House of Lords - Explanatory Note
      
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Session 1999-2000
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Government Resources And Accounts Bill


 

These notes refer to the Government Resources and Accounts Bill
as brought from the House of Commons on 1st March 2000 [HL Bill 42]

Government Resources And Accounts Bill

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EXPLANATORY NOTES

INTRODUCTION

1.     These explanatory notes relate to the Government Resources and Accounts Bill as brought from the House of Commons on 1st March 2000. They have been prepared by HM Treasury in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.

2.     The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or schedule, or part of a clause or schedule, does not seem to require any explanation or comment, none is given.

3.     The primary purpose of the Bill is to enable departmental estimates and accounts to be prepared on a resource (i.e. an accruals accounting) rather than a cash basis. This is necessary to enable the full introduction of Resource Accounting and Budgeting (RAB). The notes do not, and are not intended to, provide a full description of RAB.

SUMMARY

4.     The main purposes of the Bill are:

         a.     To replace or amend (or both) the existing legislation on Government accounts (principally the 1866 and 1921 Exchequer and Audit Departments Acts but also the National Health Service Act 1977 in respect of introducing RAB into the NHS) to enable the introduction of RAB and to modernise the operation of other aspects of the Exchequer and Audit Departments Acts.

         b.     To put in place enabling legislation to enable the preparation and audit of consolidated accounts for the whole public sector (Whole of Government Accounts or WGA).

         c.     To enable the Treasury to incur expenditure in respect of the establishment of a new body for the purpose of carrying on public-private partnership business and investment in and other financial provision for that body.

THE BILL: COMMENTARY ON CLAUSES

Clause 1: Application of sums issued

5.     The system of supply is largely non-statutory and it is not intended to change this. This clause is not, therefore, intended to provide a comprehensive legal framework for supply under RAB. It is limited to amending, to take account of RAB, the existing statutory basis for determining on what cash issued from the Consolidated Fund can be spent. This clause maintains the principle of annuality.

6.     Subsections (1) and (2) modernise the provisions of section 2(1) of the Public Accounts and Charges Act 1891, repealing the older legislation. These provide that where a Consolidated Fund or Appropriation Act authorises a sum of money to be issued from the Consolidated Fund for the service of a specified year then all such money must be used for the service of that year.

7.     The purpose of this provision is to ensure that sums of money drawn by departments from the Consolidated Fund can be used only for expenditure in the authorised year. Any money drawn down and not spent would have to be surrendered to the Consolidated Fund (or be offset against issues in the next year). This prevents departments from building up cash balances that could then be used to circumvent Parliamentary spending controls.

Clause 2: Appropriations-in-aid

8.     This clause provides the statutory basis for the retention and use by departments of income they receive. Under resource accounting, appropriations in aid (a-in-a) will be recorded on an accruals basis (i.e. it will be recognised when the income is earned) rather than on a cash basis as is the case at the moment. However, additional provisions are required to deal with the cash effects of a-in-a.

9.     Subsections (1) and (2) enable the Treasury to direct, by Treasury Minute, that income on a resource basis may be applied as a-in-a of resources authorised by Parliament to be used for the service of a particular year. This is subject to the overall limits on the amounts of a-in-a which have been approved by Parliament and are set out in the relevant Appropriation Act. The intention of this subsection is to give the Treasury powers in the RAB system similar to those it has under sections 2(2) and 2(3) of the Public Accounts and Charges Act 1891 in the present system.

10.     Subsections (3) to (5) deal with the cash consequences of resource amounts which have been authorised for use as a-in-a. Timing differences between the recognition of a-in-a on a resource basis and the actual receipt of cash require special provisions for dealing with the cash.

11.     Subsection (4) applies in the situation (which should apply in the great majority of cases) where cash is received in the same financial year as the resource a-in-a is authorised. In this case the cash can be retained by the department provided it is used for the purpose authorised in the Treasury direction. If it cannot be so used then the cash must be surrendered to the Consolidated Fund.

12.     Subsection (5) applies in cases where cash is received in a year other than that for which the related resource a-in-a is authorised. This might happen where the time between the recognition of the income (inclusion as resource a-in-a) and the payment by the debtor straddles the end of a financial year or similarly where a payment is received in advance of the department carrying out the service to which it relates (the resource a-in-a will not be recognised until the service is carried out and the income thereby earned) and these events fall in different financial years. Under these circumstances subsection (5) will enable the cash to be used towards the authorised purposes of the year in which it is received. If this is not possible then it will be surrendered to the Consolidated Fund. The ability to use this cash will reduce the department's overall cash requirement for the year (and hence reduce the amount it has to draw out of the Consolidated Fund) but it will not increase the level of resources available to the department in that year.

Clause 3: Payments from the Consolidated Fund and National Loans Fund

13.     This clause is intended to enable the modernisation of the procedures used to authorise payments out of the Consolidated Fund and National Loans Fund.

14.     Subsections (1) and (2) will enable the Treasury, subject to the approval of the Comptroller and Auditor General (C&AG), to produce, authenticate and transmit the instruments necessary to enable payments to be made from the Consolidated Fund and National Loans Fund in whatever form the Treasury decides to adopt. All such requests for payment must be accompanied by evidence of the approval of two authorised Treasury officials. The intention is to enable modern (in particular computerised) systems to replace the paper based procedures required by the existing legislation.

15.     Subsection (3) will enable the Treasury to produce, authenticate and transmit the instruments necessary to enable transfers to be made under section 20 of the Exchequer and Audit Departments Act 1866 (Government stock and annuities) in whatever form the Treasury decides to adopt.

16.     Subsection (4) repeals section 56 of the Finance Act 1975 which sets out the authorised signatories for requests for payments out of the funds. This provision is predicated on a paper based system of written authorisations which will not be required in a computerised system.

Clause 4: Payments made in error to the Consolidated Fund

17.     This clause is intended to enable the recovery of monies paid into the Consolidated Fund in error. This can arise, for example, where a department pays in money as Consolidated Fund Extra Receipts (CFERs) that it is actually entitled to retain as a-in-a. The inability to recover monies paid in error has, in the past, resulted in departments delaying the payment of CFERs until they are certain none of the money can be retained. It is hoped that the power to enable amounts paid in error to be recovered will encourage quicker payment of CFERs.

18.     Subsections (1) and (2) allow the Treasury to direct that money paid into the Consolidated Fund in error may be repaid to whoever made the payment.

19.     Subsection (3) makes the Treasury's power to repay amounts paid into the Consolidated Fund in error subject to the normal procedures for authorising issues from the Consolidated Fund.

Clause 5: Preparation of resource accounts

20.     This clause requires the preparation of resource accounts (which will replace appropriation accounts under RAB), makes provision for the Treasury to determine the form of the accounts and requires the Treasury to appoint accounting officers to be responsible for the preparation of the accounts.

21.     Subsection (1) requires any departments for which Parliament has approved an estimate for a particular financial year to prepare a resource account for that year. Although they are not Government departments (and hence are not bound by the requirements of this clause) it is intended that the House of Commons (in respect of Members' salaries), the House of Lords and the Parliamentary Commissioner for Administration will, when the move to RAB is complete, lay resource estimates before Parliament and produce resource accounts.

22.     Resource accounts will detail in financial terms the use by departments of resources during the year (including their acquisition and disposal).

23.     Subsections (2) and (3) provide that the Treasury shall direct the form of the resource accounts subject to the requirements that they shall present a true and fair view and conform to generally accepted accounting practice (GAAP) amended as necessary in the context of departmental accounts. In practice this means that resource accounts will follow the normal accounting standards and conventions used in the private sector and elsewhere in the public sector modified only where necessary to take account of the particular requirements of departmental accounts. In addition subsection (3) requires that the Treasury issue accounts directions to require that Treasury guidance is followed with a view to ensuring that resource accounts contain explanations of differences between items appearing in estimates and the actual amounts appearing in the resource account.

24.     The accounting policies underlying resource accounts, which will form the basis of the Treasury direction, will be set out in the Resource Accounting Manual (published by The Stationery Office). The Financial Reporting Advisory Board (FRAB), which brings together representatives from the Treasury, departments, the National Audit Office, the Audit Commission, the Accounting Standards Board, industry and academia, must be consulted on all additions and changes (including proposals not to follow standard practice) to the Resource Accounting Manual.

25.     It is proposed that resource accounts will consist of five major statements together with supporting notes:

  • A statement of outturn (showing actual outturn against the estimate);

  • An operating cost statement (analogous to a profit and loss account in company accounts);

  • A balance sheet;

  • A cash flow statement; and

  • A statement relating costs to objectives.

The resource accounts for public sector pension schemes will adopt a different format (based on the requirements of private sector pension scheme accounts). The requirements for these resource accounts will also be detailed in the Resource Accounting Manual and will require consultation with the FRAB.

26.     In addition to accounting information resource accounts will also have to include information, as required by Government Accounting (which is published by The Stationery Office), necessary to satisfy Parliamentary propriety. This will include, inter alia, a note of adjustments between estimated and actual outturn.

27.     Subsection (4) requires all departments preparing resource accounts to send them to the C&AG for audit by 30th November of the financial year following that to which the accounts relate. This reproduces the timescale currently allowed to all departments, except for the Ministry of Defence (MoD), for appropriation accounts. The MoD currently have a longer timescale in which to prepare their accounts but as this concession is now obsolete (MoD have in practice prepared their accounts to the same timescale as other departments for many years) the opportunity is being taken to bring the MoD into line with other departments.

28.     Subsection (5) requires the Treasury to appoint an official of a department (this will usually be the senior full-time official) as the department's accounting officer. Subsection (6) places a responsibility on the accounting officer for preparing the departmental resource accounts and transmitting them to the C&AG for audit. Subsection (7) enables the Treasury to appoint other officials in a department as accounting officers for part of a resource account.

29.     The intention behind these subsections is to carry into the resource accounting system the Treasury's current powers to appoint accounting officers to be responsible for departmental accounts. They are not intended as a comprehensive statement of the duties and responsibilities of accounting officers (which will continue to be set out in "The Accounting Officer Memorandum" - which is reproduced in Government Accounting).

30.     The distinction between the accounting officers covered by subsections (5) and (6) and those covered by subsection (7) is that the first type is responsible for the department's resource account overall, consolidated where necessary (although he or she may also have operational responsibility for specific parts of the account) whereas the second type is responsible only for a part of the account, normally corresponding with one or more requests for resources (roughly equivalent to Votes under the current system) within the resource estimate. Most departments will only have one accounting officer but where there are more than one, all the accounting officers will sign the accounts and a statement of their respective responsibilities will be appended to the account.

Clause 6: Scrutiny of resource accounts

31.     This clause sets out the requirements for the audit, by the C&AG, of resource accounts and the procedures for laying the accounts, together with the C&AG's reports thereon, before Parliament. In addition the Treasury's current power to sanction unauthorised spending by departments is modernised to take account of RAB.

32.     Subsection (1) requires the C&AG to audit any resource account sent to him by a department. His audit certificate is required to state whether in his opinion the accounts show:

  • a true and fair view;

  • that money provided by Parliament has been expended for the purposes intended;

  • that resources authorised by Parliament to be used have been used for the purposes in relation to which the use was authorised; and

  • that the financial transactions covered by the accounts are in accordance with the relevant authority which governs them.

33.     The first assertion (the true and fair opinion) is the same as that given by auditors on company accounts. This differs from the opinion ("properly presents") currently given on the appropriation accounts and reflects the change from a cash to an accruals basis for the accounts. The second part of the audit opinion is the regularity assertion (that money has been spent and resources used as Parliament intended and that all financial transactions have been undertaken in accordance with the authority that governs them) and is very similar to the assurance currently given in the audit opinion on appropriation accounts.

34.     Subsection (2) provides that when, in the course of his audit, the C&AG discovers a material use of resources that required, but did not receive, Treasury authorisation he shall inform the Treasury and the Treasury may retrospectively authorise the expenditure. This provision re-enacts (in a RAB context) the existing Treasury power contained in section 1(3) of the Exchequer and Audit Departments Act 1921. The Treasury cannot use this power to authorise illegal or improper expenditure - it can only retrospectively authorise expenditure that was itself legal and proper but which required Treasury approval.

35.     Paragraph (a) of subsection (3) requires the C&AG to issue a certificate (which contains his audit opinion) and report on each resource account. Paragraph (b) requires the audited accounts to be sent to the Treasury by 15th January of the financial year following that to which they relate (as with clause 5(4) this reproduces the current timetable except that the MoD are moving to the same timetable as other departments). Paragraph (c) requires the C&AG to report to the House of Commons where he is not satisfied with the results of any of his audits.

36.     Subsection (4) requires the Treasury to lay the resource accounts (together with the C&AG's certificate and report) before the House of Commons. This must be done by 31st January in the financial year following that to which the accounts relate (as with subsections 5(4) and 6(3)(b) this reproduces the current timetable except that the MoD are moving to the same timetable as other departments).

Clause 7: Departmental accounts other than resource accounts

37.     This clause provides for the preparation, audit and laying before Parliament of accounts prepared by departments other than resource accounts. The main type of accounts envisaged as being prepared under this section are those of executive agencies. This clause replaces the similar powers of section 5 of the Exchequer and Audit Departments Act 1921.

38.     Subsection (1) enables the Treasury to direct departments to prepare accounts other than resource accounts as considered necessary. As noted above the main accounts envisioned as being prepared under this clause are those of executive agencies but the Treasury may direct that other accounts (such as trust accounts which are prepared where a department holds money or assets (or both) on behalf of others) not covered by specific legislation may also be prepared under this section.

39.     Subsection (2) enables the Treasury to issue accounts directions specifying the form and contents of the accounts. Due to the likely heterogeneous nature of the accounts that will be produced under this clause (full accruals, partial accruals and cash) no restrictions as to the form of the accounts are being included in the legislation.

40.     Subsection (3) requires accounts prepared under this clause to be examined and certified by the C&AG and laid before the House of Commons. The timetable for audit and laying of accounts given in the subsection corresponds to that currently followed for accounts prepared under section 5 of the Exchequer and Audit Departments Act 1921 (the opportunity has been taken to dispense with the obsolete provision for certain MoD accounts to be prepared to a longer timetable).

41.     Subsection (4) requires the C&AG to carry out his audit of accounts prepared under this clause with a view to satisfying himself that all expenditure (whether of cash or resources) fulfils the requirements of regularity.

42.     Subsection (5) enables the Treasury to direct that any or all the accounts prepared under this clause may be laid before the House of Commons by the responsible department(s) rather than by the Treasury. Many accounts (especially those of executive agencies) which are prepared under section 5 of the Exchequer and Audit Departments Act 1921 are already effectively laid by the department themselves rather than the Treasury. This provision will enable formal responsibility to be transferred to the departments.

Clause 8: Access to information by the C&AG

43.     This clause provides the C&AG with a right of access to documents relating to a department's accounts which are held or controlled by a Government department (or are managed by a third party) for the purpose of conducting his audits of any departmental accounts and a right to explanations as necessary.

Clause 9: Whole of Government Accounts - preparation

44.     This clause places a duty on the Treasury to prepare consolidated accounts for the public sector in order to meet the commitment given in the Code for Fiscal Stability.

45.     Subsection (1) requires the Treasury to prepare consolidated accounts for the public sector. The bodies covered by the accounts are to be determined by the Treasury (see the discussion of clause 10 below). This will enable the Treasury to expand the coverage of the accounts as required: it is envisioned that consolidated accounts will initially be prepared for the central government sector and will, over time, be extended to include all public sector bodies.

46.     Subsection (2) allows the extension of the scope of Whole of Government Accounts (WGA) to encompass accounts such as the National Insurance Fund and the Social Fund, which, although administered by departments, are not included within the departments' own accounts.

47.     Subsection (3) gives the Treasury the power to determine the form of the accounts with the proviso that they must conform to generally accepted accounting practice modified as necessary for the needs of the public sector. It is intended that in practice the consolidated accounts will be prepared in accordance with resource accounting requirements.

Clause 10: Whole of Government Accounts - obtaining information

48.     This clause provides the Treasury with the necessary powers to obtain the information to prepare WGA. It allows the Treasury to designate which public sector bodies will be covered, provides the Treasury with a power to request the audited information necessary to enable it to prepare the account, makes special provision for the devolved administrations and allows sub-consolidations to be carried out.

49.     Subsections (1) and (10) provide for the Treasury to designate, subject to Parliamentary approval, those public sector bodies which are to be included in the WGA. It is likely that the first accounts will only cover the central government sector (departments, central funds and non-departmental public bodies) but that these will be expanded to include all public sector bodies (i.e. NHS bodies, local authority bodies, nationalised industries and other public corporations in addition to central government bodies).

50.     Subsection (2) enables the Treasury to require all designated public bodies to provide it with the audited financial information required in a specified form and within a specified timescale. In practice this information will be largely the same as the body requires to prepare its own accounts and would be audited by its existing auditors.

51.     Subsections (3) and (4) give the Treasury similar powers to require designated bodies to provide unaudited financial information for a specified part of a year. This will enable the Treasury to produce interim financial statements in due course.

52.     Clause 5 requires the Treasury to appoint accounting officers who are responsible for the preparation of resource accounts and their transmission to the C&AG for audit. Subsection (5) will allow the Treasury to appoint individuals who would have similar responsibilities in respect of WGA consolidation returns.

53.     Subsections (6) and (7) put in place special provision for the devolved administrations. In the case of Scotland the Scottish Executive, using similar powers under the Public Finance and Accountability (Scotland) Act 2000, will carry out the necessary consolidation and transmit the information to the Treasury for inclusion in the overall WGA. In the case of the National Assembly for Wales, subsection (7) requires the Treasury to consult with the Assembly before designating bodies which come under the Assembly's jurisdiction.

54.     Subsections (8) and (9) provide for sub-consolidations to be carried out by bodies other than the Treasury and for the auditors of such sub-consolidations to have equivalent powers to those given to the C&AG under clause 11(5). Examples of the type of sub-consolidation envisaged are the Department of Health preparing a consolidation of the accounts of all National Health Service bodies and the Department of the Environment, Transport and the Regions preparing a consolidation of all local authority accounts.

Clause 11: Whole of Government Accounts - scrutiny

55.     This clause provides for the C&AG to audit the WGA and for them to be laid before Parliament.

56.     Subsection (1) requires the Treasury to send the WGA to the C&AG for audit.

57.     Subsection (2) requires the C&AG to audit the accounts. Due to the nature of the accounts, which will merely consolidate accounts for which accounting officers in other bodies already have responsibility, there is no requirement for the C&AG to provide an audit opinion concerning the regularity of the accounts but simply to determine whether, in his opinion, they are true and fair.

58.     Subsection (3) requires the C&AG to certify the accounts and issue a report on them.

59.     Subsection (4) requires the Treasury to lay the accounts, together with the C&AG's report, before the House of Commons.

60.     Subsection (5) grants a power to enable the C&AG to require from the auditors of bodies or sub-consolidations included in the WGA such information and explanations as he reasonably requires to satisfy himself that the information to be included in the WGA can be relied upon. Guidance on the operation of this power is already contained in professional auditing standards which is likely to be supported by the work of the Public Audit Forum which includes representatives of all the main bodies involved in public sector audit in the United Kingdom.

61.     The C&AG is the auditor of, or has inspection rights at, many of the bodies that will be included in WGA. However, there are some bodies (notably local authority bodies audited by the Audit Commission) where he has no access. The power in this subsection will enable the C&AG to make enquiries of the auditors of these bodies to enable him, as auditor of the WGA as a whole, to satisfy himself that the audit has been carried out to an appropriate standard and that the information provided by the body can therefore be relied on.

62.     Subsections (6) to (8) provide that once the dates by which the accounts must be prepared, audited and laid before the House of Commons have been decided upon the Treasury shall, after consulting the C&AG, specify the dates by statutory instrument. Work on WGA is still at a developmental stage and it is not yet possible to set firm dates after the year end by which the necessary work must be completed.

 
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