The House of Commons Public Accounts committee has criticised Department for Environment, Food and Rural Affairs (Defra) for failures in its report on how Defra manages its expenditure, concluding that policy and operational delivery within the Department and its delivery bodies have been adversely affected by financial management failings.

Defra received £3,617 million from the Treasury in 200708.  The Report states that the Department failed to allocate final budgets to each of its business areas until five months into the 2007–08 financial year because:

• planned expenditure was in excess of funds provided;
• budget holders did not declare all financial commitments from the outset; and
• the costs of unforeseen floods and the outbreaks of animal disease had to be managed.

According to the Committee, a similar situation also arose in 2006–07 when the Department had to make mid-year budget reductions of £170 million to avoid the risk of overspending. As a result the late notification of the reductions had an adverse impact on performance.

The Department’s problems in managing its expenditure in the last two years are attributed in part to the difficulties faced in sponsoring 31 delivery bodies, including the Environment Agency, each with its own administrative functions. The Committee says that the Department’s budget setting process did not contain sufficient flexibility to deal with events which were unforeseen at the start of the year, specifically,  handling the floods and the outbreaks of foot and mouth disease and avian influenza. These required additional resources of £60 million which had to be funded by reducing budgets for other activities within the Departmental Group.

The Report  highlighted

“A lack of awareness amongst the Department’s Board Members of good financial management practice, together with cultural issues which did not prioritise financial management at a corporate level..”

• A taut financial management culture should be instilled throughout the organisation by employing sufficient appropriately skilled finance staff, by requiring managers to account for resources through regular progress reports, and by challenging variations in expenditure throughout the financial year so that early remedial action can be taken.
• The financial management of resources should be scrutinised, challenged and debated regularly at the Management Board alongside delivery performance.
• Department budgets should include realistic provision for unforeseen events based on historic experience, and commitments against such funding should be considered regularly by the Board. This will allow the need for either additional funding or for the release of funding to be identified so that action can be taken quickly.