Triennial Review of the Big Lottery Fund Report - Cabinet Office

 
Cabinet Office

                   Triennial Review of
                 the Big Lottery Fund
                              Report

                                  June 2014
Triennial Review of
the Big Lottery Fund

              Report
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Publication date: June 2014
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Contents
Foreword                                              5
Executive summary                                     7
Full list of recommendations                          13

Chapter 1    Background and introduction
  The Triennial Review                                17
  The Big Lottery Fund                                19

Stage One of the Review
Chapter 2 Findings on the functions and form
           of the Big Lottery Fund
  Context                                             21
 Are the functions of the Big Lottery Fund still
  necessary?                                          23
 Is an arm’s length body the most efficient and
  effective way to deliver those functions?           25

Stage Two of the Review
Chapter 3    Efficiency
  Context                                             39
  Operating costs                                     39
  Staffing                                            41
  Technology infrastructure                           42
  Digital by default                                  43
  Property                                            44
  Shared services                                     46
  Procurement of common goods and services            46
  Areas subject to Cabinet Office spending controls   47
  Major projects                                      49
  Fraud, error and debt                               48
  Comparator data                                     49
4 Triennial Review of the Big Lottery Fund – Report

                     Chapter 4 Improving the effectiveness of the
                                Big Lottery Fund for the future
                        Context                                                    51
                        Effectiveness as a grant making body                       51
                        Effectiveness of work for third parties                    58
                        Effectiveness of distribution of dormant accounts          61

                     Chapter 5        Corporate Governance
                        Context                                                    65
                        Accountability                                             66
                        Roles and responsibilities                                 66
                        Effective financial management                             71

                     Annexes (published separately)
                     Annex A       Summary of responses to the Call for Evidence
                     Annex B       Written Ministerial Statement
                     Annex C       Challenge Group membership and engagement
                     Annex D       Terms of Reference of the Review
                     Annex E       Background to the Big Lottery Fund
                     Annex F       Big Lottery Fund policy directions
                     Annex G       List of stakeholders engaged and evidence used
                     Annex H       Assessment of alternative delivery model options
                     Annex I	Big Lottery Fund self-assessment of its
                              compliance with the principles of good corporate
                              governance
Foreword by Nick Hurd MP 5

Foreword by Nick Hurd MP

In November 2013 I announced the start of         whether adequate control and governance
the Triennial Review of the Big Lottery Fund      arrangements were in place to ensure that
(‘the Fund’) by the Cabinet Office. This is the   the Fund complies with the principles of
first Triennial Review of the Fund and provides   good corporate governance, and looked
an important opportunity to consider the          at the efficiency and effectiveness of the
efficiency and effectiveness of its functions.    organisation.
The Public Bodies Reform Programme is             I believe that the Fund is a highly respected
leading to the largest restructuring of public    and very important organisation and I was
bodies for a generation, ensuring that they       delighted to see that the evidence gathered
are less costly, more accountable and             throughout the Review confirms this. It is
transparent and deliver value for money           clear that the Fund is a valued organisation
to the public. As part of the programme,          with an important role to play with the
Triennial Reviews were introduced to ensure       Voluntary, Community and Social Enterprise
that those bodies which remained after the        sector as well as with public sector partners
Government’s wide-ranging reforms are             and business stakeholders. I am delighted
subject to regular and robust challenge.          to support the important ongoing role of
Reviews challenge the continuing need for         this UK wide NDPB by continuing to provide
Non-Departmental Public Bodies (NDPBs),           sponsorship of the Fund within Government
consider whether functions can be delivered       and helping the Fund further enhance what it
through alternative models and ensure that        does and how it operates.
bodies are operating efficiently, effectively
and with the appropriate levels of control and    The Review does make a number of helpful
governance. Rigorous reviews of NDPBs are         recommendations about how the Fund can
therefore central to the public bodies reform     develop, to ensure that it continues to operate
agenda.                                           efficiently, effectively and transparently. I am
                                                  pleased that the Board and Chief Executive
In Stage One the review team considered           are considering the recommendations of
whether the functions of the Fund remained        the Review in detail. The Fund is currently
necessary, and whether delivery by an             consulting on their Strategic Framework for
arm’s length body was the most efficient          2015-2021. This consultation will provide
and effective way to deliver those functions.     an ideal platform to take forward a number
Having considered the evidence, they              of the recommendations in this Review.
concluded that there is a continuing need         Cabinet Office officials will be monitoring
for the functions that the Fund delivers, and     the delivery of the Fund’s agreed actions as
a very strong case for those functions to         well as ensuring the recommendations for
continue to be delivered by an arm’s length       Government are implemented.
body. Stage Two of the Review considered
6 Triennial Review of the Big Lottery Fund – Report

I would like to thank the many stakeholders
who contributed to the Review. Nearly three
hundred responses were received to the Call
for Evidence and the review team spoke to a
wide range of individuals or representatives of
organisations, some of whom also responded
to the written Call for Evidence. I am also
grateful to the Fund for the way they have
co-operated fully and actively with the review.
Finally I would like to thank the Challenge
Group which has rigorously and robustly
tested the assumptions and conclusions of
the Review, and the review team for the work
they have done.

Nick Hurd MP
Minister for Civil Society
Executive Summary 7

Executive Summary

Background                                      manner, both helping to ensure that a wide
                                                range of views were gathered and also
The Triennial Review of the Big Lottery Fund    by responding to numerous requests for
(‘the Fund’) was launched on 21 November        information or policies to review. The Chief
2013 by the laying of a Written Ministerial     Executive in particular has been clear that
Statement in the Houses of Parliament by        the timing of the Review has proved helpful to
the Minister for Civil Society, Nick Hurd       her in her first few months in the role and will
MP. Triennial Reviews are part of the           be a useful source of evidence to her as she
Government’s Public Bodies Reform work to       continues to lead the organisation.
provide a robust challenge to the continuing
need for public bodies and to review their     The tenor of the evidence gathered
control and governance arrangements. This is throughout the Review is that the Fund is a
the first Triennial Review of the Fund.        well respected and valued organisation with
                                               an important role to play, particularly as other
To reflect the public interest in the work of  sources of funding are squeezed. Most of the
the Fund the Review published an online        comments were made in the context of the
Call for Evidence survey during the evidence   organisation not being considered ‘broken’ in
gathering phase of the Review. A summary       any way but with the ability to enhance what
of the findings from the survey has been       it does and how it operates further.
published alongside this report.
                                               A full list of the recommendations can be
The size of the Fund’s budget and headcount found at the end of this executive summary
necessitated that an independent Challenge     but this summary identifies the main themes
Group be established. The members of this      from the Review.
Challenge Group were: Ed Welsh, Executive
Director, Transformation, Efficiency and
Reform Group, Cabinet Office; Dominic Lake, Stage One
Head of Arts, Libraries and Cultural Property, Function
Department for Culture, Media and Sport;
Dame Barbara Stocking, Non-Executive           The Review concluded that the Fund’s
Director of the Cabinet Office and President   current functions are still required and it
of Murray Edwards College, Cambridge; and      was clear that there is an inter-relationship
Mark Florman, Chairman of Time Partners.       between the separate functions, because
The Challenge Group endorse the findings of the distribution of Lottery funds gives the
the Review.                                    organisation the capability and capacity to
                                               perform the other functions well. The Review
The Fund has supported the conduct of this     has therefore concluded that the three
Review in a very helpful and professional      main functions of the Fund (distribution
8 Triennial Review of the Big Lottery Fund – Report

of National Lottery funds, distribution of            models set out in the Cabinet Office guidance
non-Lottery funds, and distribution of funds          on Triennial Reviews. The distribution of
from dormant bank and building society                Lottery funds continues to pass one of
accounts) all remain current and necessary            the three tests for retaining NDPB status,
(Recommendation 1).                                   evidenced by 94% of survey respondents
                                                      stating that the Fund needs to be, and be
The Fund makes it clear that it only carries
                                                      seen to be, politically impartial. In addition,
out the distribution of non-Lottery funds
                                                      two out of the five characteristics of an
(‘third party work’ and distribution of dormant
                                                      NDPB were considered essential for the
account money) where it is consistent
                                                      Fund to operate by more than 80% of survey
with its mission to “bring improvements to
                                                      respondents and a further two characteristics
communities and the lives of people most
                                                      were considered essential by more than 60%.
in need”, but the Review did find variation in
approach to this work within the organisation         Some of the evidence gathered by the Review
and a concern about taking on new work at             has demonstrated a lack of understanding of
the moment because of back office system              the status of the Fund. There is an incorrect
changes. Nevertheless, the Review found               assumption that it should be independent of
no reason why the Fund should discontinue             Government if it is to make impartial funding
this function and has recommended that                decisions, whereas NDPBs are by definition
the Fund develops a more consistent and               at arm’s length from, not independent of,
more widely understood approach that                  Government. Although the Fund has a broad
helps make more of ongoing opportunities              set of policy directions from the Minister for
(Recommendation 19).                                  the Cabinet Office (see Annex F), Government
The Review also identified a strong                   is not involved in its funding decisions. It is
expectation that the Fund should be playing           also important to recognise that any change
a leadership role in the Voluntary, Community         to the delivery model could have a significant
and Social Enterprise (VCSE) sector. The              impact on the ability of the Fund to maintain
Fund is currently a sector leader ‘by default’        business as usual and so has to be able to
– that is by virtue of its size and reach – but       demonstrate significant advantages over the
the Review recommends that the Fund                   status quo.
should clearly define its leadership role             In considering whether the Fund’s
and how it expects to proactively fulfil this.        governance and accountability might be
Although the Fund’s related capacity building         improved through another delivery model,
and intelligence sharing roles are better             the Review has identified that the standards
developed, the Review also recommends that            of conduct and responsibility in line with
the Fund develops a clear, coherent strategy          those of Directors of a Company Limited
for these (Recommendation 18).                        by Guarantee would be preferable to the
Form                                                  Fund’s current arrangements. The Review
                                                      recommends that these standards are
The Review concluded that being a                     set within the current delivery framework
Non-Departmental Public Body (NDPB)                   (Recommendation 3).
is an acceptable delivery vehicle for the
Fund. In making this judgement the Review             The Review has not recommended that
considered the Fund’s functions against the           the Fund becomes a Company Limited by
three Cabinet Office tests for NDPB status            Guarantee at this time because that change
and also considered the alternative delivery          is likely to require legislation and it is believed
Executive Summary 9

to be possible to secure the benefits in terms    at the UK wide level, which came into effect
of governance and accountability through the      on 1 April 2014, is partly designed to address
current delivery model.                           the issue of duplication (Recommendation 5).
                                                  Other areas for improvement identified by the
Stage Two – Efficiency,                           Review include a high manager to staff ratio
effectiveness, transparency and                   (up to 1:4) and a very low staff turnover rate
                                                  (1-2%). In terms of structure there may be
governance                                        scope to rationalise office locations, some of
The Fund is a large, complex organisation         which are historical (Recommendation 8).
with staff spread across the UK in six main       Business Process Re-engineering (BPR)
locations and a number of smaller offices in
England and Wales. The new Chief Executive        The organisation is part way through
has already identified that she feels that the    a major BPR programme, of which
organisation can be even more than the            the implementation of a new Funding
sum of its parts and has initiated changes to     Management System (FMS) is a key part.
achieve this.                                     Although the FMS implementation is the
                                                  subject of a separate Gateway Review
Efficiency                                        process and therefore has not been
The Fund needs to be more proactive in            scrutinised in detail as part of this Review,
driving down costs. Although it has taken         it would not be appropriate to pass no
the 5% operating cost target seriously, it has    comment on it because of the impact it has
viewed this as something to be achieved           across many areas of the Fund’s work.
and does not appear to have identified ways       The FMS implementation has not gone to
to go beyond it, either to reduce overall         plan. The rollout of a customer facing portal,
costs or to reallocate investment elsewhere.      which would support applicants and grant
The Review recommends that the Fund               recipients in all their interactions with the
develops a performance metric over time to        Fund, has not taken place. The Fund has
improve efficiencies throughout the business      taken the decision to stabilise the system
(Recommendation 4).                               and assess the benefits delivered. It will then
The overall headcount of the organisation         develop a clear plan for the next phases
is on a downward trajectory as a result of        of FMS implementation, and for the wider
restructuring and the Business Process            BPR programme. The separate Gateway
Re-engineering (BPR) that has taken place,        Review process will provide further FMS
but the Fund needs to set out its approach        recommendations and capture lessons
to staffing over the next five years to support   learned, nonetheless the Fund needs to
its new Strategic Framework. This needs to        be clear about what has been delivered to
include how it will deliver already identified    date and what remedial or further action is
headcount reductions and how it can further       needed to meet the programme’s original
drive down costs (including the relatively        objectives, because the implementation
large number of staff engaged on a fixed          issues do not take away the need to improve
term contract basis in anticipation of further    the grant application/making process. This
headcount reduction). The change to the           should be part of a clear strategy about
delivery of the communications, marketing,        how the Fund will become ‘digital by default’
strategy, performance and learning functions      (Recommendations 6 and 7).
10 Triennial Review of the Big Lottery Fund – Report

Shared services                                        and works well with the VCSE sector (87%
The Review did not find as much evidence as            of survey respondents said the Fund works
expected of collaboration and close working            well or very well with the sector). Customer
between the Lottery distributors. Although             service levels are high (the Review survey
it is outside the scope of this Review to              supported the Fund’s own customer survey)
make recommendations which impact on                   with 87% of respondents satisfied or very
other NDPBs, the Review recommends                     satisfied with their interactions with the
consideration be given to scoping the                  Fund overall.
potential for an increased use of shared               Although the application processes operated
services between the Lottery distributors              by the Fund were thought to be proportionate
for corporate services and/or grant making             by 68% of those who responded to the
(Recommendation 9).                                    survey, 32% disagreed while 48% of
Data                                                   respondents said the time taken in the
                                                       application process was either unpredictable
In all of the analysis around efficiency it            or too long.
has been difficult to identify benchmarks
or comparable data. This is in part due to             The Review found that the Fund could
the differing natures of all of the Lottery            pay more attention to the sustainability of
distributors but also due to the fact that the         organisations and projects it funds at the
Triennial Reviews for the other distributors           start of the process. Stakeholders felt that
have not yet been carried out. The Review              the Fund had a responsibility to encourage
recommends that the Fund, the Department               organisations to become sustainable after
for Culture, Media and Sport and the Cabinet           they had stopped receiving money from the
Office work out ways to measure cost                   Fund, even if via further grant funding from
effectiveness, to inform the Fund’s approach           elsewhere (Recommendation 15).
to cost control and to enable better and more          An independent survey commissioned by
effective comparisons of performance to                the Fund in April 2013 found that “greater
be drawn in the future (including in Triennial         engagement at the end of projects” was an
Reviews). Preferably this information should           area for improvement for the Fund. Evidence
be in the public domain in a format that is            provided to the Review reinforced this point,
readily understandable to all. The Cabinet             with stakeholders feeling that the Fund
Office and the Department for Culture, Media           pays more attention to getting the money
and Sport should also consider whether                 out of the door at the start of the process,
grouping the Triennial Reviews of the Lottery          at the expense of useful monitoring and
distributors together (even if carried out by          evaluation. The Review recommends that the
different Departments) would be helpful                Fund improves its understanding of impact
(Recommendation 12).                                   (Recommendation 16).
Effectiveness                                          There is an appetite to share learning
The Fund is an organisation which                      within the organisation, but the Review
functions effectively (92% of survey                   found that this is not hard wired into the
respondents said it was effective or very              operating model of the organisation and
effective), meets its stated mission (89%              relies too heavily on the good will of staff.
of survey respondents said it was either               The Review recommends that the Fund
successful or very successful in doing this)           establishes more robust ways of ensuring
Executive Summary 11

that learning is shared internally between          the Review has identified a number of other
the different funding portfolios and externally     areas where the Fund should improve its
(Recommendation 17).                                governance arrangements.

Increasing transparency                        The Fund has a large number of non-
                                               executive directors to staff both the UK
The Review has identified a number of          Board and the four Country Committees.
ways in which the Fund can increase the        Whilst some of this structure does reflect the
transparency of the way it works, which        devolved nature of the organisation – and it
is a key driver behind the Government’s        is important that governance arrangements
approach to Public Bodies Reform. The          allow the Fund to properly take account
recent NAO report1 on Public Bodies Reform of devolved policy directions – there does
has highlighted the number of public bodies    appear to be some duplication in what
that fail to meet the three main tests for     the respective committees look at. The
transparency, which are: publication of an     Review recommends that the Chair ensures
annual report; publication of minutes of Board the Country Committees are operating
meetings; and Board meetings being open to in line with their terms of reference. This
the public. Although the Fund is compliant in  should also include distinguishing where
the first two of these the Review recommends the Board and Country Committees are
that the Fund makes Board meetings open        carrying out a governance or advisory role
to the public. The Fund should also be         (Recommendation 24).
clearer about the role the non-executives
play in funding direction and decisions at a   The Review recommends the Fund reduces
national level, and publish information about  the time it takes for matters requiring the
the number and type of complaints received     attention of Board members to be considered
(Recommendation 27).                           by them (Recommendation 25).

In addition the Fund should provide more            The current Board does not reflect the
information about the different aspects of          Government’s ambitions for diversity in
its work – specifically the way it allocates        public appointments. There is also a need
dormant bank account funds, its                     to strengthen the financial, commercial and
non-Lottery funds grant making, and its             risk management capability of the Board, to
international work (Recommendation 19).             balance with experience in the VCSE sector.
                                                    The Review recommends the Cabinet Office
Governance                                          uses the ongoing recruitment of new Board
Following a self-assessment carried out             members, and future recruitment rounds, to
by the Fund with the Cabinet Office as its          address and keep these issues under review
sponsor department (and in this case also           (Recommendation 22).
validated by the Department for Culture,            Finally, sponsorship for the Fund lies with the
Media and Sport), the Review found the Fund         Cabinet Office and financial accountability
to be broadly compliant with the “Principles        lies with the Department for Culture, Media
of Good Corporate Governance”. However,             and Sport which has policy responsibility
                                                    for the National Lottery. Officials in both
                                                    departments had already identified the
1
    Progress on Public Bodies Reform                need to better clarify where these roles
    http://www.nao.org.uk/report/progress-public-   begin, end, and intersect. Evidence to the
    bodies-reform
12 Triennial Review of the Big Lottery Fund – Report

Review supports the need to do this and
the Review therefore recommends that the
Management Statement for the Fund is
updated with a clear shared understanding of
the role of the Cabinet Office as the sponsor
(Recommendation 20).
The report includes recommendations for the
Fund, the Cabinet Office, and the Department
for Culture, Media and Sport. The Fund
intends to call an extraordinary Board
meeting to consider the recommendations of
the Triennial Review. Following this, and no
later than three months after the publication
of the Review, the Fund will set out how it
intends to respond to the recommendations
and by when. The Cabinet Office and the
Department for Culture, Media and Sport
where relevant, will also set out how they will
take forward the recommendations of the
Review relevant to them, within three months
of publication of this report.
Executive Summary 13

Full list of recommendations                            (FMS), and identifies further or remedial
                                                        action to address the inefficiencies in the
The Review recommends that:                             grant making/application process, which
Function                                                the FMS had intended to address.

1.   The three main functions of the Big           7.   The Fund sets out, as a matter of
     Lottery Fund (distribution of National             priority, how it will now deliver ‘digital by
     Lottery funds, distribution of non-Lottery         default’ and how this will lead to further
     funds, and distribution of funds from              efficiencies.
     dormant bank and building society             8.   The Fund sets out how and when it will
     accounts) all continue.                            meet the government occupancy target
                                                        of 10m2/FTE and identifies how it can
Form
                                                        exploit different ways of working (such
2.   The Fund remains an executive NDPB.                as hot desking and home working) more
3.   Ministers use policy and financial                 effectively.
     directions and the terms and conditions       9.   The Cabinet Office and the Department
     of Board members’ appointments                     for Culture, Media and Sport scope the
     to deliver greater levels of personal              potential for increased use of a shared
     accountability, in line with that expected         service model between the Lottery
     of Directors of Companies Limited by               distributors and other grant making
     Guarantee.                                         bodies, for corporate services and/or for
Efficiency                                              grant making and the Fund considers
                                                        shared service opportunities as part of its
4.   The Fund develops a performance metric             overall cost control.
     over time which sets out its approach to
     cost control and how it will continue to      10. Greater clarity is provided about the
     drive operational efficiencies. In doing          applicability of Cabinet Office spending
     this the Fund should consider whether             controls and public body efficiency and
     the difference in its operating costs             reform policies to the Fund by:
     between grant delivery of Lottery funds            (a) the Department for Culture,
     and third party work is appropriate, and               Media and Sport reviewing and
     separately whether a single operating                  updating the Statement of Financial
     cost target for Lottery funds (combining               Requirements (2006) and Spending
     what is included in the current 5% and                 Controls and Authorisations (2011)
     3% definitions) would be more useful to                for the Fund, with input from the
     the organisation and more transparent.                 Cabinet Office, making more explicit
5.   The Fund sets out its approach to                      which public sector spending
     staffing over the next five years (to align            controls and efficiency and reform
     with the Fund’s strategic framework for                policies are binding for the Fund as
     2015-2021) which addresses overall                     a public body, and where the Fund
     headcount, staff to manager ratios,                    has discretion whether to implement
     turnover and duplication of functions at               the guidelines or not; these revised
     country and UK level.                                  financial directions should cover
                                                            relevant policy areas such as: digital
6.   The Fund sets out what has been                        by default, transparency, advertising
     delivered to date by the implementation                and marketing, procurement,
     of the new Funding Management System
14 Triennial Review of the Big Lottery Fund – Report

           property and estates including              Effectiveness
           occupation benchmarks, etc            13. The Fund increases commercial
     (b) the Fund updating its financial             awareness amongst its staff.
         regulations and delegations
                                                 14. The Fund re-assesses its grant
         reflecting the updated Statement of
                                                     application process to make sure it is
         Financial Requirements, controls and
                                                     proportionate for smaller groups and first
         authorisations
                                                     time applicants.
     (c) the Cabinet Office reviewing and
         if necessary updating its policy        15. The Fund promotes the sustainability of
         directions to the Fund, to reflect how      the organisations, where appropriate,
         the Fund is expected to comply on           and the projects it funds, both when it
         an ongoing basis with key policies          makes award decisions and towards the
         which apply to all Cabinet Office           end of funding.
         sponsored bodies, but that cannot       16. The Fund improves its understanding
         appropriately be included in the            of impact, for example the role of ‘end
         Statement of Financial Requirements         of grant’ monitoring and building this
     (d) the Cabinet Office and the                  requirement into projects earlier on,
         Department for Culture, Media and           focusing on outcomes, and tailoring
         Sport updating their Memorandum             monitoring to different organisations,
         of Understanding to agree                   in order to ensure they collect more
         responsibilities for issuing any future     valuable information in a way that is less
         guidelines on public sector spending        complex and time consuming for grant
         controls and other policies relevant        holders.
           to the Fund.                                17. The Fund develops a clear methodology
11. The Cabinet Office sponsorship team                    for sharing the most valuable information
    continues to engage with the Grants                    from its funded projects both internally
    Efficiency Programme so that the                       and externally, and leads discussions
    findings from its work about benchmarks                with other funders to agree what, how
    for grant funding costs can be used to                 and at which level they want to share
    inform the future work of the Fund.                    information.

12. The Fund, the Department for Culture,              18. Given its significant influence over grant
    Media and Sport and the Cabinet                        making in the UK, the Fund defines its
    Office work out ways to measure cost                   sector leadership role, the convening role
    effectiveness to inform the Fund’s                     it will play, and how it will help the sector
    approach to cost control and enable                    to build capacity.
    better and more effective comparisons              19. The Fund improves the transparency of
    of performance to be drawn with other                  the work it does by:
    similar bodies (including in future Triennial          (a) being as clear about its international
    Reviews), and consider whether grouping                    work as it is about its work within the
    the Triennial Reviews of the Lottery                       UK
    distributors together (even if carried
    out by different departments) would be                 (b) providing full and clear publicly
    helpful in the future.                                     available details on the dormant
                                                               account spending directions,
Executive Summary 15

         budgets and achievements for the             distinguishing between governance
         whole of the UK                              and advisory roles. This may result
    (c) setting out a clear, publicly available       in changes to the number and time
        strategy and plan for its third party         commitment of Board and Country
        work which is underpinned by clear            Committee members.
        aims and objectives, and deliverable      25. The Chair and CEO ensure that matters
        over the next strategic framework             requiring the attention of the Board are
        period.                                       considered in a timely way that maintains
Governance                                            corporate momentum; and review
                                                      executive team attendance at Board
20. The Cabinet Office and the Department             and Committee meetings, to better
    for Culture, Media and Sport update their         differentiate between the accountabilities
    Memorandum of Understanding and the               of the UK Board and the operational
    Management Statement of the Fund with             responsibilities of executive directors.
    a clear statement of their respective roles
    and responsibilities in relation to           26. The Fund improves links between
    the Fund.                                         staff across the UK at all levels in the
                                                      organisation, including its Board and
21. The Fund confirms to the sponsorship              Country Committee members, in a
    team when the Accounting Officer                  cost-effective way.
    training has been completed.
                                                  27. The Fund improves the transparency of
22. The Cabinet Office, during the current            the way it carries out its work by:
    and future rounds of Board member
    recruitment:                                      (a) promoting the governance
                                                          arrangements for the organisation
    (a) increases the diversity of the Board              more clearly to ensure customers
    (b) strengthens the financial,                        and stakeholders are aware of how
        commercial and risk management                    and by whom decisions are made
        capability of the Board, to balance           (b) including management information
        with experience in the VCSE sector.               about the number and type of
23. The Cabinet Office reviews the terms and              complaints in the 13/14 annual
    conditions of appointment to the Board                report and ensure that this becomes
    to:                                                   a standard part of the annual report
                                                          going forward
    (a) Give Board members a more explicit
        role to focus on efficiency and               (c) holding Board meetings open to the
        effectiveness.                                    public
    (b) Be clear around restrictions on               (d) reconsidering its approach to
        acceptance of other appointments.                 publishing data on spend over £500.
24. The Chair ensures that the Country            28. The Fund completes its ongoing review
    Committees are operating in accordance            of its risk process.
    with their terms of reference, not
    duplicating discussions which ought to
    be had either by the country executive
    team or by the UK Board, and are
16 Triennial Review of the Big Lottery Fund – Report
Chapter 1 – Background and Introduction 17

Chapter 1 – Background and Introduction

This document sets out the findings of the           in place to ensure that the public body is
2013/14 Triennial Review of the Big Lottery          complying with recognised principles of
Fund (the Fund). It describes the purpose of         good corporate governance.
Triennial Reviews, the process adopted for       1.3     All Triennial Reviews are carried out in
the Review and presents findings based on        line with Cabinet Office guidance “Guidance
feedback from stakeholders and analysis of a     on Reviews of Non Departmental Public
range of evidence on the Fund’s activities and   Bodies”, June 2011. This guidance states that
impact. The report draws on this evidence to     reviews should be:
make recommendations as to the future of
the Fund.                                        •• Proportionate: Reviews must not
                                                    be overly bureaucratic and should be
                                                    appropriate for the size and the nature of
The Triennial Review                                the NDPB in question.
Aims of the review                               •• Timely: Reviews should be completed
                                                    quickly – the first stage ideally within three
1.1     It is government policy that a
                                                    months – to minimise disruption to the
Non-Departmental Public Body (NDPB)
                                                    NDPB’s business and reduce uncertainty
should only be set up, or remain in existence,
                                                    about its future.
where the model can be clearly evidenced as
the most appropriate and cost-effective way      •• Challenging: Reviews should be robust
of delivering the function in question.             and rigorous. They should evidence the
                                                    continuing need for individual functions
1.2    In April 2011, the Cabinet Office            and examine and evaluate as wide a
announced that all NDPBs still in existence         range as possible of delivery options.
following the reforms brought about by the
Public Bodies Act would have to undergo a        •• Inclusive: Reviews should be open
substantive review at least once every three        and inclusive. Individual NDPBs must
years. The first year of these reviews would        be engaged in reviews. Key users and
be 2011-12. These Triennial Reviews would           stakeholders should have the opportunity
have two purposes:                                  to contribute to reviews. Parliament must
                                                    be informed about the commencement
(a) to provide a robust challenge to the            and conclusions of reviews.
    continuing need for individual NDPBs
    – both their function and their form –       •• Transparent: All reviews should be
    employing the ‘three tests’ discipline          announced and all reports of reviews
                                                    should be published.
(b) where it is agreed that a particular body
                                                 •• Value for Money: Reviews should be
    should remain as an NDPB, to review the
                                                    conducted in a way that represents value
    control and governance arrangements
                                                    for money for the taxpayer.
18 Triennial Review of the Big Lottery Fund – Report

Context                                                1.9    The additional costs associated with the
1.4    Encouraging and stimulating growth              review are £4500. These relate to travel and
is a core principle for the Government, which          subsistence costs from visits and meetings
is one of the main reasons for seeking to              attended by review team members during the
reduce regulatory burdens. The potential               evidence gathering phase and the costs of
for encouraging growth should also be                  preparing the report for publication. This figure
considered. It has relevance to the Triennial          includes costs incurred on the review team’s
Review programme, which looks at reducing              behalf by the Fund.
the number of unnecessary bodies, which                Evidence and stakeholder engagement
may impose burdens on others.                          1.10 The review team mapped groups of
1.5     The Fund is currently implementing a           relevant stakeholders, in consultation with
new Funding Management System (FMS). This              the Fund. These included management,
is part of a Business Process Re-engineering           staff, beneficiaries, other funders, Voluntary,
(BPR) project and will significantly change the        Community and Social Enterprise (VCSE)
way the Fund operates. The implementation              umbrella organisations, VCSE organisations,
of the FMS is subject to a separate Gateway            Government (at all levels), unions, private
Review process and the Triennial Review will           sector representatives, and media
not seek to duplicate this. The Review will            commentators.
however comment on the expected savings                1.11 The review team visited a number of
and benefits from the implementation, as               locations across the UK and used a range
well as the business change aspects where              of engagement methods to ensure they
they are relevant to areas that are part of the        were able to reach as many stakeholders as
Review.                                                possible.
Process                                                1.12 The review team published a Call
1.6   The Review was led by Emma Boggis,               for Evidence survey based on the Terms
a Senior Civil Servant in the Cabinet Office           of Reference which sought the views of
supported by a team of three other officials.          customers and stakeholders on the Fund. It
1.7    The Review was announced by                     was available online and in Microsoft Word
Written Ministerial Statement on Thursday 21           format. The review team promoted the survey
November 2013 (Annex B) and a copy of the              on the Cabinet Office and Fund websites, as
Terms of Reference can be found at Annex               well as proactively sending it to a broad range
D. The Devolved Administrations were also              of stakeholders.
informed of the Review and invited to provide          1.13 The Call for Evidence was also
evidence through a variety of means.                   promoted by other groups, for example the
1.8    In accordance with Triennial Review             Office for Civil Society Local Intelligence
guidance, the size of the organisation                 Team, who promoted it to their 2,800 England
warranted the establishment of a Challenge             VCSE stakeholders, and the Esmée Fairbairn
Group to provide robust review and challenge           Foundation, who circulated it to the Social
to both the content and the process of the             Impact Investors Group. Forums such as the
Review. Details of the membership and                  London Funders’ Forum and several of the
meetings of the Challenge Group can be                 sector’s umbrella bodies also alerted their
found at Annex C.                                      stakeholders to the Call for Evidence.
Chapter 1 – Background and Introduction 19

1.14 The review team conducted face-                  Using the evidence collected
to-face engagement with stakeholders. A               1.20 The review team used the evidence
detailed breakdown of the type of face-to-face        gathered to inform conversations and
engagement used for each stakeholder group            discussions throughout the review process.
is at Annex G.                                        All the conclusions and recommendations
1.15 The review team collected a range of             made by the review team are based on their
other evidence, in order to supplement that           assessment of the evidence. Where relevant
provided by stakeholders and to provide               the specific evidence is highlighted in the
statistical information, clarification, and further   relevant part of the report. The detail from
details on areas of interest. Using existing          specific sources, for example the Call for
evidence (not produced specifically for the           Evidence, is also summarised in the annexes.
Review) was also in keeping with the principle
of proportionality. A full list of this additional    The Big Lottery Fund
evidence is at Annex G.
Select Committees                                     Overview of the Fund

1.16 The lead reviewer contacted the clerks           1.21 The Fund exists as an executive NDPB
of the relevant Select Committees (the Public         under the National Lottery etc Act 1993
Administration Select Committee and the               (as amended). The Secretary of State for
Culture, Media and Sport Select Committee)            Culture, Media and Sport has responsibility
on Friday 22 November, informing them of              for the National Lottery, including the system
the Review, providing a link to the Written           of distribution of Lottery funds and all pan-
Ministerial Statement, and informing them of          Lottery matters. Policy and sponsorship
the opportunity to provide comments on the            responsibilities specifically for the Big Lottery
Fund.                                                 Fund transferred to the Minister for the Cabinet
                                                      Office on 13 April 2011, having previously been
1.17 The review team also reviewed a Public           the responsibility of the Secretary of State for
Administration Select Committee report from           Culture, Media and Sport. The Permanent
2007-8 on ‘Making grants efficiently in the           Secretary of the Department for Culture,
culture, media and sport sector’ which made           Media and Sport retains responsibility as
mention of the Big Lottery Fund.                      Principal Accounting Officer for the National
Keeping the Fund informed                             Lottery Distribution Fund.
1.18 The lead reviewer met with the Chief             1.22 The Fund is responsible for distributing
Executive of the Fund on a regular basis to           40% of money raised for good causes from
ensure that the Fund was kept informed and            the National Lottery. The Fund must distribute
had sufficient opportunity to comment on the          this money to health, education, environment,
approach being taken by the team.                     and to charitable causes. The other 60% of
                                                      the money raised for good causes by the
1.19 The review team would like to put on             National Lottery is distributed equally between
record their thanks to the Fund for facilitating      sport, arts, and heritage by other distributors.
meetings with staff and stakeholders and
responding to requests for information to             1.23 The Fund is a UK wide organisation.
inform the Review.                                    The Minister for the Cabinet Office has powers
                                                      to issue policy directions with UK wide effect
                                                      or which relate to England specifically. The
                                                      relevant Devolved Administration issues policy
20 Triennial Review of the Big Lottery Fund – Report

directions for Wales, Northern Ireland and             regulation and accountability was regarded
Scotland.                                              as necessary by the majority of stakeholders
1.24 The functions of the Fund include                 engaged over the course of the Review.
distributing 40% of all funds raised for good          Structure of the Fund
causes (about 11 pence in every pound spent
                                                 1.28 The Fund is made up of two central
on a Lottery ticket) by the National Lottery;
                                                 functions providing services to the whole
distributing non-Lottery funding on behalf of
                                                 Fund and four country directorates, each
public bodies (such as the Department for
                                                 headed by a director who sits on the Senior
Education and the Office for Civil Society); and
                                                 Management Team and reports to the Chief
distributing money previously held in dormant
                                                 Executive. The two central functions are
bank and building society accounts.
                                                 Finance and Corporate Services and Insight,
1.25 The Fund is required to report on the       Policy and Engagement. The Insight, Policy
extent to which they follow the ‘additionality   and Engagement function was created on
principle’, that is that National Lottery and    1 April 2014 following a merger of the former
dormant accounts funds should be used to         Strategy, Performance and Learning and
fund projects for which funds would be unlikely Communications and Marketing functions.
to be made available by the UK Government
or the Devolved Administrations.                 1.29 The four country directorates cover
                                                 England, Scotland, Wales, and Northern
Lottery funds                                    Ireland. The senior management structure
1.26 Lottery money does not form part of         chart is at Annex E.
Exchequer funds and is not consolidated as       Staffing of the Fund
such. However, it is defined as public money
because it is subject to public regulation and   1.30 The Fund employed 988 FTE at the end
accountability in the following respects:        of financial year 2012/13. The average number
                                                 of staff employed during the year was 980. A
•• The money is protected by statute through detailed breakdown of staff numbers including
    the National Lottery Acts, which ensure      year on year comparisons and forecast staff
    that Lottery money is held in the National   reductions is at Annex E.
    Lottery Distribution Fund (NLDF) in
    proportions agreed in statute, and shared    Big Lottery Fund spend
    out to the Lottery distributors in these     1.31 At the end of the financial year 2012/13,
    proportions.                                 the Fund had spent £773,286,000, against an
•• The Chief Executive of each Lottery           income of £838,688,000.
    distributor is accountable to Ministers, who 1.32 For 2013/14, the Fund had a funding
    in turn are accountable to Parliament.       budget of £1,044,670,000, and an operating
•• NLDF is under the control and                 budget of £54,700,000 (takes into account the
    management of the Secretary of State for     expected extra FMS costs but does not yet
    Culture, Media and Sport.                    factor in any benefits realisation).
•• The Comptroller and Auditor General                 1.33 A summary income statement and a
   examines, certifies and reports on                  breakdown of the Fund’s budget are at Annex E.
   distributors’ annual statement of accounts.         Further information about the Fund
1.27 Given the amount of money available               1.34 References to the corporate documents
to the Lottery for distribution, this public           published by the Fund are also at Annex E.
Chapter 2 – Findings on the Functions and Form of the Big Lottery Fund 21

Chapter 2 – Findings on the Functions and
Form of the Big Lottery Fund

Context                                               What are the functions of the Big
2.1     Triennial Reviews examine whether             Lottery Fund?
all the functions fulfilled by a public body are      2.5 The Fund’s functions are set out in the
still necessary, and if they are, whether the         National Lottery etc Act 1993 (as amended).
current form of the organisation is the most          In addition it has functions conferred on
efficient and cost-effective delivery model for       it under the Dormant Bank and Building
those functions.                                      Society Accounts Act 2008 (“the Dormant
2.2 When considering the form of the                  Accounts Act”).
organisation, review teams are required               2.6 The principal functions of the Fund
to consider both a checklist of alternative           comprise:
delivery models that is provided in the
guidance,2 and consider whether the                   •• distribution of National Lottery funds
functions pass one or more of the ‘three                 (“Lottery funds”) to meet expenditure
tests’ of whether the functions should be                which is charitable or connected with
delivered ‘at arm’s length’ from Ministers, ie.          health, education or the environment
by an NDPB.                                           •• distribution of non-Lottery funds for these
2.3 It is important to note that NDPBs                   purposes
are not independent of Government – rather            •• distribution of funds from dormant bank
they are at arm’s length from it. Some of the            and building society accounts (“dormant
evidence gathered as part of the Review                  accounts funds”) to meet expenditure that
was predicated on the view that the Fund                 has a social and environmental purpose.
was independent of Government, which is
incorrect.                                            2.7     The business objectives and key
                                                      performance indicators to deliver these
2.4 Annex H sets out information about the            functions are set out in the Fund’s Corporate
key characteristics of delivery models which          Plan 2013/14.3 The Fund also reports to the
may be applicable to the Fund.                        Cabinet Office against its policy directions
                                                      for England and the United Kingdom, issued
                                                      to the Fund on 2 April 2012. Scotland,
                                                      Northern Ireland and Wales also have their
                                                      own arrangements for informing the Devolved
                                                      Administrations about their performance in
                                                      relation to their country-specific directions.
2
    https://www.gov.uk/government/uploads/
    system/uploads/attachment_data/file/230191/
    Cabinet-Office-Guidance-on-Reviews-of-Non-        3
                                                           Corporate Plan 2012/13, Big Lottery Fund, July
    Departmental-Public-Bodies.pdf                         2013.
22 Triennial Review of the Big Lottery Fund – Report

2.8 Within the functions and corporate                     strategic interventions. They offer the
objectives the Fund has 5 ‘portfolios’ of                  opportunity to trial new approaches
investment across England, Northern Ireland,               that have the potential to scale up into
Scotland, Wales and UK wide. These can be                  strategic work and have included social
broadly categorised as including demand-                   investment and trusts work. Flexible
led, strategic interventions, third party work             investments have been made in a range
and dormant account funds. The UK portfolio                of areas of work that subsequently
includes an international funding programme                develop into strategic, collaborative or
called International Communities.                          third party work.
2.9 However, there are some overlaps in                2.11 As part of its UK funding portfolio
how elements of the Fund’s work are defined,           the Fund is running an ‘International
for example in Scotland the dormant bank               Communities’ programme. In 2012/13 the
account distribution has the characteristics of        total value of the Fund’s international work
third party work.                                      was £14,415,462. The Fund’s current policy
                                                       directions state that organisations funded
Function 1 – Distribution of National
                                                       should include “those with a base in the
Lottery funds
                                                       United Kingdom and working overseas.”
2.10 The Fund divides its Lottery                      The Fund is fourth in a table (by grant award
distribution into demand-led/responsive (open          size) of the ninety UK based international
funding), strategic interventions and flexible         development funding foundations. The Fund’s
investments as follows:                                work and staff are respected in the sector
•• Demand-led/responsive funds (including              and engage with relevant organisations
   smaller individual grants (up to £10,000))          including with Department for International
   to address a wide range of issues that              Development (DfID) and Comic Relief.
   have been identified by organisations.              Function 2 – Distribution of non-Lottery
   Programmes include ‘Reaching                        funds – third party work
   Communities’ in England, ‘Awards for All’           2.12 Using powers introduced by the
   that operates in all countries, ‘Investing in       National Lottery Act 2006 the Fund has also
   Communities’ in Scotland, ‘Reaching out-            had power to handle non-Lottery funds on
   Supporting Families’ in Northern Ireland,           behalf of other organisations, in line with its
   and ‘People and Places’ in Wales.                   core purpose to fund projects supporting
•• Strategic or targeted interventions are             health, education, environment and charitable
   evidence based, focused pieces of                   purposes. For example, it distributes ‘Coastal
   work designed to make a significant                 Communities’ funding on behalf of Department
   difference to a small number of deep                for Communities and Local Government. It is
   rooted social issues over a longer period           also able to pursue joint funding schemes (e.g.
   of time. Interventions include ‘Fulfilling          the ‘Advice Services Transition Fund’ with the
   Lives – Supporting people with multiple             Cabinet Office). This work is delivered under
   and complex needs’, ‘Impact of Alcohol’,            the name of the Big Fund. It is underpinned by
   ‘Talent Match’ and ‘Mental Health                   a third party strategy and was later endorsed
   Matters’.                                           by the ‘Fresh Thinking’ document in 2012.4
•• Flexible Investments are described in
   England as work that can’t be addressed
   through demand-led/responsive or
                                                       4
                                                           BIG’s Strategic Framework Refresh, Big Lottery
                                                           Fund, April 2012.
Chapter 2 – Findings on the Functions and Form of the Big Lottery Fund 23

Part of this function also includes the Fund’s       the development of strategic programmes
work with the private sector.                        was highlighted as needing to be more
Function 3 – Distribution of dormant                 collaborative with key local partners and
account funds                                        commissioners.

2.13 In November 2008 the Dormant Bank               2.17 Third party work partners whom
and Building Society Accounts Act was                the review team interviewed described the
passed enabling banks and building societies         importance of the Fund to the delivery of their
to transfer money held in dormant accounts           grant programmes. The ability of the Fund
to a central reclaim fund for reinvestment in        to use its existing grant and decision making
the community. The ‘Reclaim Fund’ started            processes, provide access to experienced
transferring funds to the Fund in March 2011         and knowledgeable staff, and the opportunity
to distribute in accordance with the Act and         to be procured relatively quickly, were all key
directions issued to the Fund by the Minister        factors.
for the Cabinet Office and the Devolved              2.18 The distribution of the dormant
Administrations.                                     accounts funds has different operating
                                                     models across the UK. In England the
Are the functions of the Big                         transfer of funds to Big Society Capital (BSC)
                                                     is a straightforward financial transaction
Lottery Fund still necessary?                        whilst in Scotland the resources are directly
2.14 The majority of comments received by            administered by the Fund on behalf of the
the Review about the Fund and its functions          Scottish Government.
related to the Fund’s distribution of National       2.19 The trust and specialisms that are
Lottery funds. However, the team received            necessary for the Fund’s delivery of third
sufficient information across the piece to           party work and dormant accounts work rely
draw appropriate conclusions on all three            on the knowledge, systems and expertise
functions.                                           that are core to the Fund as a National
2.15 The Fund is highly valued and                   Lottery distributor, with the exception of the
respected for the delivery of its smaller            England dormant account distribution.
demand-led grants to the voluntary and               2.20 The review has concluded that:
community sector. The Review evidence
                                                     •• The distribution of demand-led funding
endorsed the results of the Fund’s own VCSE
                                                        is an important source of support for the
survey of high levels of customer satisfaction.
                                                        VCSE during a time when other sources
Many stressed the need for the continued
                                                        of grant funding are reducing. Strategic
role of the Fund and to deliver local funding to
                                                        investment funding provides ongoing
high standards.
                                                        opportunities to tackle key issues facing
2.16 Stakeholders involved in the Fund’s                society in a coordinated and joined up
strategic programmes reported positive local            way in localities.
impact, enabling good partnerships and
                                                     •• The third party work is an important
helping to make investment more focused.
                                                        function for a range of government
As facilitators of this process, the strategic
                                                        departments which have benefited from
programmes had increased the importance
                                                        the systems, experience and scale that
of the Fund’s role locally. The Fund’s
                                                        the Fund has been able to provide.
approach to initial partnership working during
24 Triennial Review of the Big Lottery Fund – Report

•• The dormant accounts work provides                  Review for the continued need for the three
   further funding sources to deliver key              functions to be fulfilled. The Call for Evidence
   strategic policy priorities. Whilst the             survey found that 96% thought that some or
   administration of this in England is at the         all of the Fund’s functions should continue,
   moment purely an accounting exercise                with over 80% saying all three of them were
   and is therefore not interdependent on              needed.
   the Fund’s other functions, the review              2.23 There is good awareness amongst the
   team do not feel it is practical for this to        Fund’s stakeholders of the Fund’s functions.
   be carried out separately as a function             Of those responding to the question in the
   outside the rest of the dormant account             Call for Evidence 95% recognised the three
   function (not least because in the future           functions of the Fund.
   the treatment in England may change).
                                                       2.24 Even those who were not aware of the
2.21 However, the Review found that there              three functions were familiar with the Lottery
are opportunities to improve the delivery              distribution function and it appears that most
of the functions and services currently                people see this as the main function of the
undertaken by the Fund in order to improve             Fund. Comments from the Call for Evidence
their effectiveness. The opportunities for             included:
functional improvements are described in
Chapter 4.                                                 “Funding from Big Lottery Fund is an
                                                           absolute lifeline to community groups and
 Recommendation 1                                          charities across the country.”
 The three main functions of the Big Lottery               “Because as the largest and best
 Fund:                                                     nationwide funder Big Lottery Fund is
                                                           well managed, well-structured and ideally
 •• distribution of National Lottery funds to
                                                           positioned to make a real difference to
    meet expenditure which is charitable or
                                                           deprived communities through a mixture
    connected with health, education or the
                                                           of large and small and long and short
    environment
                                                           term grants (for both capital and revenue
 •• distribution of non-Lottery funds for                  projects).”
    these same purposes
                                                           “The Big Lottery helps an extremely wide
 •• distribution of funds from dormant                     and varied community. Without the Big
    bank and building society accounts, to                 Lottery many worthwhile organisations
    meet expenditure that has a social and                 would not exist.”
    environmental purpose
                                                       2.25 The importance of the grant
 all continue.                                         distribution to small VCSE groups was
                                                       heard many times throughout the Review
                                                       with people saying that the demand-led
Evidence and analysis of Big                           programmes are important sources of
Lottery Fund functions                                 funding for voluntary groups. One respondent
                                                       to the Call for Evidence said:
Evidence provided on the Fund’s
functions and analysis                                     “Big Lottery Fund is ideally placed to
                                                           continue to distribute this funding due to
2.22 There was strong endorsement from                     its established infrastructure, knowledge,
all sources of evidence gathered by the
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