It is unclear how a move to shared services would benefit government departments because of the government's inability to measure the current costs of corporate services, according to a Committee of Public Accounts report published today.
The report, Improving Corporate Functions Using Shared Services, blamed the lack of reliable cost information on the government's reliance on outdated IT systems and poor-quality management information.
This lack of dependable data about the performance of individual departments makes it impossible to measure just how departments sharing back-office processing would deliver efficiencies and the £1.4bn annual savings that the Cabinet Office estimated in May 2006 could be achieved by a shared services model.
The Cabinet Office said collecting such information was a challenge because there were no consistent standards for defining shared services or how activities and their related costs should be reported.
The Committee of Public Accounts report said if a public body did not obtain "clear information on the relative performance of departments' corporate services", it was not obvious "how the £1.4bn potential annual savings from shared services [estimated by the Cabinet Office] will be achieved".
The shortage of basic information meant the Cabinet Office was able to collect data from only nine departments and other public entities. This data was then used to extrapolate a total annual government spend of £7bn on finance and human resources functions.
At a Committee of Public Accounts hearing in December 2007, the Cabinet Office admitted it had lost its calculations and the underlying data used to devise the estimate. But it still estimated it could save £1.4bn or 20% of current estimated expenditure if a more widespread move to shared services took place no timeline for realising such savings was provided.
The Committee of Public Accounts criticised the Cabinet Office for "poor cost control" in its own department. In financial years 2005/06 and 2006/07, the National Audit Office indicated that its shared services team cost the taxpayer £3m.
But the team itself was unable to provide details on how much money it had spent in that time or how much had been allocated to different activities because of failures in recording and analysing expenditure.
The team also failed to provide information about the cost-effectiveness of moving to shared services, to analyse the risks involved in adopting the model, or to offer advice on how to manage them.
Committee of Public Accounts Recommendations
- The Cabinet Office needs to develop standard definitions of what corporate services comprise, and standard ways of reporting on related costs and activities.
- The Cabinet Office should regularly benchmark the performance of individual government agencies against centrally agreed criteria to identify scope for further improvements.
- Government departments' internal audit functions must provide assurance that Cabinet Office standards are being followed consistently.
- The Cabinet Office needs to routinely record and analyse all its expenditure and assess the cost=effectiveness of action it has taken in order to improve performance and operational efficiency.
- Departmental management boards must regularly obtain clear information on the cost and performance of corporate services to understand how they contribute to achieving key business objectives and whether they provide value for money.
- Departments should publish an overview of the performance of corporate services in their annual reports, including an analysis of costs by corporate function, and how shared services are being used to improve value for money.
- To encourage greater uptake of NHS Shared Business Services, the Department of Health must lead by example and become a customer now that the system has been revamped to meet its needs. The NHS Shared Business Services currently has 89 customers out of a potential 416 it requires 22 more to break even and 180 more to deliver the forecast savings of £250m by 2014/15.
- To improve productivity and reduce delays, the Department of Health needs to work with NHS bodies, whether they are NHS Shared Business Services customers or not, to dramatically improve the proportion of invoices that match purchase orders.
- To remove doubts about cost savings achieved due to staff reductions after the introduction of shared services, HM Prison Service must obtain better tracking information, which should be validated by internal auditors or third parties.
- HM Revenues & Customs and the Department of Work and Pensions must work on providing shared services to smaller public sector bodies to achieve savings through economies of scale.