March Madness

This is the time of year when (in countries where the public sector financial year ends on 31 March) public managers try to avoid underspending their budgets. Stationery cupboards are stocked, laptops replaced, small, low priority--but quick--projects are hastily completed. It might not be right; it might not be good value for money; but it happens.

This March madness has always been a feature of my working life. I'm sure it happens in private businesses, too, except there the drive might be to record sales before the year end rather than costs (depending whether the manager has made too little profit or too much).

The incentive to do this is a version of jam today rather than jam tomorrow. When I was a director of finance we introduced a system of carrying forward budget under-spends and over-spends as a way of encouraging managers to take a longer term view and spend money more wisely. I think it worked at the time but that was because managers and directors trusted me and the top politicians to honour the system. Given the pressure on public sector organisations if I were a budget manager I would be sceptical about whether my under-spending would be made available to me in the new financial year. I might take the view, better to spend the money now on something I'm certain about than hope I could spend the money on something better in a month or two.

It may not be the right thing to do, but who can blame them?

An opportunity for improvement

Last week, HM Tresury published a short pamphlet entitled, Managing taxpayers' money wisely: commitment to action. You can get a copy of it from here. The pamphlet is a statement of intent that the government will adopt in its financial management.

It says that there are four enablers for improving the government's financial management:
  • effective leadership;
  • a cost-conscious culture;
  • professionalism; and 
  • expert central functions.

Now I suppose it doesn't do any harm for senior managers in any organization to state clearly to every one in the organization what is expected of them. I do hope, though, that in January 2011, more than thirty years since the beginning of reforms aimed at making public servants financially-responsible for their services, that these requirements are not news to anyone.

One could infer from the publication of this pamphlet and the statement in the foreword by Justine Greening MP that it is ‘the foundation for a forthcoming Finance Transformation Programme across central government,’ that central government's management of six hundred-odd billion pounds of public money every year is not all that it might be. Perhaps she might be interested in buying a few thousand copies of my book!

Not all bureaucracy is bad

We're hearing a lot about the Government encouraging community groups and social enterprises to get involved in the delivery of public services and that this will remove bureaucracy and waste. And David Cameron was open about not having all the answers but wanting to try things out.

Well, it seems a positive thing, doesn't it, that local people take over the running of a swimming pool or library or even school. There's this idyllic notion that if we free these community organisations from the tyranny of local government (much of which is under the control of Conservatives or Liberals) they will flourish. Perhaps they will, but they will also still have plenty of bureaucracy to contend with. Here's just a few examples of red tape that I feel sure will still apply even to the smallest of community organisations:
  • HM Revenues and Customs will require Pay As You Earn and National Insurance to be collected and paid over in respect of any employees (and as the owner of a business with just one employee I can assure you that there is plenty of electronic form filling required);
  • VAT rules will apply (and this could cause an increase in costs because, for instance, local authority schools can recover the VAT paid on their supplies and City Academies can't);
  • having employees will mean that health and safety and working time legislation applies so there will be risk assessments and so on to complete as well as keeping adequate records about employees;
  • equalities legislation (because we can't have the local community running facilities that are discriminating against one group or another); and
  • if the organisation chooses to be a charitable one then the requirements of the Charity Commission will apply in terms of annual returns and publishing information

These organisations won't be part of the local council's decision-making machinery so there will be a saving in time and effort there, but I suspect that there will have to be at least one board or committee in place to make sure that the organisation is being run properly. If these are to be run in the public interest rather than as private fiefdoms then there will at least have to be published agendas and minutes.

Which reminds me, there'll have to be audits, too. Currently a small establishment might have an internal audit every five years and its accounts are audited as part of the local council's corporate audit. As a separate organisation, unless it is very small it will have to have its accounts independently examined every year. A proliferation of small audits will be a useful source of new business for the smaller accounting firms.

Given our risk aware and litigious times anyone running such a community organisation will surely seek to have insurance. As part of a big organisation the liabilities would have been grouped together with the aim of getting a competitive insurance premium. Hundreds of small organisations, generally without a claims history, is going to find itself faced with significant insurance premiums and I suspect the aggregate premiums will exceed what the public sector is currently paying. Good news for City, but not so good for the the rest of us.