I will deal briefly with the Department's Votes and then outline for the committee the management and accountability framework obtaining in Departments and offices. This framework was designed to improve the management of the public finances and enhance accountability to the Oireachtas and the public.
The committee's letter of invitation sets out the Votes for which I am the Accounting Officer in addition to the finance accounts. The Department of Finance has seven strategic priorities set out in the strategy statement approved by the Minister. These are economic and budgetary policy; taxation and public expenditure policy; EU policy development and wider international economic co-operation; financial regulation; incomes policy development and implementation; enhanced management of the public service; provision of service to our customers.
Vote 7 deals with superannuation and retired allowances. In the accounting period ended 31 December 2004 net expenditure from this Vote amounted to €194 million. The finance accounts are the most comprehensive published by the Government and include in summary form, information on almost every aspect of the Government's financial operations.
Returning to the strategic priorities for Vote 6, there are two aspects of strategic priorities I and II, dealing respectively with economic and budgetary strategy and taxation and public expenditure. The two aspects are fiscal surveillance and expenditure management and review measures. I wish to outline the framework in place to improve public expenditure management.
The key objective of the framework is to facilitate more effective and efficient allocation and management of resources by Government and Ministers, Departments and agencies, and to ensure greater accountability to the Oireachtas and the public for the use of these resources. The key elements of the framework are the Public Service Management Act 1997; the implementation of a new management information framework; the implementation of the recommendations of the Mullarkey report; the three-year budgetary cycle, the five-year multi-annual capital envelopes, ten years for the Department of Transport; the publication early each year of monthly profiles of expenditure and tax receipts; monthly reporting to Government on tax and expenditure trends, with bi-monthly specific reporting by the big-spending Departments; the guidelines by the Department of Finance for appraisal and the management of public capital expenditure; the value for money measures announced by the Government in October 2005 and later by the Minister for Finance; the reforms to public procurement; roll out of the public private partnership programmes; administrative budget agreements.
The Government's proposals for reform of the Estimates and budgetary process announced in budget 2006, and planned improvements to the operation of the expenditure review initiative, are other key elements of this framework. By defining more clearly the responsibilities of Ministers, Secretaries General and heads of offices, the Public Service Management Act 1997 provides a basis for the more efficient and effective management of public expenditure and for greater internal and external accountability.
To achieve the Act's objectives, each Department sets out its high level policy goals and strategic objectives in its strategy statement as provided for in the Act, and this strategy statement is approved by the Minister before publication.
Secretaries General are responsible for managing the day-to-day business of their Departments, implementing Government policies and delivering outputs as determined by their Minister. They are also responsible for preparing a framework for assigning operational responsibilities for areas of work to officers in their Departments. Secretaries General, as Accounting Officers, are responsible for ensuring the proper and cost-effective use of resources.
Modern financial management information is necessary to support the enhanced planning and decision-making process. In recognition of this all Departments have now installed modern computerised financial management systems. Combined with these systems, management is provided with the essential building blocks it requires to produce the annual output-focussed statement that will accompany Departments' estimates from 2007 under the reform of the Estimates and budget process announced in the 2006 budget.
Departments have also implemented the recommendations of the Mullarkey report. It recommended that Departments and offices review their systems of internal financial control and bring them up to standard as necessary, that they do the same with their internal audit arrangements and audit committees. Accounting Officers include a formal statement on internal financial controls with their annual appropriation account.
Turning to the effective and efficient management of resources, the publication each year of the monthly profiles of public expenditure and tax receipts that can then be compared with the monthly Exchequer statement through the year has improved transparency and accountability in the management of Department budgets. Furthermore, since the end of 2002, the Minister for Finance reports monthly to Government on progress against profile of the main budget aggregates. In addition, the four biggest current-spending Departments report progress on their spending to Government on a bi-monthly basis and, from this year, the six biggest capital-spending Departments do the same. These developments allow management in Departments and Ministers and Government to be kept fully up to date on emerging trends in expenditure and revenue against budget.
Reforms such as the five-year capital envelopes, the additional value for money measures announced by the Minister for Finance on 20 October last and the Government's proposals for reform of the Estimates and budget process all reinforce and implement at an operational level the principles underlying the Public Service Management Act. Together they ensure that there is a clear delineation of responsibilities and more efficient and effective planning and management of public expenditure policy.
Departments and agencies have delegated authority to manage their capital programmes and projects within five year capital envelopes, provided they adhere to Department of Finance guidelines for capital appraisal, public procurement and other value for money requirements. The capital envelopes provide Departments with greater certainty for managing their spending and this is further supported by the facility to carry over to the next year unspent capital up to 10% of the total capital budget, if that is required to improve project management.
Following the value for money measures announced by the Minister for Finance on 20 October last, the Department of Finance set out the key elements in the following terms: all major capital and ICT projects must have an individual project manager, responsible for managing and monitoring the project and for reporting progress to the board. Regular progress reports to the management advisory committees of Departments and to the boards of State agencies are also required on capital programmes and major projects and on value for money generally; Secretaries General as Accounting Officers in their annual reports on their capital envelopes and their ICT expenditure statement must certify that Department of Finance guidelines are being complied with fully. They must also certify that all expenditure on consultancy is necessary and will provide value for money. These requirements can be audited by the Comptroller and Auditor General. Departments and their agencies are also required to report progress on capital projects above €30 million in a new format in their annual strategy statement reports, detailing project outcomes against budgets and against scheduled completion dates in contracts for projects; all projects above €30 million must be subject to full cost benefit analysis and must be subject to formal review and progress reported to the boards of agencies and the management advisory committees of Departments, and to Ministers.
Smaller to medium-sized projects must also be subject to appraisal proportionate to the amounts involved; the formal peer review process for major ICT projects, announced by the Government last October, is now operational. The peer review is carried out at key decision points — preliminary business case assessment, detailed assessment, pre-tender, post-tender, and project close-out — by a team of experienced people external to the project board and the organisation. The process particularly focuses on examining the preparation of good business cases, cost benefit analysis, affordability within the approved budget for the organisation, detailed planning and the governance arrangements and so on. Peer review teams are selected by the sponsoring Department or office of each project subjected to the process, and these selections are subject to agreement with the Department of Finance. Review teams include people with relevant experience and these people can be drawn from both the public and private sector; to ensure these measures are implemented, each management advisory committee or MAC is required to have a reporting arrangement in place. Each MAC is then required to report the outcome annually to the Department of Finance. Now that this requirement is operational, the Department of Finance will audit a sample of the projects done each year to satisfy the Minister for Finance that the new arrangements are operating as he intended. In addition, Departments and offices are required to produce corporate procurement plans in accordance with the Department of Finance's procurement policy framework. The plans are designed to improve procurement outcomes in public bodies through an analysis of expenditure and purchasing processes and through setting targets. The Department of Finance has prepared a template corporate procurement plan to provide necessary guidance and is providing training to assist the process. This is an ongoing process to get public bodies to buy smarter. The aim is to maximise the return from the annual expenditure of the order of €8 billion spent by public service bodies on purchasing non-construction related goods and services.
In the case of the construction sector, the Government decided to reform construction procurement by introducing new standardised public sector contract terms for contractors, new conditions of engagement for construction consultants — architects, engineers and so on — and a supporting guidance framework for use by the public sector. Cost certainty to the extent it is practical, value for money and cost effective delivery of public capital projects are at the core of the reforms. There has been extensive consultation with the construction industry over the past year and this has proved very valuable. The final changes to reflect the totality of the discussions with the industry are now being considered with a view to having the new contracts, conditions of engagement and related material ready for use as soon as possible in 2006. The next phase will involve a comprehensive training programme for public sector practitioners to ensure the new contract conditions are used appropriately throughout the public sector.
The committee has been given other presentations on public private partnerships or PPPs. Last July the Government decided to establish a centre of expertise for PPP procurement in the National Development Finance Agency for projects in departmental areas and to concentrate on new PPP projects in the education, justice and health areas initially. The model of using a specialised agency to deliver complex projects has already been put in place with the National Roads Authority for the roads area and the Railway Procurement Agency in the rail area. The existing specialised arrangements for PPP procurement and those in the environment area are not affected by the change. The NDFA had already established itself in its role as financial adviser to State authorities on all public investment projects over €20 million. The NDFA has commenced its new role on a non-statutory basis pending the passing of the necessary legislation and is working directly with the Department of Education and Science and other relevant Departments on developing the first programme of PPP projects for procurement under the new arrangements.
Administrative budgets are in place since 1991 and the system now applies to some 30 bodies, all Civil Service Departments and almost all offices, and covers around €2.2 billion a year, or some 5% of gross voted expenditure. These budgets provide the framework under which Departments and offices now operate their expenditure on administration. They improve co-ordination between the Department of Finance and other Departments and offices while at the same time providing them with greater flexibility to use resources for local priorities.
Departments and offices now have considerable freedom to use savings from one category of administrative expenditure to another where they can get a better pay-off and greater flexibility on staffing resources. Funding is guaranteed over the period of the agreement, usually three years on a rolling basis, subject to overriding Government policy on expenditure and numbers. Unspent funds, up to a limit of 5% at present, can be carried over from year to year to facilitate better budgetary discipline and planning.
Public expenditure programmes and policies are reviewed under many headings. One of these is the narrowly defined expenditure review process. Since October 2004, expenditure review reports under this process are sent as a matter of course to the Clerk of the relevant select committee. The Minister for Finance has made it clear that he would like to see the select committees availing of these more transparent arrangements and engaging more with Ministers and their Departments in holding them accountable for their management of public expenditure and the achievement of value for money. The Minister will put proposals to Government shortly to further improve the operation of the expenditure review initiative. This will put in place another element of this new robust framework for better public expenditure management and enhanced value for money assessment. A major review of tax reliefs took place in advance of the last Budget and the result of these reviews formed the basis for a number of changes announced by the Minister in his Budget Statement last December.
Ministers and Government are responsible for policy and for determining budgets and the overall level of resources at programme level. They are accountable to the Oireachtas in this regard. The Government's reform of the Estimates and budget process announced in budget 2006 will significantly enhance that accountability and will further develop the modernisation process. The output statement to be presented by Ministers with their annual Estimates from 2007 will link the high level goals set out in departmental strategy statements approved by Ministers on the one hand with the resources provided by the Oireachtas on the other. The performance information the annual output statements will contain from 2008 on will enable the select committees, in considering the Estimates each year, to see better what was achieved in the previous year and to compare it with the objectives and budget that were put in place for that year.
The budget and Estimates reform measures will also improve the quality of pre-budget information available to members of the Houses at macro level. Specifically, where at the moment the current annual economic review and outlook simply reviews the economic and budget performance for the current year, it will now also present a pre-budget analysis of the economic and general prospects for the current year and the following two years, and will do so well in advance of the budget. As regards Government expenditure, the revised document will contain analysis based on an update on the overall existing level of services projections published with the previous year's budget.
I hope I have given a flavour of the measures we have put in place and are putting in place to improve the overall system of financial management and which I expect will give a greater degree of transparency to how public moneys are being expended on public services. My colleagues and I will be happy to answer as best we can any questions that Deputies may have.