Before the award
At this stage, you should carry out:
These are discussed below.
Risk analysis
What is this?
Any financial agreement contains some risk
[1]. It is impossible and
undesirable to eliminate risk. Risk should be managed.
Some programmes are inherently risky –
because, for example, they deal with an innovation that may not
work as hoped or a piece of research and development that may not
result in the desired breakthrough for another year. You and
senior managers and Ministers need to be clear about this: given
the uncertainties involved in your programme, what level of risk
are you prepared to take? [2].
Further guidance on the management of innovation can be found in
the NAO report
“Innovation across central government” (March 2009).
Depending on the nature and confidentiality of
such risks, you may involve stakeholders, including potential
providers, in this work. For some funds, there is a risk
committee, with external members, to help with this.
Risk management needs to be done throughout
the period of a financial agreement [3]. This first stage in
this is to identify the risk before the award [3]. This will help you make
decisions further into the process. You should re-assess risk
on a regular basis to identify new risks which have arisen, changes
in existing risks, or risks that have ceased to exist or to be
relevant.
Advice
There are four [4]
types of risk:
- Financial
- Performance
- Reputational
- Opportunity.
Financial risk is the risk
that the budget you and the provider have agreed may be exceeded;
and/or that there is poor value for money. You should also consider
risks to regularity and propriety e.g. whether a grant is spent on
the purposes intended.
Performance risk is the risk
that the objective you and the provider have agreed may not be
met.
Reputational risk is the risk
that unwanted actions of the provider may bring it, the programme
or the funder into disrepute.
Opportunity
risk is the risk that the funder or the provider,
because they have not analysed risks fully and accurately and are
too risk averse, decide not to take an opportunity that presents
itself and so damage their effectiveness.
Using these headings, you should identify the
risks facing your programme. Consider whether and how these
risks are already addressed e.g. by processes, controls, existing
monitoring or contingency plans. Use a risk register[3] to capture and document
these. Work with your auditors on this. [5]
Due diligence
What is this?
Before a public funder enters into a
financial agreement with a TSO, it needs to check that the TSO is a
suitable organisation to do public business with – especially that
it is fit to receive public money. This check is known as due
diligence.
Advice
There is no set list of due
diligence information that a funder must obtain about a potential
provider [6]. Here we provide
examples of the information you may need. Use your risk
register to guide you on what information to ask for.
The first is accounts. These may be
available from sources other than the provider itself. For
example, if the potential provider is a registered charity, the
funder can check its entry on the Charity Commission
website [7]. Depending on the size
of the charity and its income, this can include copies of audited
annual accounts. This includes information a funder may find
useful for due diligence. You may need to ask the provider
for further accounting information. If a provider is a
limited company, its annual accounts may be available through
Companies House. But funders should be able to place reliance
on the provider’s audited accounts. You can ask your
organisation’s accountants for advice on this.
A funder may need other, non-financial,
information. For example, a funder may also require the
provider to have relevant insurance (for example, insurance to
cover the risk of giving bad advice to a client). Depending
on the nature of your programme, you may ask providers for copies
of internal management procedures, such as policies on safeguarding
children and health and safety.
Another source of reassurance may be
certificates of membership of professional organisations and/or
quality frameworks [8].
You may also be able to ‘re-use’ due diligence information that the
TSO has given to another funder.
For the provider, collecting together the due
diligence information you ask for and submitting it to you can be a
burden in itself. Ask yourself whether you need to see each
item or whether you need to know that it exists. For example,
do you need to see a provider’s health and safety policy or is it
sufficient to know it has one.
Depending on the way your funding application
process is structured, you may find it helpful to collect due
diligence information in ‘layers’. For example, in a
two-stage process, you might ask all the organisations in stage 1
to submit (or confirm they have, or signpost you to) initial
information, such as their annual accounts (or signpost to their
entry on the Charity Commission website). In stage 2, you
might ask for more detailed information, such as bank details,
information about the TSO’s constitution and public liability
insurance.
Notes
- Improving
Financial Relationships with the Third Sector: Guidance to Funders
and Purchasers, HM Treasury, National Audit Office, Office
of Government Commerce, 2006
- Known as ‘risk appetite’. See
Chapter 5: Risk Appetite, The Orange
Book: Management of Risk – Principles and Concepts, HM
Treasury, October 2004
- Commission for the Compact
- The first three are drawn, with
small changes in terminology, from National Audit Office, Office
for Government Commerce,
Good Practice Contract Management Framework, National
Audit Office, 2008. The fourth type is identified in HM
Treasury, The Orange Book: Management of Risk – Principles and
Concepts, HM Treasury, 2004
- This section draws on: National
Audit Office,
Managing Risks to Improve Public Services, National Audit
Office, 2004; and National Audit Office, Office for Government
Commerce,
Good Practice Contract Management Framework, National
Audit Office, 2008
- Most large programmes will be taken
forward through procurement. In that case, see Office of
Government Commerce,
An Introduction to Public Procurement, Office of
Government Commerce
- The Charity Commission is the
Government regulator of charities
- Such as Investors in People
or PQASSO (Practical Quality Assurance System for Small
Organisations) Quality Mark