Scottish public sector must improve quality of reporting

Public sector bodies in Scotland need to improve the quality of their performance reporting by putting a greater focus on disclosures about sources of funding, key performance indicators and risks factors, all in the context of financial statements, says Audit Scotland

Audit Scotland, the independent public body responsible for auditing most of Scotland's public organisations, flagged performance reporting as an area of concern for auditors and required improvement. This follows a review of public bodies' annual accounts for 2017/18 across Scotland to identify and share examples of good practice reporting, and highlight areas where improvements can be made.

This follows a review of public bodies' annual accounts for 2017/18 across Scotland to identify and share examples of good practice reporting, and highlight areas where improvements can be made.

In response, it has published a good practice note focusing on performance reports in the annual report and accounts of central government bodies. 

This note considers how the quality of performance reports can be improved. Central government bodies are encouraged to use the findings in this note to assess and enhance their own performance reports to ensure they provide high quality information to stakeholders.

Recommendations are based on current advice from the Financial Reporting Council (FRC) adapted for the public sector context.

Audit Scotland stresses that public sector bodies need to provide a coherent and concise performance report, highlighting concerns of board members, risk factors, as well as cutting the clutter and avoiding boilerplate reporting, use a clear structure to ensure clarity, and the importance of summarising any developments and explaining changes in financial performance clearly and effectively.

‘The performance report should not be prepared in isolation from the other components of the annual report and accounts, particularly the financial statements. By taking an integrated approach, bodies can identify and highlight relationships between the performance report and items in the other components,’ Audit Scotland noted.

‘Although the FReM identifies the requirements for a performance report as a list of bullets, a checklist approach is unlikely to achieve effective communication. Bodies should consider and challenge the structure of the performance report to ensure it tells an understandable story of their performance.’

Problem areas included a lack of coherent narrative, disjointed disclosures, duplication and repetition which made the reports longer than necessary. There were also instances where material items were not fully explained while smaller amounts were explained in excessive detail. The quality of presentation was also criticised, with examples of limited use of ‘innovative presentation that helps to highlight linkages’.

The review found that while most bodies adequately disclosed information on their strategy and business model, the best disclosures linked spend with outcomes.

Again, there were issues around reporting how funding was used, with limited explanations about how outcomes related to targets, glossing over poor performance with greater focus placed on positive achievements, and insufficient information about how the organisation addressed missed targets or poor performance.

This needs to be addressed with the use of explanations of outcomes within the context of an organisation’s objectives, use of key performance indicators (KPIs) that the board judges to be the most effective in assessing performance and how they meet the organisation’s wider objectives, as well as explanation of the major sources of funding and how to address performance issues.

Audit Scotland stated: ‘There was generally limited reporting on performance. It was sometimes difficult to tell if the body had a good or bad year from the performance report. Bodies tended to focus on factual points such as the financial position at the end of the year rather than provide an analysis of how the body performed.

‘Customer-facing bodies tended to be better at showing how they used their funding.’

There was also inconsistency in the length of reports, with the average length of the performance report at 23 pages. The longest was 54 pages and the shortest only six pages.

Central government bodies are required to prepare their annual report and accounts in accordance with an accounts direction which generally requires compliance with the government financial reporting manual (the FReM).

Audit Scotland Good practice note on improving the quality of central government annual report and accounts, performance reports, 33pp, issued 26 February 2019

Report by Sara White

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