Financial Management and Internal Control – Follow Up

Background

Effective financial management and internal control are essential underpinnings for the delivery of economic, efficient and effective public services.

Financial management is pivotal in meeting policy aims, monitoring progress against goals and objectives, and ensuring scarce resources are utilised effectively. A lack of sound financial management increases the risk that the States of Jersey will not set the right priorities, deliver on their responsibilities to provide good value for money and exercise their responsibilities to the taxpayer, as set out in the Public Finances (Jersey) Law 2019.

Good internal control ensures that operations are efficient, effective and in line with laws and policy objectives. Internal control processes can protect the States of Jersey from fraud, corruption, waste and abuse of resources and help in measuring value for money, assessing risk, and ensuring compliance with laws, regulations and policies.

Financial management and internal control processes – when done well – enable the States of Jersey to:

• make timely and well-informed decisions
• unlock efficiencies and drive better ways of working; and
• improve financial resilience and enhance their ability to adapt and respond to shocks and disruptions.

In September 2019, the then Comptroller and Auditor General (C&AG) issued a report Financial Management and Internal Control. The report followed up on findings from a number of previous reports and evaluated the progress made in implementing agreed recommendations, the extent to which the recommendations as implemented addressed the improvement areas identified and the adequacy of plans for the implementation of any outstanding recommendations. The 2019 report contained 33 recommendations.

Since publication of the report in 2019, the Public Finances (Jersey) Law 2019 has been introduced, supplemented by the Public Finances Manual. These provide the framework within which all States transactions must take place.

Effective risk management is a significant element within an effective internal control framework.  In October 2022, the C&AG issued a report Risk Management – Follow Up. The review followed up recommendations made in 2017 and looked at corporate arrangement as well as arrangements within departments. The report contained ten recommendations, four areas of planned work that should be prioritised and seven areas for consideration.  The Government of Jersey has assessed that all ten recommendations have been implemented.

This follow up audit has evaluated the effectiveness of, and compliance with, the arrangements put in place by the States of Jersey to establish and maintain effective financial management and internal control.

It has evaluated overall arrangements as well as undertaking a more focussed review of how these arrangements operate within the (then) Health and Community Services Department, now Health and Care Jersey (HCJ).

Scope

This audit has evaluated the effectiveness of, and compliance with, the arrangements put in place by the States of Jersey to establish and maintain effective financial management and internal control.

It has evaluated overall arrangements as well as undertaking a more focussed review of how these arrangements operate within HCJ.

The report is structured into areas examined as part of the audit, which are:

• Overall financial management
• Overall internal control
• Risk management
• Internal audit; and

Financial management and internal control in HCJ.

Conclusions

Only three of the 36 previous recommendations followed up as part of this audit have not been implemented.  Seven recommendations have been partly implemented and 26 recommendations have been implemented in fully by the States.

The financial management and internal control framework has been improved significantly since the introduction of the Public Finances (Jersey) Law 2019 and the Public Finances Manual (PFM). The PFM provides guidance and rules by which to manage finance and internal controls.

Government Plans identify growth funding allocated to departmental budgets. There have been examples of growth funding awarded and subsequently built into departmental base budgets for projects that have not been delivered.

More generally, aligning budgets to service operational and workforce plans (which are still in development) has the potential to improve the effectiveness of financial management.

Under the PFM all departments are required to document a Scheme of Delegation. At the time of the C&AG’s fieldwork all departments apart from HCJ had a Scheme of Delegation in place to ensure proper governance and financial control.

A Scheme of Delegation for HCJ was approved on 20 February 2025. The absence of a Scheme of Delegation in HCJ prior to 20 February 2025 represents a significant weakness in financial management and internal control.  There is a risk that decisions on finance and procurement have been made by staff who do not have sufficient authority, seniority or experience.

A survey of States departments undertaken in June 2024 reported high levels of customer satisfaction, responsiveness and value received from Finance Business Partners. The Group Director for Business Partnering and Analytics has led a programme over the last few years to ensure that Finance Business Partners are upskilled and qualified. A programme to deliver quality and consistency is also in progress and needs to be evaluated and refined as necessary.

The IT system Connect Finance was implemented on 1 January 2023. This system provides the framework in which financial management is now operating. Initially the processes for providing financial reporting to budget holders were inefficient and somewhat cumbersome.  New reporting functionality has however been developed and implemented from January 2025 with training rolled out across all budget holders.  The benefits of improved management information from Connect Finance are therefore only just beginning to be realised.

In addition to reporting for internal financial management purposes, the States Assembly has placed specific additional requirements on public reporting. These include reporting on the use of consultants (P.59/2019) and reporting on the top 100 suppliers (P.56/2020). There have however been significant delays in the production and publication of these reports.  It is an opportune time to consider whether amendments should be made to reporting requirements to assist in more cost effective production of information on suppliers and use of consultants.

The C&AG has identified a number of examples that evidence that some Accountable Officers are not consistently meeting the requirements placed on them.  The weaknesses identified include the:

• absence of a Scheme of Delegation in place within HCJ prior to 20 February 2025
• level of procurement breaches
• level of non-compliance issues reported year on year; and
• findings from Internal Audit that include the same areas of weakness reported year on year.

Significant improvements have been made in the process and documenting of risk in risk registers. However risk management is still in some areas seen as a process of identification and classification, rather than a live document to manage the business risks and mitigations.

A paper was submitted to the Executive Leadership Team (ELT) in September 2024 which outlined the Government risk appetite. This had yet to be evaluated at the time of the audit work, and there is still a lack of alignment between the risk appetite and the Risk Management strategy. Decisions on risk appetite are awaited from ELT and will then need to be reviewed by the Council of Ministers to ensure that the risk appetite reflects resources and priorities.

Internal audit is provided by a well-qualified team supplemented by specialist external resources which achieves a good balance between generalist and specialist skills.  There have however been some challenges in delivering the internal audit plan.

The Government Risk and Audit Committee and the Non-Ministerial Departments Audit Committee contribute to the overall internal control framework. There are opportunities to strengthen the way in which these committees discharge their responsibilities.

In each of the last five years HCJ has spent more than the initial budget allocated to the department in the Government Plan (after adjusting for pay awards and excluding COVID-19 budgets and expenditure).  While some of the expenditure increases have been due to the costs associated specific unforeseen events, others relate to more general cost pressures. While it is not possible to quantify the extent to which these financial pressures could have been alleviated by better financial management and internal control it is clear that significant improvements are required in both areas within HCJ.

The States of Jersey have taken action to improve financial management and the internal control framework since the publication of the former C&AG’s report in 2019.

Further work is required however to enhance the monitoring of expenditure, to improve compliance with the internal control framework and to deliver benefits from investment in IT systems.  In addition, the States should ensure that they implement actions in response to audit recommendations in a more timely manner.