In addition, but in parallel, the public income strand in the form of Rates legislation is handled as a separate process by the Assembly.

8. Resource Accounts are prepared and laid in the Assembly after the close of the financial year to compare audited departmental outturn against the limits voted by the Assembly in the Estimates.

Areas of Financial Process Presenting Difficulties

9. The main areas of difficulty that have become particularly apparent are:-

• Budgets, Estimates and Accounts serve different purposes and have developed over the years in different directions leading to a lack of transparency and obvious alignment between them. This makes it complex for Assembly Members, and the public, to understand, manage and scrutinise public spending;
• It is estimated that only around 60% of spend is aligned across all frameworks, requiring various reconciliations;
• Figurework and information presented on different bases in the various publications makes it difficult for Assembly Members, and the public, to track spend from plans to outturn. Estimates appear to present particular difficulties for all concerned;
• Different controls are approved by the Assembly in Budgets (Current and Capital DEL and AME) and in Estimates (Requests for Resources (RfRs));
• Some spend is not voted (eg departmental capital is not voted) – weakening accountability to the Assembly;
• Departmental expenditure plans in the Budget and Estimate publications do not always present a meaningful and informative breakdown by spending area;
• Insufficient engagement (and late engagement) by Ministers and departments with their Assembly Committees on the draft and final Budgets;
• The Executive's Programme for Government (PfG) should be agreed in advance of the Budget process so that the Budget is developed in accordance with the priorities in the PfG;
• The Budget timetables do not provide for an early strategic phase (in the Spring of a Budget year) to facilitate Assembly debate of revenue and spending priorities and adequate early consultation with Committees and other key stakeholders;
• The financial process is convoluted and repetitive – consultation, scrutiny, debate and agreement of the Budget is followed by debates reopening the same Budget issues, during the legislative process; and
• The rates income stream is not considered by the Assembly in conjunction with the expenditure plans.

10. In light of the above, a study has been undertaken by the Review team to assess these areas of difficulty and examine the process and publications, with a view to informing any decisions on the way forward in Northern Ireland. The following Section briefly examines the main areas and concludes with initial recommendations for each.

Section 2 – Examination of the Issues and Initial Recommendations

11. Based on the difficulties identified with the current process, highlighted in the previous Section, the areas examined were divided into the following key topics:

I Misalignments:

• Aligning Estimate controls with Budget controls
• Consolidation of NDPBs within Accounting Boundary
• Other misalignments
• Non-voted expenditure

II Assembly Controls/Votes – 'Net' or 'Gross'

III Transparency of Departmental Expenditure Plans

IV Linkages between Expenditure Plans and Performance Outcomes

V Publications – Budget document, Estimates and Accounts

VI Early Budget Process

VII Framework for a Budget Process

VIII Budget Bill as Final Stage of the Budget Process

IX Rates Income Stream

I Misalignment: Lack of Transparency and Obvious Alignment Between Budgets, Estimates and Accounts

12. Public expenditure is currently managed through the following frameworks, each designed and developed for a specific purpose:

• Budgets – to plan public expenditure over a 3 to 4 year period and set budget limits,
• Estimates (and related Budget Act) – to annually seek Assembly authority for expenditure on services within certain limits,
• Resource Accounts – to report actual expenditure to the Assembly following the close of the financial year, including reporting against the limits approved by the Assembly for that year in the Estimates and Budget Act.

13. There is a significant misalignment between these frameworks with only about 60% of spend aligned across Budgets, Estimates and Accounts. This misalignment manifests itself further in the published documents resulting in a lack of transparency between the three frameworks and their publications.

14. The principal areas of misalignment are fourfold:-

a) The main focus of the Budget document is on the DEL while the Estimates resulting from that Budget include both the DEL and the AME, as do the Accounts;

b) Budget high level controls[1] are net Resource DEL and AME and net Capital DEL and AME while Estimate/legislative controls are currently by Requests for Resources (RfRs) for net resource plus the accruing resources (total of operating and non-operating) while capital is not voted, except within the cash requirement;

c) The boundary differences – the Budget is the wider public sector boundary, encompassing full spend (including non cash spend eg depreciation) of Non-Departmental Public Bodies (NDPBs), while the Estimates and Accounts are the departmental expenditure/accounting boundaries including simply the cash grant-in-aid to the NDPBs rather than the full resource consumption, and

d) In addition there are some other less significant misalignments between Budgets, Estimates and Accounts. These include Consolidated Fund Standing Services (ie services paid directly from the NI Consolidated Fund under statute rather than voted annually by the Assembly in the Estimates), the National Insurance Fund, the Social Fund, notional charges, etc.

15. In effect, b), c) and d) above lead to a mismatch of Assembly controls approved at Budget and Estimates stages and a weakening of both sets of controls.

16. Most notably, a department incurs an Excess Vote when it exceeds the provision voted by the Assembly in the Estimates and Budget Act but not when it exceeds the Budget controls approved by the Assembly. Departments are called to account for an Excess Vote by the Assembly (via the Public Accounts Committee) but this does not occur when Budget controls of resource and capital DEL and AME are exceeded.

17. Initial early conclusions are:

• It would be desirable that the Estimate controls are aligned as far as possible to the Budget controls and the Assembly votes the departmental DEL and AME resource and capital budget controls as opposed to the current limits voted by RfRs.
• A further significant step in this process of alignment would be to bring the NDPBs within the Estimates/Accounting boundary of departments thus almost fully aligning departmental Budgets, Estimates and Accounts. Work should continue to find solutions to the other misalignments mentioned in paragraph 14 d) above.

Assessment of the Issues Involved in Alignment of Budget, Estimates and Accounts

Aligning Estimate controls with the Budget controls

18. Currently, for each department, the Assembly authorises:-

• Net resources in one or more RfRs – currently only four departments have more than one RfR;
• Operating (resource) and Non-Operating (capital) accruing resources (income) per RfR, and
• The Total Net Cash Requirement.

19. Alignment of Estimate controls and Budget controls of DEL and AME would mean that the basis of Assembly control would need to change – rather than the Assembly voting individual RfRs (which usually bear little relation to budgetary controls) the limits voted by the Assembly in Estimates and the related Budget Act would need to be brought into line with the budgetary controls.

20. From a practical perspective, currently departments budget against one set of controls while they account for spend in the Resource Accounts against a different set of controls – the Estimate limits. This, surely, is inefficient and nonsensical.

21. Therefore, in order to align Estimate controls with the Budget controls, a solution would be that the Assembly authorises each department's budgetary controls, plus its overall cash requirement. This would enable the Assembly to hold departments to account against the budget controls and any breach would result in an Excess Vote and resolve the problem of unaccountability and lack of penalty for a breach of budget controls, as noted in paragraph 16 above.

22. This approach would offer significant benefits by bringing Estimates and Budget controls into line, mutually reinforcing each other. It would also radically simplify the process for budgeting, voting and accounting for departmental spend within the same limits, with benefits for departments as well as transparency and accountability improvements for the Assembly.

23. The illustrative Estimate and Resource Account attached at Annexes D and E reflect this proposal.

• Resource DEL
• Capital DEL
• Resource AME
• Capital AME
• Net Cash Requirement.

Consolidation of NDPBS within the Estimates and Accounting Boundary

24. In order to achieve alignment between Budgets, Estimates and Accounts it would be necessary to consolidate all central government bodies within the Estimates and Accounting boundaries. Currently advisory NDPBs and tribunals are aligned in Budget, Estimates and Accounts. However, the majority of NDPB expenditure is channelled through over 60 Executive NDPBs and the full resource consumption of these bodies is included in Budgets but is not within the scope of the Estimates or the Resource Accounts – instead the cash grant-in-aid is included in these. This results in one of the largest differences between budgets and voted expenditure and is the main reason for misalignment between the three frameworks.

Accountability and Governance issues

25. Early consultation with departments raised some governance and accountability issues in relation to consolidation of the NDPBs. However, consolidation should not mean any changes to the formal relationships between departments and their NDPBs. It should be stressed that the distinctive characteristics of NDPBs would remain unchanged. NDPBs would continue to be separate corporate identities with statutory responsibilities and independent in their executive decision-making in line with their responsibilities.

26. However, changing the way in which the Assembly votes funding for NDPBs is significant, and not just because it would be administratively neater, but because there is an important issue of accountability for public money. Assembly scrutiny of expenditure plans through to outturn can never be wholly effective if the controls exercised by the Assembly are different from the budget controls applied by the Executive.

27. Consolidation would improve the accountability to the Assembly for the use of NDPB funds. At present, if a NDPB overspends, there are no consequences for the sponsor department in terms of Assembly accountability. Whereas, following consolidation of NDPBs, an overspend by the NDPB could lead to an Excess Vote (and not just a budget breach, as at present) and the sponsor department would be called to account by the Assembly, via the Public Accounts Committee.

28. Although departments would need to ensure that NDPB expenditure is within the Assembly's voted limits, those controls are not new – they already exist as a consequence of the budgeting framework. However, the controls would now be used, not only to meet budgetary limits, but also to provide Assembly accountability. As now, departments would be expected to demonstrate that they had effective measures in place to forecast, monitor and control spending within the total authorised – through, for example, NDPB framework documents.

29. Conversely, while acknowledging that such Excess Votes could occur for reasons outside the department's direct control, the likelihood is that the increased risk of an Excess Vote, due to NDPB consolidation, should be small.

30. On the other hand, one positive practical consequence should flow from consolidation. As stated earlier, NDPB expenditure is already part of departmental budgets, and departments have responsibility within the existing financial management regime for ensuring that total spend (including budgets delegated to NDPBs) is within the agreed budget limits. If NDPBs remained outside the Estimates and Accounting boundary with the cash grant included in the vote, then the management of two separate controls would continue. Whereas, with consolidation, financial management in departments should be simplified somewhat.

31. Turning to the Accounts - NDPBs would, of course, continue to prepare their own accounts and present them to the Assembly. The responsibilities of the departmental Accounting Officer and the NDPB Accounting Officers could be clarified in a Statement of Accounting Officer responsibilities in the Annual Report and in the Estimate – see illustrative Estimate at Annex D.

32. After consolidation the requirement to make cash grants to NDPBs would still remain - the resource consumption would be removed and the grants added in to the resource to cash reconciliation in the Estimate (see illustrative Estimate). Also note that the expenditure of each NDPB would not be shown separately in the Part II of the Estimate but rather a supporting table in Part III showing the resource and capital spend and the cash grant-in-aid would be included to inform the Assembly.

Impact on Resource Accounts

33. Annex E shows the proposed treatment of NDPBs in departmental Resource Accounts, separating out core department and consolidated information.

34. It would be sensible for departments to have early engagement with the Northern Ireland Audit Office (NIAO) about their proposed approach to the consolidation of the NDPBs.

Impact on faster closing and other practical problems

35. The ability of consolidated NDPBs to meet faster closing timetables for departmental Resource Accounts was a concern commonly expressed by departments and by the NIAO. It is recognised that this will be extremely challenging, particularly for those departments with a large number of entities to consolidate. In the longer term, this could be offset by some reduction in the work involved in producing Whole of Government (WGA) Accounts, as consolidated departmental accounts will eventually form the first stage in the overall WGA consolidation process.

36. NIAO have confirmed that they audit almost all of the NDPBs, however, presently none of the departments have all their NDPBs audited prior to the summer recess (overall, around 40% of NDPBs are audited prior to recess). To audit all consolidating NDPBs in time for faster closing would pose a problem for NIAO in terms of their current resources. In addition, the extent of the work to be done by departments to prepare consolidated accounts for faster closing probably differs from department to department based on a number of factors, including how many bodies are involved, but in most cases there is likely to be a significant amount of work involved for departments and their consolidating bodies.

37. NIAO also expressed concern around the current lack of 'systems' to produce consolidated accounts for faster closing and the need for departmental accounts (including those of their consolidating entities) to be produced much earlier in April in order to facilitate consolidation. One proposal would be for departments to agree with NIAO the preparation and audit of Interim Consolidated Accounts (staged between 8 to 10 months) along with the preparation of accompanying notes to the accounts and other audited statements in advance of the year end, where possible. If produced to a high standard, this may reduce the amount of accounts preparation and audit work required prior to summer recess.

38. Another interim solution worth consideration by the Assembly would be the phased implementation of meeting the faster closing timetable over the first couple of years. Issues around consolidation (see below) may increase the risk of qualification in the Departmental Accounts and would suggest that meeting summer recess deadlines should not be a high priority during the early implementation stage.

39. In addition, there were a number of practical issues that arose during the early consultation with departments in relation to consolidation within the departmental accounts. From departments' perspectives, the accounting Policies of NDPBs would need consideration and rationalisation prior to consolidation. The requirement for financial systems or changes to existing financial systems to support budgeting, consolidated accounts and management reporting was important. In addition, departments raised the practicalities of handling elimination issues when consolidating NDPBs into the Resource Accounts and the pros and cons of uploading trial balances to AccountNI or using spreadsheet methods of consolidation.

40. While recognising that consolidation of NDPBs would be an initial administrative burden for departments, the problems are not insurmountable with careful planning and it is concluded that the benefit of alignment between Budgets, Estimates and Accounts would outweigh any short-term difficulties.

41. As each department will have different issues to deal with in the preparation of consolidated Accounts, there should not be any central prescription by DFP as to the best way of approaching consolidation. However, DFP would facilitate an Interdepartmental Working Group to support the cross-fertilisation of ideas and solutions to the various practical problems involved.

42. To facilitate implementation of such a major change, it would be recommended that departments engage early with their NDPBs to develop consolidation processes, including agreeing audit timetables and consolidation requirements. Good early communication with NDPBs and NIAO will be vital to the success of consolidation and working towards meeting faster closing.

43. It would also be necessary for departments to undertake 'dry run' consolidation of NDPBs into their Estimates and Resource Accounts in each of the years leading up to implementation of the new aligned framework. This would provide the comparative figures required for the preparation of the first year of consolidated Accounts. The NIAO would need to be involved in auditing the 'dry run' Accounts and providing feedback on the readiness of departments for implementation. This would provide reassurance to all concerned that this important reform can be successfully implemented.

44. One point to keep in mind, in the context of consolidation of NDPBs within the accounting boundary, is that the Executive's Budget Review Group is currently overseeing a review of arms length bodies, which will consider options for abolition, merger or integration within departmental structures.

Other Misalignments

45. While consolidation of NDPBs within the accounting boundary would greatly improve alignment, there are still some other smaller areas of misalignment. These include notional charges, capital grants to the private sector, etc. DFP should continue to work with departments over the coming months to resolve these misalignments. If it proves impossible to completely align these areas across all three frameworks, the ultimate goal would be to align Budgets and Estimates as far as possible with any remaining misalignments with the Resource Accounts explained and reconciled in the Notes to the Accounts.

Non-Voted Expenditure

46. The current position is that not all expenditure that appears in Budgets or Resource Accounts is voted annually in Estimates. This is because separate standing legislative authority already exists for this expenditure and, therefore, further annual authorisation by the Assembly is not correct or necessary. This can be either particular types of expenditure known as Consolidated Fund Standing Services (eg statutory salaries) or expenditure financed from specific Funds other than the Consolidated Fund (eg the National Insurance Fund).

47. The proposed approach is to widen the coverage of the Estimates (in the Part II Subhead Detail) to include such non-voted spending in order that the total figurework aligns with the Budget figurework and transparency is improved. Of course, this expenditure would not be voted with the spend in the Part II Subhead Detail split between Voted and Non-voted.

II Assembly Controls/Votes – 'Net' or 'Gross'

48. In addition to Recommendation 1 above regarding abolishing RfRs and the Assembly instead voting the Budget controls of Resource and Capital DEL and AME there is another issue that is worth consideration in order to achieve full alignment and the greater goal of improved transparency. That is, the issue of voting 'Net' expenditure.

49. Currently Budgets are approved by the Assembly net of any departmental income that is classified as being within Budgets. However, departments can only retain the income (and related cash) if the Assembly has approved, through the Estimates process and the related Budget Act, the use of the income on related services – the Assembly, therefore, places limits on both net resources and on income (accruing resources) – thereby, voting 'Gross' spend.

50. In the interests of full alignment and transparency the approach could be for the Assembly to vote Estimates and the Budget Act on a 'Net' basis, consistent with the Budgets approved. However, it is recognised that this raises the issue of weakened Assembly control and accountability. In order to counteract this and assure the Assembly regarding income, gross data, including details of resource and capital income, could be included in the Estimate for the information of the Assembly. The sample Estimate in Annex D in the Part II Subhead Detail table shows how this information would continue to be provided to the Assembly for both resource and capital but would no longer be a voted total.

51. In addition, appropriate safeguards could be put in place so that Assembly control is maintained over the types of income and the use of the income by departments. This would entail expanding the ambits in Part I of the Estimate and in the Budget Act to include a description of the types of income a department could retain and use to finance related services – see Part I of sample Estimate at Annex D. This would mean that any categories of income not properly described in the ambit could not be retained by the department, so departments could not generate income from new sources which the Assembly had not approved. Although not setting a limit on income, this would continue to give formal Assembly and legislative control over the categories of income. The other side of this coin is that if a department retained and spent income of a type not covered in the ambit, this would result in an Excess Vote.

52. As part of the budgetary framework HM Treasury retains control over income that may be set against budgets – this is set out in Chapters 3 and 6 of the Consolidated Budgeting Guidance[2]. Within the NI budgetary framework departments are required to identify any additional income through the in-year monitoring process thereby enabling the Executive to control any additional accruing resources and prioritise their use from a central perspective.

53. In addition, the Assembly would continue to control the generation of any income from new sources in that departments would normally need primary legislative authority to charge for a service or raise income. The primary legislation is usually fairly general, with the fee structure and each fee set in secondary legislation also approved by the Assembly at each change. Chapter 6 of Managing Public Money Northern Ireland[3] also sets out clear guidelines for departments over how charges should be set when calculating fees and charges.

54. All these existing controls would be a safeguard against any risk that departments might raise income of a type, or at a level, which would be unacceptable to or without the authority of the Assembly. Considered alongside the key and meaningful benefit of alignment of Budget and Estimate controls and the transparency this would provide to the Assembly and all concerned it seems rational to move to voting 'Net' controls in the Estimate and Budget Acts.

55. On a purely practical note, if the Assembly voted 'Net' controls, departments would be relieved of the seemingly futile administrative burden of surrendering excess accruing resources (above the Assembly limit) to the Consolidated Fund.

56. Voting 'Net' would mean a much clearer presentation of outturn in Resource Accounts. If Estimates continued to be voted 'Gross' there would need to be several columns in the Statement of Assembly Supply in Resource Accounts (making it difficult for the reader to follow), compared with what would result from voting 'Net' – see sample Resource Account at Annex E.

57. It is worth noting that this proposed change would likely require amendment of the Government Resources and Accounts Act (NI) 2001.

III Transparency of Departmental Expenditure Plans

Structure of Spending Areas

58. Currently expenditure plans in the Budget document are provided at Spending Area level of detail while the detail in the Part II Subhead Detail of the Estimates and in Note 2 to the Accounts is, in some cases, at a lower level of detail.

59. However, irrespective of the mismatch in the level of detail provided, a common frustration expressed by Assembly members and others is the lack of comprehensive information on spend on public services, as currently provided by the expenditure lines of some departments. The reader should readily understand, at an acceptable level of detail, how much public funding is being spent on each main service in a department. The spending areas shown by some departments in the Budget 2011-15 document do not provide a sufficient level of transparency. This deficiency in information is particularly apparent with some of the larger spending departments, such as Education and Health, where there are expenditure lines of almost two and three billion pounds. In another department there is an expenditure line entitled Central Policy Group! In the interests of transparency and accountability, a meaningful split of the services delivered should be shown in all spending plans.

60. The Committee for Finance and Personnel's Research Paper on the Executive's Review of the Financial Process at Annex C highlighted this problem in paragraph 2.4 and concluded as part of Recommendation 4 that:

'Future budgetary documentation should include a more detailed breakdown of expenditure plans, including linkages between expenditure and performance outcomes. … '

61. In considering this issue of greater transparency in expenditure there are two issues that must be delicately balanced:-

a) Executive control of spending areas/expenditure lines must be maintained, yet

b) departments need a certain amount of flexibility in order to manage their budgets and the pressures arising from the delivery of services on a day to day basis.

62. The rules on managing public expenditure, as set out in the In-year Monitoring Guidance, must be borne in mind. Generally, movements between spending areas/expenditure lines require Executive approval at a monitoring round[4]. Therefore, a balance must be struck between achieving an acceptable level of detail in the expenditure lines and preserving the ability of departments to manage their budgets without having to constantly revert to the Executive.

63. However, with this in mind transparency of the publications could still be immensely improved through a re-structuring of departments' budgets into spending areas that are informative and meaningful to the public.

64. Departments are currently involved in agreeing new reporting structures for HM Treasury's new financial management system, OSCAR.[5] As part of Project OSCAR, HM Treasury are paying particular regard to the government's transparency agenda and as such are aiming to provide a more meaningful breakdown of departmental expenditure. Therefore, the structures agreed with departments for reporting to the Treasury through OSCAR may lay the groundwork for a local restructuring of departmental budgets to provide more meaningful spending area analysis. In fact, the OSCAR Level 2 structure recently agreed with departments may provide an acceptable level of transparency at which to report spending areas to the Assembly. The Level 2 structure for each department is attached at Annex F for information and to inform discussion. However, it should be noted that these structures have not yet been finalised and are still subject to HM Treasury approval.

65. In addition, it is concluded that, following re-structuring of departmental expenditure plans on a more informative basis, these new spending areas should be used across all publications.

IV Linkages Between Expenditure Plans and Performance Outcomes

66. Budget 2008-11 was developed and published alongside the Executive's Programme for Government 2008-11 and allocations were guided by it but spending areas were not specifically linked to particular Public Service Agreements (PSAs). Budget 2011 - 15 was developed and agreed without a new Programme for Government (PfG) but continued to be guided by the previous PfG.

67. Recommendation 4 of the Committee for Finance and Personnel's Research Paper on the Executive's Review of the Financial Process (Annex C) states that:

'Future budgetary documentation should include a more detailed breakdown of expenditure plans, including linkages between expenditure and performance outcomes. … '

68. In Budget 2005-08 PSA targets were allocated against total expenditure per Objective in each department. So linking PSA targets to budgets is not new and the Review of Northern Ireland Executive Budget 2008-11 Process recommended an exercise at the start of the next Budget to determine the level of public expenditure underpinning each PSA. However, in undertaking this exercise the impracticality of linking some spending areas to PSA targets, in any meaningful way, became apparent.

69. Consider, for example, a target such as 'increase the number of young people leaving school with 5 GCSEs'. Which spending areas should underpin this target? Should any or all of the Pre-Primary budget underpin this target? How much of the Primary school budget should be linked to this target? Should all of the Secondary school budget contribute to the target? In fact, does the health and well-being of the young person and, therefore, some of the Health budget contribute to the achievement of this target, and so on?

70. As the PfG and its targets become more cross-cutting and high level it becomes even more difficult to map them to spending areas in any meaningful way. To do so would require each department to disaggregate its budget to a level that may not be possible or practical or an efficient use of resources. If it were possible, the end result would be a confusing web of information that would not be fit for purpose or meaningful.

71. It has often been stated that departments when submitting spending proposals and bids for additional funding should link those proposals to PSAs. The reality is that as PSAs are so high level it is easy for departments to link their bids to PSA targets. For example, any health bid could be linked to a target such as 'deliver high quality health and social services'. So, the constraint of only considering bids that are explicitly linked to PSA targets does not really limit departmental spending proposals or allow the Executive to judge how much the bid would contribute to the achievement of the target or the PfG. In effect, to meet bids because they are linked to a PSA target could encourage inefficiencies in that spending area.

72. Perhaps to link spending areas to PSA targets fuels the belief that allocating additional funding to an area will enable the achievement of targets when quite the contrary could be the case and, in fact, could mask inefficiency. Surely the driver of PSA targets should be performance and the efficient delivery of the target, not the amount of funding allocated to it? If a service is a priority with an accompanying PSA target then, in the current constrained fiscal environment, the service should be delivered efficiently by the department as a priority within its budget.

73. That is not to argue that PSA targets and outcomes should not be monitored closely and departments should be held accountable for those targets and outcomes, but performance should not be considered to have any direct link to funding inputs. Performance outcomes and the delivery of the Programme for Government should be monitored on a stand alone basis.

V Publications – Budget Document, Estimates and Accounts

74. A repeated theme of this paper and this Review is to improve transparency between the various frameworks of Budgets, Estimates and Accounts. This not only means alignment of the frameworks and controls as well as improved information on spending areas but it also carries through to the presentation in the published documents.

75. Budget Document - As stated earlier, the main focus of the Budget is on the DEL and, therefore, the tables of planned expenditure in the departmental chapters show the DEL current/resource and capital budgets, while, high level information on AME is included in the Annexes to the document. This information on the AME, along with the DEL information in the departmental chapters, should provide the reader with the data necessary to read across to the Estimates' DEL and AME figurework.

76. Estimates - turning to the Estimates, this publication has long provoked the most comment. Estimates, to the uninitiated, appear to be difficult to understand with the many supporting tables adding to the complexity of each Estimate rather than adding value. The main problem, however, seems to lie with the different figurework in Estimates due to the misalignments with Budgets. The proposals to align the two frameworks, put forward earlier in this paper, should go some distance towards improving the comprehension of the new Estimates.

77. However, in order to further improve this publication, and with transparency with the Budget in mind, the Introduction to the redesigned Estimate attached at Annex D has a table to lead the reader from the Budget approved to the current Budget position in the Estimate. This Budget position carries through to the total column in Part I of the Estimate and to the totals at the bottom of the Part II Subhead detail. The redesigned Estimate now includes spend that is not currently voted annually through the Estimates process because it is already covered by separate legislation – see paragraphs 46 and 47 above on non-voted expenditure. Therefore, the total Budget is shown in the Part II Subhead Detail of the Estimate, split between voted and non-voted. This allows transparency between the Budget and the Estimate.

78. It should be noted that the Non Budget column in the Part II Subhead Detail will only be included rarely for any remaining unaligned expenditure or for Prior Period Adjustments. In addition, the Part II Subhead Detail is presented in landscape format in order to present the DEL and AME against each spending area thus avoiding repetition of spending areas, as occurs currently in the Part II.

79. Part III of the Estimate now consists of only relevant supporting tables or information as per each department's requirements. All departments will require the 'Explanation of Accounting Officer responsibilities' but only the CFER or NDPB table and other notes, as applicable.

80. Supplementary Estimates would follow a similar format to the Main Estimates shown in the Annex.

81. Resource Accounts – Annex E presents a suggested revised format for consolidated Accounts after NDPBs are brought within the accounting boundary. This format is based on the proforma Department Yellow currently used by HM Treasury following the alignment process in GB. The format may still be subject to change to take account of changes in accounting requirements, and is provided here for illustrative purposes only. The main changes are:

• The Statement of Assembly Supply and related Notes have been reformatted to align with the presentation in the Estimates;
• The consolidated information in the Statements and Notes includes the Core department, Agencies, and NDPBs/other bodies, reflected in three columns – core, core + agencies, and Departmental Group (core + agencies + NDPBs/other bodies);
• Reference to the Administration Costs limit as voted has been removed, as this is no longer included in the Estimates;
• Reference to Requests for Resources has been removed, as this is no longer used in Estimates. There is more information supplied in relation to DEL and AME, in line with Estimates;
• Additional general improvements to Notes and terminology to aid understanding and clarity.

82. Throughout the redesigned publications the language/terminology used has been simplified, where possible, and aligned across all three. For example, language such as 'accruing resources', 'non-operating accruing resources' etc was very off-putting for the reader - 'Income' is now the terminology used throughout the documents. Currently the Budget document refers to 'current' expenditure while the Estimates and Accounts refer to 'resource'. The term 'resource' rather than 'current' should now be used throughout the proposed documents. Although these are simple changes it is hoped that they will contribute to greater understanding of public expenditure plans and outturn.

VI Early Budget Process

83. The Committee for Finance and Personnel and individual Assembly Members have expressed concern on many occasions regarding the early stages of the Budget process, including the development of a Budget in the absence of a Programme for Government, the lack of timely and full engagement with some Committees and sufficient time for public consultation.

84. The Committee for Finance and Personnel at its meeting on 21 June 2011 considered a Research Paper on the Executive's Review of the Financial Process – attached at Annex C. The Committee requested that the 5 recommendations contained in the paper are taken forward. The recommendations relating to the early budget process are:-

Recommendation 1: a budget calendar for future processes should be specified in advance. The calendar should allow for adequate consultation, and it should be adhered to.

Recommendation 2: the future budget process should include a strategic phase, perhaps in the spring preceding the production of a draft budget, to allow the Assembly to debate both revenue measures and spending priorities.

Recommendation 4: … Documentation should be produced in good time to facilitate informed debates at all stages of the timetable developed under recommendation 1.

85. In the previous Committee's Third Report on the Inquiry into the Role of the Northern Ireland Assembly in Scrutinising the Executive's Budget and Expenditure[6], recommendation 2 stated:

'While the Committee and DFP are agreed on the benefit of early and more structured engagement between executive departments and Assembly committees, members believe that this will only happen in the context of a formal agreement between the Assembly and Executive on a regularised budget process, which includes clearly defined pre-draft Budget stages that provide for early Assembly input, irrespective of whether an annual or multi-year budget cycle is followed. The Committee is also of the view that the provision of formal opportunities for the Assembly to influence budgetary matters early in the process would help facilitate the potential streamlining of the latter stages in the budget and estimates process, including the associated plenary debates. The Committee recommends that the successor CFP works to address this matter early in the next mandate, in liaison with DFP and possibly as part of a co-ordinated Assembly input to the Executive's forthcoming Review of the Financial Process, the outcome of which is to be reported to the Assembly early in 2012.'

86. In addition, the need for the formulation of a Programme for Government prior to or at least, in tandem, with the development of a Budget is an opinion that has been expressed repeatedly in many forums.

Timetable

87. Currently, at the commencement of each Budget process a timetable is developed by DFP and included in the Guidance issued. This timetable plans a Draft Budget by September/October followed by a public consultation period feeding into a Final Budget in December/January. The finalisation of a Budget by December/January is important in order to provide sufficient time for departments to plan ahead and allocate their budgets, both internally and to arms length bodies, well in advance of the commencement of the new financial year. Despite other external factors (as outlined in paragraph 91 below) that impacted on the last two Budgets, the DFP timetable still planned to adhere to this general timescale. However, during the development of Budget 2011-15 the Executive did not adhere to the timetable and the Final Budget was not published and approved by the Assembly until early March 2011.

88. The first Committee recommendation quoted above states that the timetable should be adhered to. While this may be highly desirable, compelling all stakeholders to adhere to the timetable is something that is outside the control of DFP. This issue is further addressed in the section below on the 'Framework for a Budget Process'.

89. One other issue worthy of note in terms of the timetable, is the fact that Northern Ireland is the only jurisdiction in the UK that carries out a formal public consultation on its Budget proposals. This imposes further constraints in terms of having to factor in sufficient time for a public consultation. On the basis that the proposed Budget allocations will reflect the priorities set out in the Executive's Programme for Government as approved by the elected public representatives in the Assembly it may be worth reconsideration of the need to hold a formal public consultation. In particular, if consultation with key stakeholders took place by Committees, at an early strategic phase of the Budget timetable, this, in turn, may preclude the need for later public consultation. As the Assembly has been elected to represent the public perhaps there should be a greater focus on Assembly Committees as the conduit for public consultation and gauging public opinion. The current public consultation process tends to become dominated by public sector organisations and highly organised vested interest groups.

Early Strategic Phase

90. The Committee for Finance and Personnel point out in their Research Paper that an early strategic stage in the Budget process would enable the Assembly to thoroughly debate the issues and influence the development of the Budget which, in turn, could pay dividends at the later stages of the process.

91. However, external factors impacted on the early stages of Budget 2008-11 and Budget 2011-15. In 2007 devolution did not take place until May of that year and a Budget had to be developed in a much shorter span than would be the ideal. Again, in 2010 the Westminster elections and change of UK government with its later than usual Spending Review announcement on 20 October 2010 severely constricted a 'normal' Budget process.

92. Where circumstances and time permit it should be possible, and desirable, to include an early strategic stage in the Budget timetable. This would allow adequate time for early discussion and challenge by Committees with departments around their budget pressures and their priorities of spend, taking evidence from officials, the Minister and external stakeholders. Even if the Westminster Spending Review outcome and the NI Block allocation is not yet known, this early strategic phase could still take place in order to inform the later stages of the Budget.

93. The terms of reference for each Committee at this stage should be to identify and challenge the pressures facing departments going forward, to rank in order the priorities for expenditure against the PfG and to identify the plans to meet any pressures within the current or a reduced funding envelope.

94. The Committee for Finance and Personnel could lead on this early strategic phase on behalf of the Assembly. It could coordinate the reports from the other Committees, take evidence from DFP officials and the Minister on the expected funding envelope and take a strategic overview of the financial position, presenting a report to the Assembly for a 'Take Note' debate by say, 31 May. The emphasis, in the current fiscal environment, in the Report to the Assembly should be on living within the expected funding envelope – in other words, any proposed increases in spend should be accompanied by proposed reductions elsewhere.

95. The 'Take Note' debate would enable the Assembly to debate and conclude upon the highest spending priorities, at an early stage, and to identify the lower priority areas and/or efficiency savings that may be needed to fund the higher priorities. In addition, it would be an opportunity to robustly debate the pros and cons of any proposed revenue raising measures in advance of the formulation of a Budget by the Executive.

96. Opportunity for the Assembly to influence budgetary matters from an early stage in the process could enable the streamlining of the latter stages in the Estimates and legislative process, including the associated plenary debates.

VII Framework for a Budget Process

97. Recommendation 5 of the previous Committee's Third Report on the Inquiry into the Role of the Northern Ireland Assembly in Scrutinising the Executive's Budget and Expenditure[7] stated:

'The Committee recommends that, early in new mandate, the successor CFP also oversees the development of an MoU between the Assembly and the Executive on the provision of financial information by departments for the purpose of facilitating scrutiny by Assembly committees. Members consider that the MoU document could also be agreed as part of the deliberations on the Executive's Review of the Financial Process.'

98. The Committee for Finance and Personnel's Research Paper on the Executive's Review of the Financial Process (attached at Annex C) included the following recommendation:

Recommendation 5: the framework for a new budget process should be set out in primary legislation, with additional detail included in regulations or the Assembly's Standing Orders, as appropriate.

99. The recommendations from the Committee quoted above appear to arise from the frustration expressed on many occasions by Members with the last two Budget processes and the delays experienced in agreeing a Budget. The recommendations represent the desire for the formalisation of the Budget process through primary legislation or in Standing Orders of the Assembly or a Memorandum of Understanding between the Assembly and the Executive or a combination of such. The formalisation of a Budget process in such a manner would provide certainty regarding the key stages of Draft and Final Budget to all concerned – something that would enable departments, DFP and the Assembly Committees to plan ahead with confidence in terms of the Budget process.

100. Currently the Budget framework is provided in primary legislation in the Northern Ireland Act 1998 (the 1998 Act) with provisions regarding the Northern Ireland Consolidated Fund and the Supply process enshrined in both the 1998 Act and Government Resources and Accounts Act (NI) 2001.

101. Section 64 of the 1998 Act makes provision for a draft budget which has been agreed by the Executive to be laid before the Assembly by the Finance Minister before the beginning of each financial year. The Section does not stipulate a timeframe other than 'before the beginning of each financial year'.

102. There are several issues to consider here in this regard. Firstly, the ability of the Assembly to amend the 1998 Act, which is Westminster legislation, is very limited. Secondly, if, for example, the 1998 Act could be amended to include definitive dates for presentation of a Draft and Final Budget would it be prudent to include such deadlines in primary legislation? What would happen if, for unforeseeable and/or external reasons, the deadlines could not be met? Provision would need to be made for such an eventuality which, in turn, would rather defeat the purpose of the original provision. Or, would the Executive be deemed to be in default if the deadlines in the legislation were not met?

103. While agreeing with the Committee that a Budget framework should be enshrined in primary legislation, it is considered that this already exists at an appropriate level, as outlined above in paragraph 101.

104. Turning to alternative means of formalising the key stages of a Budget process, consideration could be given to a twofold approach:-

(a) A Budget Process Agreement between the Executive and the Assembly via the Committee for Finance and Personnel defining the administrative arrangements and key stages for the budget process, along with,

(b) the Assembly amending its Standing Orders to reflect this Agreement and stipulate Budget Procedures, including the key dates for the early strategic stage and the presentation of a Draft and Final Budget to the Assembly by the Executive and defining the roles of the Committees, in particular, the Finance Committee in the process.

105. Such an Agreement and provision in Standing Orders would ensure the timetable is clear to all parties and would require adherence by all concerned and the timely publication of all documentation. This approach would also spell out the groundrules for engagement between Committees and departments and their Ministers, including full and timely engagement by all concerned, thereby underpinning the provisions of the 1998 Act and the Ministerial Code.

106. At the same time, such a proposal would allow the Assembly to amend Standing Orders to accommodate any accepted unavoidable slippage in the Process, such as occurred last year with the delayed Westminster Spending Review and Block allocation announcement.

Formal Stage for Reconsideration of the Budget

107. The Committee for Finance and Personnel's Research Paper on the Executive's Review of the Financial Process (attached at Annex C) also included the following recommendation:

Recommendation 3: the future budget process should include a formal stage for reconsideration of the budget in light of emerging spending pressures or policy reorientation, with the aim of informing in-year reallocations and considering developments that might affect allocations across years.

108. In the past, Budgets have been set for a 3 or 4 year period and reviewed by the Executive, if found necessary, in light of changing circumstances. For example, the final year of Budget 2008-11 was reviewed and restated. As mentioned earlier in this paper, departments welcome the certainty that accompanies 3 or 4 year budgets which allow them to plan ahead. In addition, any spending pressures that emerge in-year are dealt with through the In-year Monitoring process. Such pressures would rarely be of the magnitude as to require a re-opening of the agreed Budget and an entirely new Budget process – for example, the recent student loan adjustments.

109. However, if such an occasion arose, and it is possible, the Executive would recognise the need for a review of the Budget and proceed accordingly. A Budget process generates an inordinate amount of work and use of resources across departments, in DFP and elsewhere. To provide for unnecessary reviews of the Budget would be an inefficient use of resources in a time of financial constraint. On balance, it would not be prudent to build in to the Budget process provision for a regular review of the Budget on an annual or biennial basis.

VIII Main Estimates and Budget Bill as Final Stage of the Budget Process

110. Currently the Budget process followed by the Estimates and legislative stage is convoluted and repetitive. Final Budget is normally presented, debated and approved by the Assembly in December/January, a Vote on Account is taken in February to allow services to continue into the new financial year and then the Main Estimates are presented in June. At the same time, in June, the first in-year monitoring round is presented to the Assembly amending the very plans that have not yet completed formal Assembly approval through the Estimates and Budget Bill.

111. The Main Estimates presented in June are the same departmental expenditure plans approved in the Budget in December/January. Why then couldn't the Main Estimates and the related Budget Bill be presented as the Final Stage of the Budget in January and a Vote on Account would not be required?

112. The purpose of the Estimates and Budget Bills is to give the legal authority to the Budget and Monitoring rounds already scrutinized, agreed by the Executive and debated at length in the Assembly. In recognition of this the Assembly's Standing Orders currently make provision for accelerated passage of Budget Bills and, as mentioned earlier, an early strategic phase in the Budget process could further enable the streamlining of the latter stages in the Estimates and legislative process, including reducing the time taken for the passage of the Budget Bill.

113. While it is important in a democracy to debate the issues, especially such important issues as public expenditure plans, the repetitiveness of the debates is probably not the best use of the Assembly's and Executive's time. However, the Assembly itself is the best judge of this and their views on this matter would be appreciated.

114. It would be the 'ideal' to introduce the Estimates and related Budget Bill as the final stage of the Budget process in December. However, any risks to the process and the funding of departmental spend have to be recognised – risks such as delay in the conclusion of the Budget process causing the Budget Bill to fail to receive Royal Assent before the beginning of the new financial year. Although, if it was recognised, as suggested above, that due to Assembly involvement throughout the development of the Budget, the time taken for the passage of Budget Bills could be further reduced, then this would mitigate against such a risk.

115. Section 13 of the 1998 Act[8] makes provision for the stages of Bills in Standing Orders but perhaps the Assembly could consider further amendment of Standing Order 42 in relation to Budget Bills to allow the removal of the Further Consideration Stage and the 10 day rule. This would greatly assist with ensuring passage of the Bill and Royal Assent prior to the beginning of a new financial year.

116. To ensure management of risk it would certainly be necessary for the Budget Process Agreement proposed above and the amendment of Standing Orders to be in place. Only then could introducing the Main Estimates and related Budget Bill as the Final Stage of the Budget in December/January be considered.

117. However, it should also be recognised that such a proposal would put departments and DFP under considerable strain at this time. The finalisation of a Budget culminating in the updating of all expenditure lines and the production of Main Estimates at the same time as the January monitoring round and the production of Spring Supplementary Estimates alongside the preparation of the related legislation could prove to be an intolerable burden and a risk that needs to be weighed up carefully. Certainly, such an ambitious streamlining of the end-part of the Budget process should not be undertaken until alignment of Budgets and Estimates has been achieved and a revised Budget process has bedded in and proved 'fit for purpose'.

IX Rates Income Stream

118. Following agreement of the regional rate by the Executive in conjunction with the Budget, around December each year, the Regional Rates Order is normally made and laid in the Assembly in late January with a debate usually in February/early March culminating in the affirmation of the Order by the Assembly. Article 7 (4) of the Rates (NI) Order 1977 states that 'the Department shall take into consideration estimates of the amounts required to be raised by means of district rates for that year'. This results in the timing of the annual Rates Order in the Assembly in February/early March and prior to the beginning of the new financial year.

119. This public income strand of the rates should, arguably, be part of the entire financial process in order to minimize any risk that it may be treated as a separate emotive issue by the Assembly, divorced from expenditure plans. However, it would not be proposed to combine the two into one piece of legislation, at this stage, as this would require amendment of the primary rates legislation.

120. Bearing in mind that the expenditure plans in the Budget and Estimates are predicated on the planned income from the rates, at the very least, the scheduling of both the Rates Order and the Budget Bill could be synchronised to positively link the two strands of public finances. For example, the Rates Order could be debated on the same day as a Stage of the Budget Bill and linked to the expenditure plans under debate for the next financial year. Or, in any year that the scheduling proved impracticable, the Finance Minister should cross-reference the two strands of public finance in the opening speeches of each debate in order to focus attention on the indisputable link between the two issues.

Section 3 – Conclusion

Aim and Objectives of the Review

121. The overall aim of the Review, as agreed by the Executive, was to examine and make recommendations on the options to create a single coherent financial framework that is effective, efficient and transparent and enhances scrutiny by and accountability to the Assembly, taking into account the needs of the Assembly.

122. The primary focus during the early consultation with the Committee for Finance and Personnel, departments, Account NI and the Northern Ireland Audit Office was to identify the difficulties with the current process and explore areas for improvement, keeping in mind at all times the aim of the Review.

123. The strategic objectives of the Review set by the Executive were :-

• To align the Budget, the Estimates and the Accounts as far as practicable to improve transparency, and
• To synchronize the presentation of the Budget, the Estimates/departmental expenditure plans, the Budget Bills, the Rates legislation and the Accounts in order to create a single co-ordinated public revenue and expenditure process.

Therefore, the initial work focused on these two broad areas – to deliver greater transparency and accountability to the Assembly and bring about an improved public expenditure process that meets the needs of the devolved administration.

124. Firstly, consideration was given to how to improve alignment of the Budget, Estimates and Accounts, thus aiming to achieve the same set of 'numbers' in each of the publications and assist the reader to follow expenditure from plans in Budget through Estimates to outturn in Accounts. To achieve this goal will involve some bold decisions around the limits that the Assembly votes, as well as a radical restructuring of spending areas in expenditure plans in order to provide meaningful information to the reader. The recommendation that will impact most on departments is the consolidation of NDPBs within the Estimates and Accounting boundary. It is recognised that this will be an initial administrative burden for departments with repercussions for the Audit Office, but it is considered well worth the effort in order to achieve alignment.

125. The second area examined was the Budget process itself rangeing from the very early stages right through to the presentation of the Estimates and related Budget Bill. The reports of the current and previous Committees for Finance and Personnel were key to this study. Although the early evidence suggests that it is not yet appropriate to streamline the end stage of the Budget process by introducing the Estimates as the final stage of the Budget in December/January, it is recommended that this ambitious objective is considered further in the future.

126. The outcome of the early consultation with the key stakeholders and an examination of the issues by the Review team have led to the initial recommendations for improvement contained in the preceding section. It is important to point out, however, that the purpose of these recommendations, at this stage, is to stimulate debate and provoke responses that will further inform the Executive's Review.

Next Steps

127. Responses to the recommendations in this Discussion Paper are invited by 30 November 2011 to:

Financial.Review@dfpni.gov.uk

128. All stakeholders are encouraged to respond. Following consideration of all the responses a report will be prepared to the Executive with final recommendations on the way forward. Following Executive discussion and approval of the way forward the recommendations will be brought to the Assembly by the Finance Minister, on behalf of the Executive, for debate and approval. The current timetable for the discussion in the Assembly is the spring of 2012 following which plans for implementation will begin while any legislative changes required will be drafted and taken through the Assembly. The earliest date for implementation envisaged at the moment is 2014-15, within the lifetime of this Assembly, with the presentation of consolidated Estimates to the Assembly in June 2014.

Annex A
Review of Financial Process in Northern Ireland
Terms of Reference

Background

1. The Northern Ireland Executive's public revenue and expenditure process takes place in the context of the wider UK control and management framework and includes:-

• the Budget public expenditure planning process (called 'The Budget' with its links to the Programme for Government and ISNI) prior to the start of the new financial cycle,
• the In-year monitoring rounds revising the Budget plans,
• the Rates legislative process,
• the legislative process (known as the Estimates and Budget Bill) for the appropriation of all departmental resources at the beginning and before the end of each financial year, and
• the publication of Departmental Resource Accounts following the close of the financial year.

2. The current process has existed in Northern Ireland for a considerable time and is based on the Westminster model. However, HM Treasury has now instigated significant reform of its budgetary/accountability process – most notably the move to Clear Line of Sight (CLOS) presentation. In this context, the current financial process may not best serve the Northern Ireland devolved administration and it is time to consider whether a more appropriate model should be introduced.

3. The various components of the process serve different purposes and have developed over the years in individual directions resulting in significant misalignment between Budgets, Estimates and Accounts.

4. Thus, while based on the same basic dataset, the figurework in Budgets, Estimates and Accounts , although reconcilable, does not meet the Assembly's expectations in relation to transparency.

5. In addition to this, revenue in the form of the Rates legislation is handled in a separate process.

6. Presentation of basically the same information to the Assembly for approval and lengthy debate during the Budget process and again in the Main Estimates (some months later) leads to confusion and may be perceived as inefficient and a poor use of Assembly time.

Aim of the Review

7. Against this background, the overall aim of the review is to examine and make recommendations on the options to create a single coherent financial framework that is effective, efficient and transparent and enhances scrutiny by and accountability to the Assembly, taking into account the needs of the Assembly.

Strategic Objectives of the Review

8. The strategic objectives of the review are:-

• To align the Budget, the Estimates and the Accounts as far as practicable to improve transparency, and
• To synchronize the presentation of the Budget, the Estimates/departmental expenditure plans, the Budget Bills, the Rates legislation and the Accounts in order to create a single co-ordinated public revenue and expenditure process.

Methodology and Timeline

9. The review will:-

Review Team

10. The review team will consist of a small number of officials in the Public Spending Directorate and Accountability and Financial Management Division, reporting to the Budget Director and the Treasury Officer of Accounts, as appropriate.

[1] Departments are also controlled at a Spending Area and a Category level.

[2] Available at:
http://www.hm-treasury.gov.uk/psr_bc_consolidated_budgeting.htm

[3] Available at:
http://www.afmdni.gov.uk/frab/browse.asp?branch=1&category=43&maxres=20&start=0&orderby=3

[4] There are two exceptions to this: a) de minimis funding may be moved across spending areas/expenditure lines and b) proactive management actions to reduce expenditure in one area in order to release resources for reallocation to another higher priority spending area do not require Executive approval.

[5] HMT's new Financial Management IT system on which DFP regularly reports NI expenditure to Treasury.

[6] The full report (NIA 61/10/11R) is available from:
http://archive.niassembly.gov.uk/finance/2007mandate/reports/report_61_10_11R.htm

[7] The full report (NIA 61/10/11R) is available from:
http://archive.niassembly.gov.uk/finance/2007mandate/reports/report_61_10_11R.htm

[8] S.13 (1) Standing Orders shall include provision-
(a) for general debate on a Bill with an opportunity for members to vote on its general principles;
(b) for the consideration of, and an opportunity for members to vote on, the details of a Bill; and
(c) for a final stage at which a Bill can be passed or rejected but not amended.
(2) Standing Orders may, in relation to different types of Bill, modify provisions made in pursuance of subsection (1) (a) or (b)

Annex B to Discussion Paper - Financial Cycle

Annex C

See Appendix 5 to this Report.

Annex D to Discussion Paper - Illustrative Main Estimate

Department Purple

Introduction

1. This Estimate covers the planned budgetary expenditure of Department Purple (including its associated Bodies: the Council for Improved Public Partnership; the Research Trust; the Statistics Foundation). All expenditure is identified as being either within the Departmental Expenditure Limit (DEL) or departmental Annually Managed Expenditure (AME); and, where necessary, as non-budget. Not all departmental budgetary expenditure needs to be voted by the Assembly, as it has separate legislative authority. In such cases the Estimate shows the voted/non-voted split within the budget.

2. The expenditure is broken down between resource and capital. Part I of the Estimate sets out the control totals and descriptions of spending, most of which are replicated in the Supply legislation, the Budget Act. Part II provides a more detailed breakdown of those control limits and explains how the cash requirement is derived. Part III contains various tables and notes that provide supplementary and background information.

3. The single net cash requirement is not split by DEL/AME or any other budgetary limits.

4. The table below reconciles from Budget 201V-1Z to the current Budget position in this Estimate:-

4. Symbols are explained in the introduction at the front of the volume. * Technical adustments include transfers between NI departments and with GB departments and changes to budgeting/accounting treatment.

Department Purple

1. This would only be used where the department had non-budget spending that required authority through the Supply process.

Amounts required in the year ending 31 March 2013 for expenditure by Department Purple on:

Departmental Expenditure Limit:

Expenditure arising from: provision of strategic development services; Wider Markets Initiatives; net spending by NDPBs (The Council for Improved Public Partnership, The Research Trust and The Statistics Foundation); research into partnership working and other innovative delivery mechanisms; improving public communication; provision of strategic statistics; the N/S Statistics & Communication Board; and associated non-cash costs in DEL.

Income arising from: sales of publications, statistical information and consultancy services; training courses related to developing wider markets; and equipment sales.[1]

Annually Managed Expenditure:

Expenditure arising from: Take-up and maintenance of departmental provisions and other non-cash costs in AME.[2]

Income arising from:

Non-budget expenditure:

Expenditure arising from: Interest on returnable deposits[3]

Income arising from:

Department Purple will account for this Estimate.

Part II: Subhead detail

1. Data no longer split by 'other current' and 'grants'

2. Expenditure by Unit of Service

[1] Ambits include description of expected income as well as expenditure. This gives legislative control (the ambit is reproduced in the Budget Act) over types of income that may be retained.

[2] Ambits include description of expected income as well as expenditure. This gives legislative control (the ambit is reproduced in the Budget Act) over types of income that may be retained.

[3] Ambits include description of expected income as well as expenditure. This gives legislative control (the ambit is reproduced in the Budget Act) over types of income that may be retained.

Part II: Resource to Cash Reconciliation

1. This removes the resource/capital related to NDPBs and replaces this with a cash grant-in-aid payment.

Part III: Extra receipts payable to the Consolidated Fund

In addition to income netted off against budgetary spending, the following income relates to the Department and is payable to the Consolidated Fund (cash receipts being shown in italics):

Analysis of Consolidated Fund extra receipts

Part III: Explanation of Accounting Officer responsibilities

The Accounting Officer prepares resource accounts for each financial year.

The following individuals are responsible for the expenditure within this Estimate:

Accounting Officer A N Other

In accordance with Chapter 3 of Managing Public Money Northern Ireland, the following individuals are NDPB Accounting Officer appointments:

NDPB Accounting Officers

Name The Council for Improved Public Partnership

Name The Research Trust

Name The Statistics Foundation

A N Other has personal responsibility for the presentation of the resource accounts and their transmission to the Comptroller & Auditor General, and is also responsible for the use of public money and stewardship of assets.

In discharging these responsibilities, particular regard is given to:

• observing any accounting and disclosure requirements (including any Accounts Direction) and applying suitable accounting policies on a consistent basis;
• making judgements and estimates on a reasonable basis;
• stating whether applicable accounting standards, as set out in the Financial Reporting Manual (FReM), or an organisation's version of it, have been followed, and explain any material departures in the accounts; and
• preparing the accounts on a going concern basis.

The responsibilities of an Accounting Officer, including responsibility for regularity and propriety of the public finances for which an Accounting Officer is answerable, for keeping proper records and safeguarding assets, are also set out in Chapter 3 of Managing Public Money Northern Ireland.

[In accordance with Managing Public Money Northern Ireland requirements, the relationship between the Principal Accounting Officer and Additional Accounting Officer(s), and with their Ministers, together with their respective responsibilities, is set out in writing. Similarly, the relationship between the [Principal/Additional] Accounting Officer and the NDPB Accounting Officer(s) is set out in writing.]

Part III: Non-Departmental Public Bodies

Part III: Accounting Policy changes

1. From this financial year the following changes to accounting policy have been implemented:

i) the capitalisation threshold has been increased to £5,000 for single items and to £10,000 for bulk purchases. The effect of this is to move up to £200,000 of expenditure from capital DEL into resource DEL in 201X-1Y.

ii) FRS standard [xxx] results in up to £200,000 of creditors being moved into provisions. This cost has been absorbed within the resource DEL budget.

Prior Period Adjustments

Voted

2. There are no Prior Period Adjustments that need to be voted within the Estimate.

Non-voted

3. The implementation of IFRS standard [xxx], relating to the calculation of the [xxxxxxx] affects [xxxxxx]. The impact for the current year is to increase resources in Annually Managed Expenditure (AME) provisions by £xx,000. This appears in section E of the AME heading in the Part II: Subhead Detail table. The Prior Period Adjustment in respect of the previous 2 years is:

Part III: [Other Notes to be provided as required]

• Expenditure resting on the sole authority of the Appropriation Act
• Gifts
• Staff Benefits
• Contingent Liabilities
• International Subscriptions

Annex E
Illustrative Resource Accounts

201X-1Y Department Yellow: Illustrative Resource Accounts

1. The illustrative resource accounts for "Department Yellow" (a fictitious departmental grouping) comprise:

a Statement of Assembly Supply;

b Consolidated Statement of Comprehensive Net Expenditure;

c Consolidated Statement of Financial Position;

d Consolidated Statement of Cash Flows;

e Consolidated Statement of Changes in Taxpayers' Equity;

f Notes to the accounts.

2. The resource accounts are for illustration only and should only be followed as the circumstances of an individual department dictate. The accounts do not show every line item which may be necessary in the circumstances of an individual department.

Statement of Assembly Supply

Summary of Resource and Capital Outturn 201X-1Y

Net Cash Requirement 201X-1Y

Figures in the areas outlined in bold are voted totals or other totals subject to Assembly control

Where the department has an Excess Vote for one of the reasons given in Managing Public Money Northern Ireland the department should insert this note here:

The Department has incurred an Excess of £000 because [insert reason] , The Department will seek Assembly approval by way of an Excess Vote in the next Budget Act.

All departments must insert this note here:

Explanations of variances between Estimate and outturn are given in Note 2 and in the Management Commentary

Consolidated Statement of Comprehensive Net Expenditure for the Year ended 31 March 201Y

Consolidated Statement of Financial Position as at 31 March 201Y

Consolidated Statement of Cash Flows for the year ended 31 March 201Y

Consolidated Statement of Changes in Taxpayers' Equity for the year ended 31 March 201Y

Drafting note: The same information should be provided for the core department and its agencies and for the departmental group.

Where not shown on the face of the Statement of Changes in Taxpayers Equity departments should separately disclose the opening and closing element of the revaluation reserve that relates to intangibles detailing changes during the year.

Note X.1 Statement of Operating Costs by Operating Segment

Narrative to disclose;

• Describe factors used to identify the reportable segments.
• Describe the types of activities for which each reportable segment attracts funding
• How reportable segments are reported to the CODM (any differences between info and primary financial statements)
• Basis of accounting for any transactions between reportable segments
• Changes from prior year segment identification methods
• Reliance on major customers

Description of segments

• Segment 1
• Segment 2
• Segment 3

* In accordance with IFRS 8, if total assets, net assets or additional information is reported separately to the Chief Operating Decision Maker, disclosure should be made.

Note X.2 Reconciliation between Operating Segments and SoCNE / SoFP

Note X.3 Reconciliation between Operating Segments and Note 2

Department Yellow – Annual Report and Accounts 201X-1Y

Notes to the Departmental Resource Accounts

1. Statement of accounting policies

These financial statements have been prepared in accordance with the 201X-1Y Government Financial Reporting Manual (FReM) issued by [insert name of issuing authority]. The accounting policies contained in the FReM apply International Financial Reporting Standards (IFRS) as adapted or interpreted for the public sector context. Where the FReM permits a choice of accounting policy, the accounting policy which is judged to be most appropriate to the particular circumstances of the [insert name of Department] for the purpose of giving a true and fair view has been selected. The particular policies adopted by the [insert name of Department] [for the reportable activity] are described below. They have been applied consistently in dealing with items that are considered material to the accounts.

In addition to the primary statements prepared under IFRS, the FReM also requires the Department to prepare two additional primary statements. The Statement of Assembly Supply and supporting notes show outturn against Estimate in terms of the net resource requirement and the net cash requirement.

1.1 Accounting convention

These accounts have been prepared under the historical cost convention modified, to account for the revaluation of investment property, property, plant and equipment, intangible assets, inventories and certain financial assets and liabilities.

1.2 Basis of consolidation

These accounts comprise a consolidation of the core department, departmental agencies and those other Arm's Length Bodies which fall within the departmental boundary as defined in the FReM and make up the "Departmental Group". Transactions between entities included in the consolidation are eliminated. [Drafting note: this note is required only where the Department prepares consolidated accounts.]

A list of all those entities within the departmental boundary is given at note X .

A description of the accounting policies for all material items should then follow. Headings might include:

• Property, plant and equipment, with other headings for donated, heritage and infrastructure assets as appropriate
• Depreciation
• intangible assets
• investments
• inventories
• research and development expenditure
• operating income
• foreign exchange
• leases
• Service Concessions (PPP/PFI)
• Financial Instruments
• grants payable
• provisions (including the discount rate used where the time value of money is significant and the estimated risk-adjusted cash flows are discounted)
• estimation techniques used and changes in accounting estimates (see in particular IAS 8.32 to 40 and IAS.1)
• value added tax
• third party assets

Departments must include the following notes in the appropriate place in the sequence.

1.aa Administration and programme expenditure

The Statement of Comprehensive Net Expenditure is analysed between administration and programme income and expenditure. The classification of expenditure and income as administration or as programme follows the definition of administration costs set out in [insert reference to guidance] by [insert name of authority]. Drafting note: departments might expand the note to reflect the definition as it is reflected in their own circumstances.

1.ab Pensions

Past and present employees are covered by the provisions of the [name of the scheme]. The defined benefit schemes are unfunded and are non-contributory except in respect of dependants' benefits. The department recognises the expected cost of these elements on a systematic and rational basis over the period during which it benefits from employees' services by payment to the [name of the scheme] of amounts calculated on an accruing basis. Liability for payment of future benefits is a charge on the [name of the scheme]. In respect of the defined contribution schemes, the department recognises the contributions payable for the year.

1.ac Contingent liabilities

In addition to contingent liabilities disclosed in accordance with IAS 37, the department discloses for Asembly reporting and accountability purposes certain statutory and non-statutory contingent liabilities where the likelihood of a transfer of economic benefit is remote, but which have been reported to the Assembly in accordance with the requirements of Managing Public Money Northern Ireland.

Where the time value of money is material, contingent liabilities which are required to be disclosed under IAS 37 are stated at discounted amounts and the amount reported to thre Assembly separately noted. Contingent liabilities that are not required to be disclosed by IAS 37 are stated at the amounts reported to Assembly.

1.ad Impending application of newly issued accounting standards not yet effective

The department provides disclosure that it has not yet applied a new accounting standard, and known or reasonably estimable information relevant to assessing the possible impact that initial application of the new standard will have on the department's financial statements.

2. Net outturn

2.1 Analysis of net resource outturn by section

2.2 Analysis of net capital outturn by section

3. Reconciliation of outturn to net operating cost and against Administration Budget

3.1 Reconciliation of net resource outturn to net operating cost

An explanation should be provided of any adjustments made.

3.2 Outturn against final Administration Budget and Administration net operating cost

4. Reconciliation of Consolidated Statement of Cash Flows to Net Cash Requirement

5. Income payable to the Consolidated Fund

5.1  Analysis of income payable to the Consolidated Fund

In addition to income retained by the department, the following income relates to the department and is payable to the Consolidated Fund (cash receipts being shown in italics)

5.2 Consolidated Fund Income

Consolidated Fund income shown in note 5.1 above does not include any amounts collected by Department Yellow where it was acting as agent of the Consolidated Fund rather than as principal. Full details of income collected as agent for the Consolidated Fund are in the department's Trust Statements published separately from but alongside these financial statements.

The above statement should be included where separate trust statements are published for the department. Otherwise, disclosure should be made in the note in the format below.

Consolidated Fund income shown in note 5.1 above does not include any amounts collected by Department Yellow where it was acting as agent for the Consolidated Fund rather than as principal. The amounts collected as agent for the Consolidated Fund (which are otherwise excluded from these financial statements) were:

A description of the main income streams should be included together with any other explanations that may be necessary to provide a full understanding of the reported transactions.

6. Staff numbers and related costs

Staff costs comprise:

*Of the total, £000 has been charged to capital

NB: The following text is written in the context of membership of the Principal Civil Service Pension Scheme. Departments and agencies should write the note in the context of the scheme of which they are members. The wording is illustrative only and, for application to the PCSPS, reference should be made to guidance issued by the Cabinet Office in its Employer Pension Note series for the recommended wording for the year in question.

The Principal Civil Service Pension Scheme (Northern Ireland) is an unfunded multi-employer defined benefit scheme which produces its own resource account, but (insert employer's name) is unable to identify its share of the underlying assets and liabilities. A full actuarial valuation was carried out as at 31 March 200[year] and details of this valuation are available in the PCSPS (NI) Resource Accounts.

For 201X-1Y, employers' contributions of £ 0,000,000 were payable to the PCSPS (NI) (201W-1X £0,000,000) at one of four rates in the range 0.0 to 0.0 per cent of pensionable pay, based on salary bands. The scheme's Actuary reviews employer contributions every four years following a full scheme valuation. The salary bands and contribution rates were revised for 200[year]-0[year] and will remain unchanged until 200[year]-0[year]. The contribution rates reflect benefits as they are accrued, not when the costs are actually incurred, and reflect past experience of the scheme.

Employees can opt to open a partnership pension account, a stakeholder pension with an employer contribution. Employers' contributions of £00,000 (201W-1X £00,000) were paid to [a][one or more of a panel of however many] appointed stakeholder pension provider[s]. Employer contributions are age-related and range from 0.0 to 0.0 per cent (201W-1X: 0.0 to 0.0 per cent) of pensionable pay. Employers also match employee contributions up to x per cent of pensionable pay. In addition, employer contributions of £0,000 (0.0 per cent; 200W-0X: £0,000, 0.0 per cent) of pensionable pay, were payable to the PCSPS (NI) to cover the cost of the future provision of lump sum benefits on death in service and ill health retirement of these employees. Contributions due to the partnership pension providers at the reporting period date were £x. Contributions prepaid at that date were £y.'

[Number] persons (201W-1X: 0 persons) retired early on ill-health grounds; the total additional accrued pension liabilities in the year amounted to £0,000 (201W-1X: £ 0,000).

6.1 Reporting of Civil Service and other compensation schemes - exit packages

Comparative data to be shown (in brackets) for previous year

Redundancy and other departure costs have been paid in accordance with the provisions of the Civil Service Compensation Scheme (Northern Ireland), a statutory scheme made under the Superannuation (Northern Ireland) Order 1972. Exit costs are accounted for in full in the year of departure. Where the department has agreed early retirements, the additional costs are met by the department and not by the Civil Service pension scheme. Ill-health retirement costs are met by the pension scheme and are not included in the table.

[Note: entities should provide additional text if any payments are not covered by the CSCS (NI), for instance, ex-gratia payments agreed with DFP or scheme details where using another scheme. Other schemes are most likely to apply in NDPBs not listed in Schedule I to the Superannuation (Northern Ireland) Order 1972 and may apply different statutory compensation terms]

7. Other Administration Costs

During the year the department purchased the following non-audit services from its auditor, [name Auditor][list services received with details of cost]

This note relates to the expenditure of the fully consolidated departmental group.

8. Programme Costs

9. Income

Drafting note: this note analyses the income recorded in the Statement of Comprehensive Net Expenditure

Where income for specific services exceeds £1m or the income and full cost of the service are material in the context of the financial statements departments should provide the additional fees and charges disclosures as detailed in the FReM.

10. Property, plant and equipment

Notes:

Insert here a note giving the value and category of any donated assets during the year. Where the assets were donated by a related party, the name should be given.

Insert here a note giving the names and qualifications of the valuers of any assets, what assets they valued, and the date on which they were valued during the year. The note should also state that property, plant and equipment are valued using indices.

11. Intangible assets

Notes:

Insert here a note giving the value and category of any donated assets during the year. Where the assets were donated by a related party, the name should be given.

12. Financial Instruments

As the cash requirements of the department are met through the Estimates process, financial instruments play a more limited role in creating and managing risk than would apply to a non-public sector body of a similar size. The majority of financial instruments relate to contracts for non-financial items in line with the Department's expected purchase and usage requirements and the Department is therefore exposed to little credit, liquidity or market risk.

ONLY where the Department is exposed to risk should the appropriate IFRS 7 disclosures be made. Disclosures should be given only where they are necessary because the Department holds financial instruments that are complex or play a significant medium to long-term role in the financial risk profile of the department. The headings in IFRS 7 should be used to the extent that they are relevant. Where the Department does not face significant medium to long-term financial risks, then it is sufficient to make a statement to that effect – similar to that above. (Given that all departments have financial instruments within the scope of IAS 32, silence is not an option.)

13. Investments in other public sector bodies

Drafting note: where applicable, the accounts should show here an analysis of investments between those held by the core department, those held by agencies and those held by NDPBs.

The department's share of the net assets and results of the above bodies is summarised below.

Where a department holds investments in non-public sector bodies or other financial instrument the significance of such instruments should be explained following the requirements of IFRS 7 and carrying values disclosed following the requirements of the FReM and IAS 32 and IAS 39 and within the IFRS 7 headings to the extent they are relevant

14. Impairments

Departments should insert here, if relevant, a note that reports the total impairment charge for the year, showing any movement between the revaluation reserve and the general reserve.

15. Inventories

16. Trade receivables and other current assets

16.1. Intra-Government Balances

17. Cash and cash equivalents

18. Reconciliation of Net Cash Requirement to increase/(decrease) in cash

19. Trade payables and other current liabilities

19.1 Intra-Government Balances

20. Provisions for liabilities and charges

Analysis of expected timing of discounted flows

Brief details of each provision and an indication of the contents of the 'Other' column should be provided here

21. Capital and other commitments

21.1 Capital commitments

21.2 Commitments under leases

21.2.1 Operating leases

Total future minimum lease payments under operating leases are given in the table below for each of the following periods.

Obligations under operating leases for the following periods comprise:

21.2.2 Finance leases

Total future minimum lease payments under finance leases are given in the table below for each of the following periods.

Obligations under finance leases for the following periods comprise:

21.3 Commitments under PFI and other service concession arrangements

21.3.1 Off-balance sheet (SoFP)

For each relevant PFI or other service concession contract, this note should:

• state what the contract is for and note that the property is not an asset of the Department [or name of agency or NDPB, where appropriate];
• give the estimated capital value; and
• give details of any prepayments, reversionary interests, etc and how they are accounted for.
• disclose the total payments to which they are committed for each of the following periods

21.3.2 On-balance sheet (SoFP)

For each relevant PFI or other service concession contract, this note should:

• state what the contract is for and note that, under IFRIC 12, the asset is treated as an asset of the Department [or name of agency where appropriate];
• note that the substance of the contract is that the Department [or agency or NDPB, where appropriate] has a finance lease and that payments comprise two elements – imputed finance lease charges and service charges – and provide details of the imputed finance lease charges in the table below.