Source · Select Committees · Public Accounts Committee
Recommendation 9
9
We questioned the Department about its assessment of the profile for default on loans and...
Conclusion
We questioned the Department about its assessment of the profile for default on loans and what plan it and ACE had to tackle organisations defaulting on their loans. The Department told us that it had developed a profile of default. It said it would take a prudent approach to valuation of the loan book over time and would be including loans in the Department’s accounts as part of its 2020–21 spending.20 We heard good explanations from ACE and Sir Damon of what they considered were the safeguards against the risk of organisations defaulting on their loans, for example extensive due diligence on the financial projections of each organisation and ongoing monitoring of their financial situation.21 Sir Damon was confident that successful applicants for loans had enough flexibility in their financial forecasts to repay the financing.22 ACE also believed it had mechanisms to alert it to risks materialising. ACE insisted that it expected organisations to pay back loans over the period of the funding agreement and that the loans would not be translated into grants.23
Government Response
Not Addressed
HM Government
Not Addressed
2: PAC conclusion: We are concerned about the Department’s and Arts Council England’s ability to manage the significant and ongoing loan book commitments created by the Culture Recovery Fund. 2: PAC recommendation: In its Treasury Minute response, the Department should set out how it will make sure it has the resources in place to take on the new responsibilities for managing loans, and how it has drawn on learning from across government about managing the operation and future risks of its loan book commitments, including risks of organisations defaulting. 2.1 The government agrees with the Committee’s recommendation. Target implementation date: December 2021 2.2 DCMS officials are working carefully in order to establish the most appropriate mechanism for managing the loan book over the long term, factoring in best practice from across government and from industry experts. As a novel form of government investment, it is clear that sufficient resources must be provided to whomever ultimately manages the loan book - and that the appropriate structures underpinned by relevant expertise will be needed to reduce risks of default. 2.3 The Committee has asked for further updates on the Culture Recovery Fund in December 2021, and the department will include further information on this at that point.