Managing Public Money

After your staff team, money is your next most important resource. But special rules apply to those who are spending public money; rules that often catch out those who are more used to spending money in the private sector.

First, you must constantly bear in mind three basic rules which are designed to prevent fraud:

  • The person who authorised the expenditure (i.e. entered into the contract) can never ever be the same as the person that authorises the payment of the subsequent bill.
  • You should never pay a bill ‘in advance of need’, that is before the goods or services have been delivered and have been found to be satisfactory.
  • If there is a limit to your financial authority (i.e. you have been told that you may only spend up to £xx,xxx) you may not circumvent this by splitting contracts and bills into a number of smaller parts.

You may be tempted, especially towards a year end when you are anxious to spend your budget, to ignore one or more of these rules. You absolutely may never do so, on pain of dismissal, even if your intentions are honourable. (There may be occasions when it does make sense to make stage payments, for instance. But you should try to avoid these and - if you feel they are justified - you should make sure (a) that they are linked to clear, measurable and acceptable progress, and (b) that you boss has also approved the payments, in writing or emails.)

Second,you must constantly bear in mind that you (through the department's Accounting Officer) (and not your Ministers) are accountable to Parliament for your stewardship of public funds, including:

  • regularity which means the requirement for all expenditure and receipts to be dealt with in accordance with the legislation authorising them, any delegated authority and the rules of Government accounting
  • propriety which is a further requirement that expenditure and receipts should be dealt with in accordance with Parliament's intentions and the principles of Parliamentary control, and in accordance with the values and behaviour appropriate to the public sector - see below.
  • value for money (VFM), and
  • compliance with both the law and with Government policies and initiatives.

You cannot simply spend money because it obviously makes sense to do so. You need to ensure that Parliament has in advance voted money to be spent in exactly the way you intend to spend it, and that you do not spend more than the money that has been voted for this financial year ending 31 March. You cannot, for instance, carry unspent money forward from one year to another.

You also need to make sure that you stay within both the cash limit and the resource limit (which includes depreciation etc.). And you need to be particularly careful that expenditure on salaries and other compensation (such as that paid on dismissal, and housing allowances etc.) is fully compliant with Treasury rules - which are generally much more restrictive than those found in the private sector. You can of course ask for the rules to be disapplied when necessary, but you need to do this in advance of making the payment - not afterwards!

Further very readable and practical advice, including a chapter on learning from others' mistakes, may be found in‌ Regularity, Propriety and Value for Money.

And much more detail is in The Treasury's Managing Public Money.

Programme Spend: Sop or Lever?

Government spending on salaries, accommodation etc. etc. is known as Running or Administration Costs.  Other expenditure is Programme Spend, including the following.

First, there are large scale projects and programs which deliver key policy objectives from within government.  These can often go badly wrong.  If you are not a trained project manager, you will find some excellent advice on the policy-making website.

Then there are similarly large programs which are in effect contracted out to, or purchased from, the private or NGO sectors.  Suffice to say that you need to have very strong contracts with the third parties, the design of which needs high quality legal advice.

Last but not least, I offer the following thoughts on the sensible use of those smaller budgets which are often used to support projects which contribute to the Government’s wide or narrow objectives but which are owned and controlled outside government.  One example might be a cash-strapped company seeking a grant to help it develop an innovative new product in an interesting field.  Another might be a local authority wanting to test a novel way of delivering services.  Politicians love announcing such expenditure, but it can be hard to ensure that the it is doing real good. 

‘Money may be used as a sop, or it may be used as a lever. When you use it as a sop . . . you get some friendly notes in the press . . . but it is gone. But if you use it as a lever it may be made to influence matters of far greater consequence than is measured even by the actual amount involved’ - Sir Winston Churchill

It is of course always tempting to throw the Government’s resources behind those seeking to ‘do good’. But don’t rush into a decision. The money will be wasted unless you ensure that the government's contribution is structured in such a way as to maximise the chances of the project being successfully completed, and of its being good value for money. Pay particular attention to the following:

  • Every project must have clear, worthwhile and testable objectives. (‘Worthwhile’ means that they make a difference in the real world. For example you should not merely pay for a conference to be held. You should stipulate that it must attract x delegates who must, after the conference, record that they have learned something or will take some action. In the case of larger projects you must ensure that there is, for example, a measurable change in competitiveness or behaviour.) And you must make it clear that no grant (or a reduced grant) will be paid if the objectives etc. are not achieved. You should in particular not spend a lot on programmes whose main purpose is to ‘bring people together’ (e.g. large and small firms, industry and academia). These objectives are laudable, but not worth tens of thousands of pounds, let alone millions. Far better, buy them all a nice lunch!
  • Every project must be 100 per cent ‘owned’ outside Government. We may feel very committed to the work, but our role is to be a supporter and banker, not the entrepreneur or owner. The more we get involved, the more we risk reducing the sense of ownership, and hence the commitment, of the true project managers. In particular, every project must have a clear champion – one person outside Government who is personally committed to seeing it through to a successful conclusion. And there should be clear evidence that larger projects are backed by a senior figure who is unambiguously committed to exploiting the results of the project. We cannot afford to bankroll the ambitions or hunches of staff who are not fully backed by their directors.
  • Remember in particular that you cannot give money to a body of which you are a member. If your job requires you to join a board which is supervising a programme or project, you must make it crystal clear that you are only doing so as an observer.
  • Remember too the related point that you must not behave in such a way as to suggest that the Government might stand behind a body which is receiving public funds. If you were to do this, you might be deemed to have become a ‘shadow director’ in which case you might find that the taxpayer has become liable for the whole of the debts of the body concerned.
  • Similarly, there should be clear evidence of financial commitment from outside Government. Be particularly wary if you are asked to pay more than 25 per cent of the cost of a project. This suggests that no-one else is willing to put much of their money where their mouth is. This is especially true of collaborative projects where the non-government proportion is shared between several participants, none of whom, it often turns out, are much bothered about whether the project succeeds.
  • You should be particularly reluctant to accept that Government money might be necessary to ‘pump prime’ a project which will eventually stand on its own feet. You need to ask why someone should support the project once the pump has been primed, when they are not prepared to do so now.
  • Take care if you are asked to support interesting experimental work in, say, one school or one company or one local authority area. If the experiment appears successful, are Ministers committed, and will the financial and managerial resources be available, to implement the change nationwide?
  • You must set up robust monitoring arrangements (which will survive your moving on to another job) if money might need to be repaid to the Government after the final grant has been paid over. Examples include loan agreements and grants to create employment, which are repayable if the jobs disappear within X years.

 

Martin Stanley

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