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The Foreign and Commonwealth Office has made good progress in its financial management, aiming to establish itself as one of the best departments in Whitehall in this respect.  It has shown strong leadership in raising the profile of good financial management across the Department, according to a report today from the National Audit Office.  Up to 2007-08, however, the FCO has underspent consistently against its budget.

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The Department has introduced a financial management improvement programme “Five Star Finance”, the aim of which is for the department to be a Whitehall leader in financial management.  It currently rates itself at three and a half stars on a 1(low) to 5 (high) scale.  The NAO report confirms this as a sound assessment.  The Department needs to build on the progress made so that improved financial management is embedded across the department and sustained beyond the end of the Five Star Finance programme in 2010.

The FCO operates in a challenging environment in terms of the global nature of its operations.  The fluctuations of global currency markets pose particular difficulties for the Department.  Until 2007-08, its budgets were protected by the Treasury from exchange rate fluctuations.  When this protection was withdrawn, the FCO introduced alternative measures to manage its exposure, principally the forward purchase of major foreign currencies.  It needs to ensure that its finance team has the right skills and experience to manage the financial risks it now faces.

The NAO reports that the FCO is taking action to avoid future underspends against its budget.  A resource underspend of £128 million was recorded in 2007-08, despite the Department requesting additional funding from Parliament part way through the year.  Evidence points to improvement and fuller use of resources is anticipated in 2008-09.

In other respects, though, FCO’s financial management has improved. The accuracy, reliability and timeliness of its financial reporting have all been enhanced.  In 2007-08 it laid its accounts on 30 June, the earliest date it has ever achieved after the March year-end, making the FCO  amongst the first of the large Government departments to lay its accounts before Parliament.

"The FCO has made a concerted effort to improve its financial management in what is a difficult operating environment. It has strong leadership and a determination to drive its financial management forward, and it is working to increase the proportion of staff in its finance function who are qualified accountants. In managing within increasingly constrained resources, the Department will need to use the capability created through its “Five Star Finance” project to utilise available resources to best effect".

The Comptroller and Auditor General


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