National Audit Office says DCMS was “not informed by a financial analysis of the costs and benefits” with its plan to close the UKFC and other arts bodies.

The UK’s National Audit Office (NAO) has launched a report today criticising the flawed decision-making financial process by the Department of Media, Culture and Sport (DCMS) to abolish the UK Film Council. Overall, the NAO said it had “not been able to conclude that the Department is achieving value for money.” (The full report is here.)

Culture Secretary Jeremy Hunt announced the decision to shutter the UKFC in late July, taking many in the industry by surprise (it was part of the broader DCMS cost-cutting plan to curtail or close a total of 55 public bodies). There was no consultation done with the industry ahead of the announcement, although consultations have followed, and still continue with the government’s film functions now being moved to the BFI.

The NAO’s report about DCMS financial management stated: “the Department’s decision to close and merge a number of its arm’s-length bodies was not informed by a financial analysis of the costs and benefits. It based its decisions on estimates which did not take account of the full costs of closure such as lease cancellation, redundancy and pension costs. The decision was not informed by an estimation of future savings or of what the pay-back period would be. In responding to the new Government’s review of recent spending decisions, the Department cancelled seven projects with a total value of £73 million, without ascertaining the financial penalties that might be incurred.”

In particular, the report criticised the DCMS for not pre-consulting with the UKFC or the film industry to determine the cost to abolish or merge the body. The DCMS does have a £39m budget allocated for restructuring costs (across all bodies impacted), but the NAO said that it’s “not clear yet how realistic this budget is”.

The report noted: “The Department has not identified what those costs would be, or what proportion would be borne by bodies themselves. It is therefore not clear yet how realistic this budget is. For example, the Department announced the closure of the UK Film Council in July 2010, but it had not performed sufficient analysis of the financial implications of the decision. It announced the transfer of functions four months later, but still had no formal arrangements in place as to which Film Council staff would transfer to other bodies. It had also not calculated the expected costs of closure, although it had decided the transfer of functions would take place on 1 April 2011.”

The estimated wind-down cost to close the UK Film Council is reported to be £11.3m. Hunt noted at the time of the closure that the UKFC had £3m in annual overheads which could be better spent on making films directly.

The report also chastised the DCMS for its over-committing on budgets allocated to arm’s length public bodies – forecasts show that to the tune of £110m in 2010/11 and £95m in 2009/10.

The report, however, did praise the DCMS’ financial management of work related to the London 2012 Olympics.

Amyas Morse, head of the National Audit Office, said in a statement: “Financial management at the Department for Culture, Media and Sport has improved, but there is still a way to go before I can say that it is achieving value for money. Some decisions have been made based on insufficient financial information and analysis, as exemplified by the decisions to merge and close some arm’s-length bodies. This can leave organisations exposed and unprepared for the future and lead to high overall costs or the displacement of costs elsewhere.”

The DCMS said in response to today’s report: “We welcome the NAO’s recognition of the department’s good financial management on the huge project that is the Olympics. We also welcome their acknowledgement of how quickly we took funding decisions following the Comprehensive Spending Review. We had consulted extensively over the summer with our bodies, which meant that we could take swift and informed decisions immediately after the settlement. We have worked hard to protect frontline delivery and ensured that ALBs have access to a number of different funding routes to secure this. We continue to work closely with our diverse range of sponsored bodies, striking the balance in each case between giving them due freedom and exercising proper oversight.

“Closing a body always results in savings in the long term and similarly, merging a body, if done in a structured way almost inevitably results in efficiencies and savings. We have been actively managing the closures and mergers to achieve value for money since these decisions were taken and have both driven down costs and maximised efficiencies. We don’t feel this has been recognised by the NAO.”

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