Financial Directions (R.121/2014): response of the Minister for Treasury and Resources.

C&AG Recommendation

Response

Comments

R1: Following implementation of the  detailed  recommendations  in this report, strengthen the States' overall system of internal control by  developing  Directions'  to cover  other  areas,  such  as information  management  and human resource management.

Agreed  in principle

The scope of Financial Directions (FDs) is  specified  by  the  Public  Finances (Jersey)  Law  2005  as  the  proper administration of that Law. However, the States also produces policies in the other key internal control areas mentioned.

Human  Resources  (HR)  Policies  are issued by the HR Department, and cover a range  of  HR  Management  issues.  It  is proposed that a legislative change is taken to the States with the aim of replicating a similar process to that for FDs, whereby Codes of Practice would be introduced for core  HR  areas  such  as  recruitment  and training. These Codes would continue to be supported by policy documents.

IS policies are issued by the Information Services  Department  (ISD),  and document  how  ISD  manages  the  States Information  Technology  and Communications estate. They are used to ensure  the  States  has  a  controlled environment  upon  which  it  can  build applications and services for users.

R2: Review the mechanisms for engaging  with  departments  to ensure  that  valuable  insight  into the  practicality  of  existing  and proposed  Financial  Directions  is sought,  demonstrably  considered and,  where  appropriate,  acted upon.

Agreed

The Treasury recognises that consultation with departments is vital to the successful implementation  of  Financial  Directions, and user feedback is a key mechanism to ensure  that  Directions  produced  are practical, and this is incorporated into the current programme.

An overall review of the current process for the production of Financial Directions

C&AG Recommendation

Response

Comments

will  be  carried  out,  including consideration  of  practice  in  other jurisdictions and sectors and the views of users. As part of this review, consultation and  other  engagement  mechanisms  will be considered.

R3:  Review  and  amend  the current  standard  format  for Financial Directions to ensure that all Financial Directions contain –

• a  clear  statement  of  the control risks being addressed;
• a direct and accessible house style'; and
• a clear linkage of mandatory requirements to control risks.

Agreed

The format used for Financial Directions will  be  reviewed  in  line  with  the recommendation, and a plan to implement any  changes  in  the  format  across  the Financial Control Framework produced.

R4:  Update  quality  assurance procedures  for  Financial Directions to ensure that revised corporate  standards  for  drafting Financial Directions are complied with.

Agreed

An overall review of the current process for the production of Financial Directions will  be  carried  out,  including consideration  of  practice  in  other jurisdictions and sectors and the views of users.

As part of this review, the existing quality assurance procedures will be developed to ensure that Financial Directions are clear and unambiguous.

R5:  Adopt  an  appropriate platform for Financial Directions, using  readily  available  software, which  facilitates  effective updating,  navigation,  searching and cross-referencing.

Agreed

Financial  Directions  are  currently published on the States Intranet, which is accessible  to  most  States  Employees. They include cross-referencing as far as allowed  by  the  format,  including hyperlinks to related Financial Directions and other relevant documents.

The Treasury will continue to work with the  Information  Services  Department  to explore  ways  in  which  new  solutions could be used to enhance the delivery of Financial Directions.

R6:  Develop  a  communications and  training  plan  to  ensure  that relevant  staff  are  aware  of  the requirements  of  and  changes  to Financial Directions.

Agreed, current process  to be  further developed

The  Treasury  recognises  the  need  to embed  Financial  Directions  across  the organisation,  and  the  key  role  that effective training and communication will have in ensuring that this is the case. The Treasury  already  takes  steps  to communicate to key individuals such as Accounting  Officers  and  Finance Directors,  and  places  reliance  on  these

C&AG Recommendation

Response

Comments

individuals to put into place systems to communicate to their finance teams and operational staff.

On  appointment,  Accounting  Officers sign  a  letter  acknowledging  their responsibilities,  including  those  relating to  Financial  Directions.  Accounting Officers, Finance Directors (through the Finance  Advisory  Board)  and  Finance Managers  (through  the  Financial Management  and  Reporting  Group (FMRG)) receive e-mail notification of all new Directions, together with a summary of  key  control  requirements  (both  new and  changes  to  previous).  Finance Managers attending the monthly meeting of FMRG also receive a verbal update on all new Financial Directions and ongoing work on the Framework.

In  addition,  delegates  on  the  Modern Manager Programme (MMP) receive an overview  of  the  Financial  Direction Framework  and  associated  assurance processes  as  part  of  the  MMP  Finance Module, and departments provide training to  their  budget-holders  on  relevant Financial Directions.

However,  the  Treasury  recognises  that there is more work to do in this area, and will seek ways in which to improve the communication  to  both  finance  and,  in particular, non-finance staff.

R7: Include an explicit statement on  compliance  with  Financial Directions  in  the  Annual Governance  Statement,  linking issues  of  non-compliance  to individual Financial Directions.

Agreed  in principle

The Annual Governance Statement in the published Financial Report and Accounts already includes a summary of the States of Jersey internal control environment and specific references to significant control weaknesses  that  have  arisen  during  the year. These include those resulting from non-compliance  with  Financial Directions.

The  Annual  Governance  Statement  also refers to the work of Internal Audit is in providing  assurance  on  the  financial controls and processes in the States.

The Treasury will work with the C&AG to explore the reasons for non-compliance identified  in  her  review  and  decide  on

C&AG Recommendation

Response

Comments

appropriate  actions,  including  how  to report  any  significant  non-compliance with Financial Directions.

R8:  Identify  and  implement systems-based  controls  now  and in  the  future  as  systems  are introduced  or  changed.  The  aim should  be  to  automate  controls where  possible  to  assist  in ensuring  compliance  with  all Financial Directions efficiently.

Agreed

The  Treasury  recognises  that  system- based controls form an integral part of the overall  system  of  financial  control,  and when  drafting  Financial  Directions  will continue to seek to reflect the systems in place where strong system controls exist.

R9: Undertake an annual review of Financial Directions following the  preparation  of  the  Annual Governance Statement to –

• consider  the  coverage  and content  of  Financial Directions;
• balance  the  need  to  manage risk  with  the  costs  of compliance  with  Financial Directions; and
• identify  areas  for  corrective

action.

Agreed, current practice to be developed

There  is  a  detailed  work  plan  for  the development  of  the  Financial  Control Framework,  which  includes  forward planning  for  the  drafting  of  additional Financial Directions and the update and improvement  of  current  Financial Directions  (through  a  process  of continuous improvement). This work plan will  be  reviewed  in  line  with  the recommendations of this report, and the outcomes  of  the  planned  review  of  the production of Financial Directions.

Feedback  from  the  Public  Accounts Committee, the Comptroller and Auditor General, Internal Audit and departments will  be  fed  into  this  work  plan  in identifying  the  key  areas  on  which  to focus,  adopting  a  risk-based  approach. Exemptions  requests  received  and reported instances of non-compliance will also  be  assessed.  A  process  by  which departments  can  report  non-compliance on  an  ongoing  basis  is  also  currently being  developed  with  Internal  Audit, allowing  action  to  be  taken  on  a continuing basis.

Internal Audit is currently undertaking a project to ensure management has taken action  to  carry  out  agreed  audit recommendations.  Once  the  project  has been  completed,  Internal  Audit  will present key themes on non-compliance to the  Audit  committee  and  Financial Advisory Board. These results will also be communicated to FACT to inform the ongoing work plan.

C&AG Recommendation

Response

Comments

R10:  Align  requirements  for record-keeping  with  mandatory requirements  of  Financial Directions so that it is possible to test  compliance  with  all mandatory  requirements  of Financial Directions.

Agreed

How  to  align  requirements  for  record- keeping  to  mandatory  requirements  will be considered as part of the review of the format of Financial Directions. This could include a general requirement to ensure that adequate documentation is retained to demonstrate  compliance  with  Financial Directions in the planned Accountabilities Financial Direction.

Whilst  any  particular  documentation needed is referred to in a Direction, the Treasury  would  expect  departments  to exercise  professional  judgement  in determining  what  level  of  evidence  is appropriate. The Treasury is also mindful that  more  stringent  requirements  in  this area  could  lead  to  an  increased administrative  burden  on  departments, and  will  seek  to  minimise  this  where possible.

R11:  Minimise  the  volume  of mandatory  requirements  when drafting Financial Directions.

Agreed

The  Treasury  accepts  the  principle  of ensuring that mandatory requirements are clear  and  easy  to  understand,  and  that Mandatory  Requirements  and  Guidance are clearly differentiated. Once the review of  the  format  and  drafting  process  is complete,  existing  directions  will  be assessed  against  the  revised  corporate standard.

R12: Clearly distinguish between mandatory  requirements  of Financial  Directions  and supporting  guidance  on implementation.

Agreed

The Treasury will review the format of the  Financial  Directions  to  ensure  that Mandatory  Requirements  and  Guidance are  clearly  differentiated,  and  the modified  approached  rolled  out  across Financial Directions as part of the updated work programme.

R13: Undertake a sense check of the  practicality  of  all  mandatory requirements  of  Financial Directions,  including  through engagement,  particularly  of frontline  users,  before  Financial Directions are finalised.

Agreed, current process  to be developed

An overall review of the current process for the production of Financial Directions will  be  carried  out,  including consideration  of  practice  in  other jurisdictions and sectors and the views of users.

As part of this review, consultation and quality  assurance  procedures  will  be developed to ensure that the requirements of Financial Directions are practical.