Select Committee on Northern Ireland Affairs Minutes of Evidence


Memorandum submitted by the Northern Ireland Office



  1.  As you may be aware, the Government has announced four "trigger" points against which progress in implementing Resource Accounting and Budgeting (RAB) in central government is being monitored during the period leading up to full RAB implementation, planned for 2001-02. In summary, these are:

    —  Trigger Point 1:  "Stage 1 Approval" (April-December 1998) requiring departments to have satisfactory accounting systems and policies in place to enable them to produce resource accounts—completed for all departments.

    —  Trigger Point 2:  Assessment of departments' opening balance sheets for 1999-2000 (April-June 1999)—completed for all departments.

    —  Trigger Point 3:  NAO's audit of departments' dry-run 1998-99 Resource Accounts (Autumn 1999).

    —  Trigger Point 4:  Departments submit dry-run resource-based Estimates for 2000-01 to their Select Committees (Spring 2000).

  2.  The Northern Ireland Office reached, along with other departments, a key stage in the implementation of Resource Accounting, involving the preparation of dry run 1998-99 Resource Accounts as part of Trigger Point 3. At Trigger Point 3, the Principal Accounting Officer of the Northern Ireland Office wrote to HM Treasury:

    (i)  addressing concerns arising from the NAO's dry-run audit, and giving assurances that the department remained on track to produce resource accounts for 1999-2000 capable of withstanding audit;

    (ii)  giving assurances that the department remained on track to produce robust resource budgeting data for use in the 2000 Spending Review and in "shadow" resource-based Estimates for 2000-01; and

    (iii)  providing confirmation that suitable and robust RAB training arrangements were in place.

  3.  I am happy to confirm to the Committee that the Northern Ireland Office remains on track to fully implement RAB in accordance with the planned timetable.

  4.  As requested by the Procedure Committee in its First Special Report Session 1997-98 on Resource Accounting and Budgeting (HC 773), departments were asked to send copies of their dry run 1998-99 resource accounts to their departmental select committees. Accordingly, I am enclosing with this letter a copy of the dry run Resource Accounts for the Northern Ireland Office. As the accounts will not be made available publicly, I would be grateful if you could restrict their circulation to members of the Committee. The aim of the exercise is to give Committee members the opportunity to familiarise themselves with the format and "feel" of Resource Accounts.

  5.  As noted above, the NAO has been fully involved in the TP3 process and has scrutinised the dry run Resource Accounts prepared by each department. The outcome of this scrutiny is an NAO audit opinion which will not, however, be formally signed off by the Comptroller and Auditor General because of the non-statutory nature of the dry-run process. For this reason the dry run Resource Accounts should be regarded as "unaudited financial statements", although they have undergone the same level of scrutiny that would be expected had the NAO been conducting a formal audit.

  6.  I am pleased to report that the dry run NAO audit opinion concluded that no substantive issues of concern arose. Any issues which were identified by the NAO during their audit work do not have a significant impact on the department's introduction of RAB in accordance with the planned timetable. The issues identified are being addressed by the department and, where appropriate, changes to procedures and/or systems are being put in place and will ensure further improvements leading to better quality dry-run accounts in 1999-2000 and a clear audit opinion for the 2000-01 accounts.


  7.  I am enclosing with this letter a "shadow" resource-based Estimate for 2000-01 for the Northern Ireland Office together with an associated commentary.

  8.  As noted in the Treasury's January 2000 RAB Memorandum, the enclosed Estimate is being sent to the Committee to fulfil an undertaking under Trigger Point 4 of the Government's strategy for monitoring RAB implementation, whereby departments are submitting "shadow" resource-based Estimates for 2000-01 to their select committees. Whilst the Estimate is being sent to the Committee for information, I would be pleased to receive any comments on the shadow Estimate in due course. In addition, if you would like to receive a presentation explaining the Estimate, and how it relates to the department's cash Estimate for 2000-01, I would be happy to arrange it.

  9.  TP4 completes the trigger point process and the Government is now seeking Parliament's approval to replace cash based Estimates and Appropriation Accounts with Resource Estimates and resource accounts from 2001-02.

  10.  The shadow Estimate enclosed with this letter:

    —  is accompanied by a commentary which provides more detailed information about the Estimate;

    —  comprises:

      —  Parts I, II and III of the Estimate;

      —  associated forecast Operating Cost Statement and Cashflow Statement and;

      —  certain key accompanying notes. A full list of the notes that it is envisaged will be included with Resource Estimates from 2001-02 was set out in the Treasury's July 1999 RAB Memorandum. If the Committee has any further specific disclosure requirements which it would like to see included in the notes accompanying the department's Estimate, it would be helpful to have details as soon as possible so that they can be included in the Estimate from 2001-02:

      —  covers the same functions as the cash Estimate for 2000-01 which has already been presented to Parliament. A comparison between the net cash requirement in the Resource Estimate and the net total cash sought in the cash Estimate reveals that the amount of cash required by the department under resource-based and cash-based Supply is the same. Under RAB, Parliamentary control over cash continues alongside control of resources, and Parliament will continue to vote cash in the form of a net cash requirement for each department;

      —  shows the format proposed for resource based Estimates for the Northern Ireland Office with five Requests for Resources (RfR) broken down into functional lines. The format is expected to be unchanged under "live" RAB from 2001-02;

      —  includes data for a single prior year in the Estimate and accompanying notes. For the purposes of the shadow 2000-01 Resource Estimates only, estimated outturn figures for the prior year (1999-2000) are being used as a proxy for final provision. For the 2001-02 Estimates onwards, final provision for the prior year will be shown, together with final outturn for the preceding year.


  11.  As noted above, the Northern Ireland Office has now successfully completed the TP4 process and has demonstrated that it is capable of producing the data necessary to produce a resource based Estimate.

  12.  The department continues to press ahead with its implementation of RAB, and I look forward to sending you in due course a copy of the department's 1999-2000 resource account, which will be subject to full NAO audit and Comptroller and Auditor General opinion prior to publication and presentation to Parliament.

  13.  If there are any questions or points about the enclosed accounts, or about the implementation of RAB by the department more generally, on which further clarification would be helpful, please let me know.

  14.  The shadow Resource Estimate accompanying this letter has also been sent to the National Audit Office for information.

19 May 2000


  This commentary is intended to provide the Committee with a detailed explanation of the attached shadow resource-based Estimate for the Northern Ireland Office for 2000-01 and the significance of each of its component parts.


  1.  For the purposes of Trigger Point 4, the attached "shadow" Resource Estimate comprises:

    —  Parts I, II and III of the Estimate,

    —  forecast Operating Cost Statement;

    —  forecast Cashflow statement, and

    —  a selection of accompanying notes as follows:

      —  Explanation of Accounting Officer Responsibilities.

      —  Forecast reconciliation between net operating cost; net resource outturn; and resource budgeting outturn.

      —  Analysis of Appropriations in Aid (AinA).

      —  Analysis of Consolidated Fund Extra Receipts (CFERs).


  2.  As for cash Estimates, Part I of the Estimate contains details of the net provision sought (on both a resource and cash basis) and the Ambit, as well as confirmation of the department that will account for the Estimate. It also shows the amount of resources and cash which have already been allocated to the department in the Vote on Account, and the balance to complete.

  3.  The Ambit covers resource expenditure, capital expenditure and cash expenditure by the department during the year to which the Estimate relates. The Ambit is on a functional basis providing a direct read-across to the functional lines contained in Part II of the Estimate

  4.  As explained in the Treasury's January 2000 Memorandum, transitional arrangements will apply in relation to calculation of Vote on Account (VOA) figures until 2002-03. Thus the VOA figures for both the attached "shadow" Resource Estimates for 2000-01 and for the first "real" Resource Estimates for 2001-02 will be calculated on the basis of 45 per cent of the net total provision sought for resources (at the level of the RfR) and the net cash required by the department. From 2002-03, VOA figures will, as now, be calculated on the basis of 45 per cent of provision for the current year up to and including Summer Supplementaries.


  5.  Part II of the Estimate provides a further breakdown of the expenditure for which Parliamentary approval is sought. The first section of Part II of the Estimate is in a tabular or matrix format and has a broadly similar structure to existing cash-based Estimates. Under RAB, Part II of the Estimate will also contain a reconciliation between the net resource total and the net cash requirement.

  6.  The following points are worth highlighting in relation to the matrix:

    —  Figures in columns 1 to 10 are on an accruals basis (ie they relate to expenditure and income scored at the point of the underlying activity).

    —  RfR descriptors used in the matrix are objective based to denote the broad purpose of the expenditure covered by the RfR, eg maintaining a secure and humane prison service and reducing the risk of re-offending.

    —  The functional lines shown in the matrix, taken together, provide a direct read-across to the wording of the Ambit in Part I. Some functional line titles are repeated within the Estimate, where appropriate, under both the DEL and AME headings. This takes account of the decision for SR2000, to include some large non-cash items in AME for a transitional period.

    —  The reconciliation box beneath the Part II matrix takes account of all accrued income and expenditure of the department and then makes adjustments to take account of non-cash items and working capital movements to establish the net cash requirement for the department. The net cash requirement in the department's Resource Estimate is the same as the cash Votes for the department for 2000-01.

    —  A single prior year column in Part II has been populated for the "shadow" Resource Estimate. This relates to 1999-2000 and, for the shadow Estimate only, represents forecast outturn data for 1999-2000 since there is no Resource Estimate provision for that year. From 2001-02, when it is intended that resource-based Supply will be introduced, both prior year columns in the Resource Estimates will be populated, with the 1999-2000 column showing final outturn for that year and the 2000-01 column showing final provision as reflected in the "shadow" Main and Supplementary Resource Estimates for that year.


  7.  Part III of the Estimate shows Extra Receipts payable to the Consolidated Fund (CFERs). Consistent with cash based Estimates, this seeks to notify Parliament of the department's forecast of income and receipts that will not be appropriated in aid.

  8.  Key points to note in relation to Part III tables in the attached Resource Estimate are as follows:

    —  CFERs are shown on both an income and a cash received basis. The income and cash receipts figures for CFERs will be the same.

    —  CFERs are analysed by the following:

      —  Operating income not classified as AinA.

      —  Non-operating income not classified as AinA.

      —  Other income not classified as AinA.

  9.  "Operating income not classified as AinA" represents operating income that flows through the department's operating cost statement but which cannot be appropriated in aid eg Police Pensions, excess Accrued Superannuation Liability Charges.

  10  "Non-operating income not classified as AinA" represents income which relates to the sale of capital assets that cannot be appropriated in aid. The Northern Ireland Office has no such CFERs.

  11.  "Other income not classified as AinA" relates to income for which the department is merely an agent and which is not scored in Schedules 2 to 5 of departmental resource accounts. The Northern Ireland Office has no such CFERs.


  12.  The forecast Operating Cost Statement (OCS) shows resources that are expected to be consumed during the year in support of the department's administration and programme expenditure net of departmental income. The OCS takes account of both Supply and non-Supply expenditure and income within the departmental accounting boundary as defined in the Resource Accounting Manual.

  13.  The three totals at the base of the forecast OCS are:

    —  Net Operating Cost—ie all departmental current expenditure and income within the OCS in respect of both Administration and Programme costs.

    —  Net Resource Outturn—ie the sum of the Requests for Resources voted by Parliament and shown in Part II of the Estimate.

    —  Resource Budget Outturn—ie all departmental expenditure within the resource budget allocated in spending reviews.

  14.  The reconciliation between these three aggregates is discussed further below.


  15.  The forecast cashflow statement shows the cash inflows and outflows that are expected to occur during the year. The cashflow statement takes account of cash related to (both Supply and non-Supply) expenditure and income within the departmental accounting boundary (and also takes account of cash inflows and outflows in respect of CFERs which are received and paid by the department but which do not form part of the department's operating activities).

  16.  There are a number of features relating to the production and coverage of the cashflow statement.

    —  The "Net Cash outflow from operating activities" figure is derived from the reconciliation of operating cost to operating cash flows;

    —  The "Capital expenditure and financial investment" figure is derived from the analysis of capital expenditure and financial investment;

    —  The receipt of CFERs which flow through the Operating Cost Statement will be included in the "Net Cash Outflow from operating activities" figure. CFERs which are received by the department but do not form part of their operating activities will be shown against the "Inflows in respect of activities outside the scope of the department's operations" line shows in the attached illustrative cashflow. "Payment to the Consolidated Fund" figures should take account of all CFERs which are expected to have been paid across to the Consolidated Fund by the department during the year;

    —  The "Analysis of Financing" section of the Cashflow reflects the points above and takes account of any CFER cash which is received but not paid over during the year and any CFERs which were received in prior years and are expected to be paid over in the current year. The section reconciles to the "Net Cash Requirement" which is also shown in Part II of the Estimate as a result of the reconciliation from accruals to cash.


  17.  This note explains the Accounting Officer responsibilities for the Estimate. The explanatory note is consistent with the more detailed Statement of Accounting Officer Responsibilities (SAOR) which will appear in the department's resource accounts.


  18.  This note provides a reconciliation between the three totals shown at the foot of the forecast Operating Cost Statement and analyses the different coverage of resource accounts, Resource Estimates and resource budgets for the department under RAB.


  19.  This note builds on one of the core requirements for cash based Estimates for analysis of AinA, taking account of the introduction of income based AinA under RAB.

  20.  The table distinguishes, amongst other things, between operating (ie resource) and non-operating (ie capital) AinA.

  21.  An AinA footnote at the base of the table in the note is provided to explain the sources of income which may be treated as AinA under RAB for the year in question. Items are ordered so that resource AinA items are listed first followed by non-operating AinA items.


  22.  This note is also based on one of the core requirements for cash based Estimates and provides an analysis of CFERs, taking account of the fact that under RAB CFERs are shown on both an accruals and a cash basis.

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