Value for Money
Financial modelling in government
Published 27 January 2022
13 recommendations
HM Treasury
Commercial and financial managementCorporate financeData analysisDigital, data and technology
nao.org.uk
This report examines the use of financial models across government.
Recommendations (13)
Source: NAO Recommendations Tracker
HM Treasury
Rec 1
Accepted
Work in Progress
Accounting officers should:
a) Oversee the use of models within their organisation and ensure an appropriate quality assurance framework is in place and used for all
business-critical models.
Cabinet Office
Rec 10
Accepted
Work in Progress
The Cabinet Office is working on common standards for departmental sponsorship of ALBs. As part of this work, it should:
j) include guidance for departments on overseeing the production and assurance of models in ALBs, based on expert input from the Analysis Function.
Government Finance Function
Rec 11
Accepted
Implemented
The Finance Function should work with the Analysis Function to:
k) strengthen the requirements in the Finance Functional Standard on departments to apply the Analysis Functional Standard and the Aqua Book
to financial planning and reporting. This should include guidance on how accountants should analyse, manage and communicate uncertainty; and
Government Finance Function
Rec 12
Accepted
Implemented
l) include appropriate elements relating to analysis and modelling from the Finance Functional Standard in the Finance Function’s self-assessment tools to measure compliance of functional members with requirements on modelling.
Office for Budget Responsibility
Rec 13
Accepted
Implemented
The OBR should:
m) require departments, as a matter of routine, to analyse and present the range of plausible outcomes driven by key inputs and model parameters in each
case to take account of where there might be material uncertainties around best estimates.
HM Treasury
Rec 2
Partially Accepted
Implemented
HMT should:
b) re-emphasise accounting officer responsibilities for business-critical models as set out in Managing Public Money, and the importance of publishing lists of such models on gov.uk by specifying this requirement in the guidance HMT issues on annual reports and accounts;
HM Treasury
Rec 3
Accepted
Work in Progress
c) put in place processes to assure itself that outputs from departments’ and ALBs’ business-critical models, which HMT uses, have been quality-assured
in line with modelling standards. This should include clarifying in all relevant guidance that all models must comply with the Aqua Book;
HM Treasury
Rec 4
Accepted
Work in Progress
d) build on its current approach to quantifying uncertainty and risk analysis by requiring departments to present HMT with a range of plausible outcomes from business-critical models as a matter of routine. This range should be driven by key inputs and model parameters in each case to take account of where there might be material uncertainties around best estimates; and
HM Treasury
Rec 5
Accepted
Implemented
e) agree with the Analysis Function on responsibilities for ownership and maintenance of the Aqua Book, including appropriate sign-off arrangements between the Function and HMT for Aqua Book updates.
Analysis Function
Rec 6
Accepted
Implemented
The Analysis Function should:
f) set out the appropriate governance structure for the ownership, maintenance, monitoring and assurance of analytical modelling standards and guidance, as presented in the Analysis Functional Standard. As part of this, the Function should work with the Cabinet Office to develop an appropriate assessment framework to provide the necessary processes to monitor departments’ and accounting officers’ implementation of the Analysis Functional Standard;
Analysis Function
Rec 7
Accepted
Implemented
g) update its Functional Standard and relevant guidance to include clear principles for departments and ALBs to follow on independent review of business-critical models, and on publication of a model’s inputs, methodology, assumptions, and outputs; and
Analysis Function
Rec 8
Accepted
Implemented
h) work with departments, ALBs and other stakeholders such as the Quality Assurance Working Group on guidance and training to facilitate system-wide learning and improvement. This should include sharing good practice on how business-critical models are managed and practical advice on how to analyse and communicate uncertainty.
Analysis Function; HM Treasury
Rec 9
Accepted
Implemented
HMT and the Analysis Function should:
i) agree the funding and capacity implications of the proposed governance structure in relation to analytical modelling standards and guidance.