Funding the Judiciary System: consequences for efficiency

Report | 21-04-2016

Conclusions

We drew the following conclusions from our audit.

• Performance-based funding is limited by the minister´s budget - The Minister of Security and Justice’s annual performance-based funding of the judiciary system is the product of the number of cases (q) multiplied by the agreed cost per product group (p). But it is ultimately dependent on the funds available in the minister’s budget. The funding of the judiciary system therefore combines the characteristics of performance-based funding and budget-based funding. This combination of two funding methods is a source of tension.
• After introducing performance-based funding, court cases stopped becoming more expensive – Since the introduction of performance-based funding, the cost of a court case stabilised after having increased for a long period of time (1983-2002) and the cost differences between courts and cases have declined. It is reasonable to assume that this is due in part to the introduction of performance-based funding.
• Efficiency incentives do not bring about a further reduction in costs per case – The budget ceiling has improved the Ministry of Security and Justice’s overall cost control. Cost control is a key priority of the Council for the Judiciary System and of the courts we audited. They give higher priority to meeting the performance agreements than to improving their efficiency. Efficiency incentives are not particularly strong in practice. Furthermore, the courts can reduce the cost per case only if they deal with more cases. The number of new cases has been lower than expected in recent years. The courts have therefore often been unable to meet the performance agreements, never mind increase their productivity. The average cost per case is higher during years of lower productivity as only 70% of the agreed funding has to be paid if a case is not dealt with. We also found that the triennial price agreements were not reviewed if there was a demonstrable increase in productivity.
• Effect on quality is not known – The cost of a case should reflect the costs incurred to achieve the required quality. Cost control has been a major concern in recent years. The effect on quality, however, is not known. The available information provides no reliable indication that there had been any structural change in quality. Whether and to what extent the quality of the judiciary system has been influenced by performance agreements is uncertain. Furthermore, the Ministry of Security and Justice has not made agreements with the courts regarding the required quality level. The absence of reliable information on quality and efficiency incentives prevents a proper consideration of the relationship between quality and price.

Recommendations

We recommend that the Minister of Security and Justice:

• Explain in the ministry budget what consequences any increase or decrease in the budget ceiling for the judiciary system will have for the number of cases to be funded, the costs involved and the required quality. Also explain what risks are involved, what impact they can have, how they can be mitigated and how they can be addressed if they occur;
• Explain in the ministry budget whether the risks have occurred and what measures were taken.

We recommend that the courts:

• Invest in better information on the cost and quality of the judiciary system;
• Develop a method to monitor the quality of the judiciary system. Together with the Minister of Security and Justice, agree a minimum quality standard for the system. Take this information into account in the triennial price review;
• Provide quantitative information on the causes of variances between agreed and actual costs per product group and from one court to another;
• Compare the cost of a particular type of case in different jurisdictions and explain any differences, especially if the complexity (or simplicity) of the case appears comparable. Use this information to improve the efficiency of court procedures and to develop professional standards for each jurisdiction.

Response of the Minister

The Minister of Security and Justice does not think the annual funding of the judiciary system restricts the productivity of the courts because the courts can also use the equalisation account of the Council for the Judiciary. This is true, but the equalisation account is meant to pay unforeseen costs, not to fund the agreed number of cases. The Court of Audit therefore adheres to its conclusion that a mixed funding method is now in place. The Council for the Judiciary agrees in broad lines with our conclusions and recommendations.