When private sector finance directors scrutinise the way taxpayers’ money is
spent, they like to huff and puff. The accounts are never signed off, the level
of fraud and error is astronomical, and every initiative is delayed or dropped.
‘We’d never get away with it in the private sector, would we,’ they say.
Well, one point Mary Keegan, the head of the government finance profession,
makes is that they would, and often do, get away with it.
‘It would be interesting to look at banking in the private sector and think
about error rates within banking systems. Even though we know there are errors
which deal with similar pieces of the population their accounts aren’t
qualified,’ she says.
Her point is that the government works to a lower level of materiality. ‘The
NAO and its European
equivalents takes a view that it ought to operate to a slightly lower level of
materiality because it is dealing with taxpayers’ money.’
She acknowledges that she has been out of the private sector for a while, and
doesn’t know what position the firms take on such errors now. Even so, it
certainly goes some way to taking the sting out of private sector rants.
The intersection between the private and public sector constantly comes up in
our conversation, a rare interview for a public sector official about the
goings-on at the highest levels of government accounting.
Perhaps the most eye-catching is the establishment of a public sector version
of the Hundred Group of Finance Directors, the body of FTSE 100 FDs which, in
its infrequent forays into public debate, hits home with a clout that few lobby
groups can command.
It’s called – if you couldn’t have guessed – the ‘government hundred group’,
and will unite the FDs controlling the largest sums of money in Whitehall.
Zarin Patel, from the BBC, will be there, as will Warwick Jones from the Bank
of England. Sir David Tweedie is set to give a speech about IFRS to the group in
The first meeting is in June, and she stresses that its role is more a
question of sharing best practice than one of creating a lobbying body.
‘We all come from very different backgrounds to share best practice, and in
part as a support community. It will be a way we as a community can develop
bright people coming through and talk about career opportunities.’
Another obvious area where the public sector will also be joining its private
sector counterparts is in adopting IFRS. The most contentious element involves
bringing some elements of PFI projects on balance sheet. The Treasury doesn’t
like to talk about it, and a report from the
Reporting Advisory Board, which advised bringing much of it on balance
sheet, remains classified: ‘There are some off-balance sheet [bits] that we
think will come on balance sheet under the new standards,’ Keegan says. A rare
They concern projects in the ‘wider public sector,’ she says. Much of central
government PFI work is on balance sheet, including the building Keegan and the
rest of the Treasury work from.
The worry for whoever Gordon Brown appoints as his successor will be that
upping the level of government debt will break the sustainable investment rule –
that debt should not exceed 40% of total government spending.
IFRS itself will only pose other small problems. ‘There are one or two bits
of government where we do have financial instruments,’ she says. That means the
debt management office and bits of government dealing with currency exchange
Another project that looks likely to cause bad headlines is the whole of
government accounts idea. It will be a remarkable achievement, to have hundreds
of billions of pounds of spending consolidated. The plan originally was to have
a fully audited set of accounts for 2006/07. But the timetable is slipping.
‘We’ve decided we are aiming for 2008/09 for the first year,’ Keegan admits,
and you can bet that few critics will generously concede the difficulty of the
task when they lay into government on the issue.
Partly, because it will coincide with the first year of government accounts
under IFRS. And partly because it is proving complicated: ‘It’s slightly later
than we were expecting. We are still not there, with a diversity in accounting
treatments with local and central government.’
One shouldn’t be too critical on all that Keegan and her team are up to. The
plan to get qualified FDs in across Whitehall has gone well. When the initiative
was announced in 2004, only 20% of government spending was under the control of
a qualified FD. Though the target of 100% by the end of 2006 was not hit, 90% of
spending is now overseen by someone with a qualification.
The MoD makes up most of the rest of that 10%, and once that is resolved the
target will basically have been hit. In any case, the more important point is to
turn the general ship of state around, which has been basically managed.
Given the predominance of private sector concepts being introduced into
government, is there a perception that private sector accounting is superior to
its public counterpart?
‘That’s a difficult question to answer,’ she says, pausing. ‘We suffer from
the same problems as the private sector. Systems break down and there are
misunderstandings and faults.’
But she concedes: ‘If we do lag in any area it is because general management
is less comfortable with the financial numbers than you would find in a typical
boardroom in the private sector.’
‘In a private sector boardroom people instinctively measure things. They want
to know how things are in terms of spending. We are just developing that
There is, she adds, more of a focus on targets under this government, which
has changed the situation somewhat.
Among the targets the accounting teams are working on is one to get major
accounts filed more promptly. Working to March year-ends, that means getting the
accounts filed before the summer recess, which generally falls at the end of
July, giving them three to three and a half months. A significant 42 out of 49
managed it this year.
‘What’s happened to the other seven, you may ask? That’s what I keep asking,’
she says. But the figures are improving – it was 25 the year before and 10
‘We’re 90% there,’ she says, before she corrects herself. ‘No, 85%, let’s not
exaggerate.’ She clearly feels she couldn’t demand a greater focus on numbers if
she got them even slightly wrong herself.
So what about the qualifications? The Department for Work and Pensions, whose
numbers have been qualified for 17 years in a row. HM Revenue & Customs,
whose tax credits handouts have seen part of its activities qualified through
‘fraud and error’ for the past four years in a row. And the EU accounts,
admittedly outside of her brief, whose spending of agricultural money and the
structural fund have equally been beset with so many difficulties that the court
of auditors has not, this time for 12 years in a row, signed off the numbers?
Does she think such accounts will ever be signed off? After all, they concern
the general handing out of money. Almost invariably that leads to fraud and
‘We have to do what everybody is continuing to do, which is to work on the
systems and processes to improve them,’ she says with a slightly weary
resignation about the issue.
‘There are always things we can be criticised for. On balance over the three
years I think we have made quite a big change in the way finance is perceived
[in government]. But there’s more to do.’
Shoulders of giants
Mary Keegan has, like many in the public sector, a bewildering array of jobs.
Not only responsible for the Treasury’s accounts as its FD, she is also managing
director, financial management, reporting and audit at the Treasury (a board
level appointment, the Treasury points out, just to confuse you), and head of
the government finance profession.
She follows in illustrious footsteps. In the role before her was Sir Andrew
Likierman, now a non-exec at Barclays, a professor at London Business School and
a big-hitter who recently came to prominence recommending the UN set up an audit
She worked as a partner with PwC for many years before again filling some big
shoes at the Accounting Standards Board, those of Sir David Tweedie.
Despite a slight shyness (she doesn’t like having her picture taken and
refuses to go on the Treasury’s own internal TV channel), it’s clear Keegan’s
future can only hold greater things.