The FCO (the Department) has over 4,000 buildings across its global estate, in 279 different locations. The estate is a mix of properties including embassy, high commission and consular offices, ambassadorial residences, prestige and historical buildings and staff accommodation. The estate is valued at £1.6 billion and capital and revenue expenditure in 2008-09 totalled £269 million. The Committee welcomes the improvements the Department has made in managing its estate more effectively, including the recent appointment of an estates specialist as estates director and the development of a new estate strategy. The Department however has a poor understanding of its estate and the information it holds on its properties is basic, incomplete, out of date and inaccurate. In addition, the Department does not collect data, such as the cost and amount of space per person, recommended by the Office of Government Commerce for the effective management of government offices in the UK. The Department has unused space in its offices even in locations where other UK government organisations are based in separate premises. Other organisations are often deterred from co-locating with the Department because of the security measures necessary in embassies as well as the high charges they must pay to use the Department's buildings. The Department now needs a better managed estate with improved data to enhance understanding of the estate, and its new strategy to be implemented effectively at each location.

The Foreign and Commonwealth Office lacks a clear strategy and comprehensive data to manage its overseas estate effectively. It is taking positive steps to adapt its properties to new global challenges but has not achieved value for money in the management of its estate as a whole. Without a clear framework to assess the estate's performance, it is difficult to evaluate the Department's progress. The Department has recently appointed an estates specialist as Director of Estates and Security who is developing a new strategy which should help secure improved value for money in the future. There are several factors, such as changing political issues, security restrictions and exchange rate pressures, which add to the complexity of managing the global estate. But lack of adequate financial and management information about the estate hampers good decision making on efficient use of space and the identification of surplus assets for potential sale. The management of projects to improve the estate could be better: a third of the projects that the NAO analysed exceeded their initial approved budget by over 10 per cent and two-thirds were delivered late. The total cost overrun since 2002 is approximately £57 million, against a total spent on capital projects of £250 million. The FCO does not always use space in its posts efficiently. Over half of the posts that responded to the NAO's survey have unused office space or staff accommodation. The FCO could do more to promote the use of its overseas estate by other UK government organisations where feasible.

The FCO departmental report and resource accounts 2008-09 published as HC 460-I,II (ISBN 9780102961614)

Around half of the Foreign and Commonwealth Office's budget is spent in foreign currencies. In 2008, the Treasury removed the protection it had previously provided to the Department against exchange rate fluctuations. The FCO did not have the expertise or experience to effectively manage the risk of a fall in exchange rates, and that the Treasury imposed poor value for money conditions on forward purchasing foreign currency. As a result of a decline in the value of sterling, in September 2009 the FCO faced an overspend of £91 million on its 2009-10 budget (£72 million centrally and £18.8 million overseas), out of its total budget of £1.6 billion. It made drastic cuts to reduce this overspend. The FCO did well to reduce spending so quickly, which enabled it to live within its budget. However, many of the spending cuts made were short term in nature, and involved simply delaying or stopping some activities, rather than making lasting efficiency improvements. Not enough was done to monitor and measure the impact of the cuts and there is a risk that such short term cuts can lead to increased spending in the future. The FCO needs to achieve sustainable reductions in running costs of £100 million over the next four years, and sees the overseas estate as a potential source of these efficiencies and income. But in the past, high charges have had the unintended consequence of discouraging other government departments from sharing premises.

The spending cuts made by the Foreign and Commonwealth Office in 2009-10 were mainly in response to exchange rate pressures and provided an early experience of the challenges the Department will face in cutting its core expenditure by 10 per cent as a result of the 2010 Spending Review. These spending cuts were a short-term response to the immediate problem of a forecast budget shortfall of £72 million. They were designed to reduce in-year spending quickly, rather than achieving long-term efficiencies. In contrast, cuts to core expenditure as required by the spending review will demand a more strategic approach. There is evidence of the Department's seeking to protect its front-line activities and intending to make reductions in spending permanent. But it could not be sure that all the cuts were implemented as intended or had the least possible impact on its business. Most of the spending reduction resulted from doing less and the NAO also estimates that about 10 per cent of cuts were achieved through simple deferral: postponing activities such as non-essential maintenance to a later year. In addition, although the Department had assessed the risks of making spending cuts, it did not have measures in place to assess the impact of the cuts on the achievement of its objectives. In February 2010 the Department had started to develop contingency plans in case further cuts were required in 2010-11. However, it did not conduct a formal evaluation of its spending reduction activities in 2009-10 and missed a valuable opportunity to learn.

A NAO report published as HC 30, Session 2009-10.

This report focusses on the FCO's financial situation and the implications of the Spending Review 2010 for its work and performance, and that of its associated body, the British Council. The FCO is one of the major departmental 'losers' in the Spending Review. Reductions in spending on the FCO, if they result in shortfalls in skilled personnel and technical support in key countries and regions, can have a serious effect in terms of the UK's relations with foreign countries, out of all proportion to the amounts of money involved, especially in relation to the UK's security and that of its Overseas Territories. Cuts to the core FCO budget of even 10% may have a damaging effect on the Department's ability to promote UK interests overseas. The FCO will also face cuts of 55% to its capital budget. The target of raising £50 million per year through selling existing buildings may be difficult to achieve, and may not secure savings in the long-term. A further reduction in the opportunities for more junior UK-based staff to serve in overseas posts, and a consequent diminishing of experience and morale among FCO employees, could over time have a damaging effect on the quality of British diplomacy and the effectiveness of the FCO. The British Council, facing a 25% cut in spending, should give detailed information on its strategy for implementing the cut, which may well trigger fundamental rethinking of the role and work of the Council.

Each of the areas in the Whole-Place Community Budgets scheme has identified potential benefits from taking a more integrated approach to frontline services, focusing on outcomes like preventing avoidable hospital admissions or reducing reoffending. Greater Manchester, which covers ten local authorities, has estimated net savings of some £270 million over five years, while in West Cheshire savings of £56 million are estimated for the same period. In general, government has only limited information for identifying opportunities for integration or making an assessment of costs and benefits, which is needed to support the case for integration. In some instances where government has identified integration opportunities, benefits have not been achieved because of implementation difficulties. While the centre of government has recognized the importance of integration, it does not have clearly defined responsibilities to support or encourage frontline integration initiatives across government. It is early days for Whole-Place Community Budgets, central government and the four local areas have worked together effectively to assess the case for local service reforms. The true scale of potential benefits will become clear only if projects are implemented and evaluated robustly. Foundations have been laid but continuing collaboration - including sharing of data - between local and central government and delivery partners is essential to maximize the potential of Whole-Place Community Budgets. Accompanying this report, the NAO has released a case study looking at the four Whole-Place Community Budget areas, finding that these areas have taken a positive first step in assessing the case for integration (HC 1040, ISBN 9780102981339)

This report examines the experience to date of delivering the debt advice project, and how the overall strategy for support to the over-indebted has been managed. Consumer debt stands at around £1,500 billion, and some 11% of the UK population struggle to manage their debts. The Department for Business, Innovation and Skills shares responsibility for co-ordinating the strategy with the Department for Work and Pensions and the Ministry of Justice, and is responsible for the strategy's evaluation. There has been a complete failure to manage delivery of the strategy. Since 2006 the Department has also managed a project to provide face-to-face advice for those struggling with debt. The £130 million project is funded primarily from the Treasury's Financial Inclusion Fund, and delivered locally by Citizens Advice and other third sector organisations. Whilst greater success has been achieved in managing this particular project, which is delivering more debt advice than planned at a lower cost per person than budgeted, the project is currently unable to meet all the demand from those users it is intended to help. More people could be reached if the Department better understood consumer needs, the effectiveness of different methods of delivering debt advice, and the most efficient ways of providing advice. In addition, much debt advice is already provided by the private sector and the Department needs to consider both the quality of the advice provided and the contribution that private sector advice could make in the future.

Despite good progress in improving the professional capability and capacity of government finance departments since the National Audit Office last reported in 2008, good financial management is still not embedded in the civil service culture, and financial matters do not have sufficient influence over departments' strategic decision making. The NAO concludes that departments have achieved a core level of competence in financial management, but further improvement in financial management capacity and capability throughout their organisations is required to enable them to meet the challenge of delivering the savings set out in the Spending Review 2010. There has been important progress - all departments now have a professionally qualified Finance Director, supported by an increased number of qualified finance staff. The Treasury is also implementing accounting changes to bring greater transparency to government financial reporting. Whitehall's central finance functions competently capture and report the transactions and financial position of the departments. Annual accounts are delivered before the July Parliamentary recess. The number of overall overspends against the amounts approved by Parliament is low. However, departments are generally weak at monitoring their balance sheets and at forecasting cash flow in the medium term. Departments do not fully understand the costs of their activities, and it is rare for them to have good information on the unit costs of outputs, levels of productivity or the value of outcomes. Departments generally focus on monitoring against the agreed one-year budget, with a few looking as far ahead as the current spending review period of four years.