Value for Money Examination 15: Administrative Budgets in the Irish Civil Service Summary

Civil service departments and offices are expected to spend around ?850 million in 1996 on the administration of government services and programmes. The cost of administration represents an estimated 7.2% of total gross expenditure by central government. Economical and efficient use of public resources requires that the level of running costs should be kept at the minimum consistent with providing all the required public services.

The traditional strategy for controlling civil service running costs involved tight central control of expenditure by the Department of Finance. Departments had to apply to the Department of Finance for its express sanction for most types of spending, even for minor spending proposals.

Internationally, the trend in the 1980s was to move away from centralised models for controlling administrative spending because they were seen to be bureaucratic, inflexible and wasteful. The alternative systems adopted typically involved devolving responsibility for spending decisions to managers at the operational level. The general aim was to reduce the need for time-consuming correspondence and improve the flexibility and responsiveness of the service provided. The overall level of expenditure was controlled by setting limits on the budgets for the organisations.

The Administrative Budget System

A devolved budgetary system was introduced for most Irish civil service departments in 1991. The system, referred to as the administrative budget system, was intended to increase administrative efficiency and the effectiveness of spending programmes by the delegation of decision-making about administrative spending - both from the Department of Finance to departmental managements and within individual departments to line management. A further aim of the administrative budget system was to reduce civil service running costs.

Administrative budget agreements cover spending by departments over a three- year period. Two cycles of agreements, covering the periods 1991 to 1993 and 1994 to 1996 have been completed. A further cycle, covering the period 1997 to 1999 is being negotiated. Currently, 24 of the 34 civil service departments and offices operate under administrative budget agreements. Between them, they account for 83% of civil service administration costs and handle over 98% of total gross expenditure.

This examination focused on the effect of the administrative budget system on civil service running costs in the period 1991 to 1996, the role of the Department of Finance in the process and the extent of devolved budgeting in line departments.

Impact on Civil Service Running Costs

A primary objective of the administrative budget system was to reduce the cost of running civil service departments. To this end an `efficiency dividend' - an annual 2% reduction in real terms in running costs - was built into agreements with participating departments. The agreements also provided for increases in running costs to meet general pay rises and extra work assigned to departments.

The cost of administration by civil service departments and offices increased from ?667m m 1991 to ?850m in 1996. When inflation is taken into account, total spending increased by an average of 2.7% a year. During the same period, staffing levels increased rapidly from 26,250 to 29,500. In addition, there was a significant grade drift upwards from Clerical Assistant to Clerical Officer.

There is some evidence to suggest that the introduction of administrative budgets helped to contain increases in running cost expenditure. For example, running costs increased faster in the years before the devolved budget system was introduced. Since then, spending on administration increased faster in departments and offices where administrative budgets have not been introduced.

There are some general indications of improvements in overall efficiency levels in the civil service in the period 1990 to 1996 e.g. the reduction in administration costs as a percentage of total civil service expenditure from 8.6% to 7.2%. However, because of the diversity of civil service operations, improvements in efficiency can only be determined by the measurement of performance on individual schemes and programmes.

The Role of the Department of Finance

The Department of Finance was centrally involved in the development and implementation of the administrative budget system. The relationship between it and the departments operating administrative budget agreements has changed significantly as a result of the extensive devolution of authority for administrative expenditure to departments.

The administrative budget system has been in place in a substantial number of departments for almost six years but it is only with the advent of the Strategic Management Initiative (in 1994) that the factors underpinning efficiency and performance are being identified. In retrospect, it is clear that provisions for the measurement of effectiveness included in administrative budget agreements were overambitious.

While acknowledging that an important part of the process was convincing participating departments that the `heavy hand' of central control had indeed been lifted, it is nevertheless felt that the Department of Finance might have beneficially used internal staff resources released by the introduction of administrative budgets to garner information to enable it to develop an effective overseeing function and to fine-tune the system. In this regard, it is notable that arrangements for the second cycle of administrative budgets were substantially the same as for the first cycle.

The Department of Finance considers that the administrative budget system has improved its ability to control administrative expenditure by putting a greater onus on departments to justify increased expenditure. The system is undoubtedly an improvement on the traditional annual haggling between the Department of Finance and the other departments at Estimates time. As regards resisting demands for increased administrative resources, it has been more successful and enduring than earlier initiatives, such as the Expenditure Review Committees of the late 1980s. Against this there have been some negative aspects. For example, some departments resorted to direct appeals to Government when they failed to persuade the Department of Finance of the need for proposed increases in resources. During the first two cycles, there was little evidence of reviews being carried out either by the Department of Finance or individual departments to ensure that staffing levels were at the minimum consistent with the provision of required services.

In considering the impact of administrative budgets, one must take into account that the baseline allocations in 1991 were the product of the traditional Estimates process which the new system replaced, rather than comprehensive re-assessments of resource requirements from a zero base. Consequently, the starting figures may have been artificially high in some cases.

While there is general agreement that there has been a reduction in the level of correspondence and interaction between the Department of Finance and the line departments since the introduction of administrative budgets, no study has been undertaken of the resources freed up as a result.

Devolved Budgets within Departments

The extent to which departments have internally devolved significant levels of budgetary control is uneven. There has been no devolution in six departments and only three departments have devolved more than 20% of their administrative spending to line managers. Spending on travel and subsistence is the only area where a majority of departments and offices have devolved control. Where devolution has occurred, the budget holders tend to be at relatively senior management levels. Input by line managers into the resource allocation process continues to the limited and they have little flexibility to move resources.

The majority of departments do not have any plans to increase the level of internal devolurion of budgets.

With some notable exceptions, there has been little promotion of the administrative budget system within departments. Training courses and programmes have not been developed to make staff aware of the practices and procedures of effective devolved budgeting. There are few incentives in place to encourage the enhancement of budget management performance and in some cases, budget management has been hamperedby the inadequacies of the available management information systems.