Letter to the Committee from Mr Colin
Raynor, Finance Department, Department for International Development
RESOURCE ACCOUNTING AND BUDGETING (RAB)
PROGRESS
We have made good progress in implementing RAB since
we last wrote to you on this subject in May 1999 and are now close
to agreeing with the NAO and Treasury an account for the 1998-99
financial year (latest version enclosed). Although this account
will not be subject to a formal audit certificate, it provides
the evidence required by the NAO to form an opinion on whether
DFID are geared up to produce resource accounts. There remain
a few issues to resolve on the detailed figure work over the next
few weeks but we are confident that the NAO will endorse the view
that progress is sufficient for the Treasury to issue an Accounts
Direction. The Direction will be a formal instruction to the NAO
to audit the resource account for 1999-00. The intention is that
these accounts will then be published alongside the appropriation
account in the Autumn of 2000.
We have also responded to latest guidance on
the construction of the Estimate by producing a revised version
based on the Treasury standard (copy also enclosed). This purpose
of this exercise has been to agree the format of the Estimate
(rather than the content) which, subject to the views of the Committee,
we have now agreed with the Treasury. You should therefore note
that the figures in the latest Estimate, as in the earlier version
(which was based on earlier Treasury guidance), are indicative
only ie they are not comparable with figures in the appropriation
account, the Departmental Report or the draft resource account.
We will be in a position to insert robust figures for future years
once we have agreed with the Treasury resource-based baselines.
The process of converting the cash baseline to resources is currently
underway. This will take account of the lessons learned in constructing
the account. The deadline for completing this exercise is January
2000.
TECHNICAL QUESTIONS
As you can see from the above, things have moved
on substantially over the past few months. Taking each of the
questions you raise in turn:
Estimate, vote on account
You ask whether the vote will have both cash
and resource dimensions. You will see from the revised Estimate
that this will be the case.
Format of Estimate
The latest version of the Estimate reflects
the standard ie it has the standard number of columns and makes
use of the standard terminology. Rest assured that the appropriate
shading will be provided in published versions.
Estimate, resources to cash reconciliation
You note in the earlier version of the Estimate
that the EC attribution is featured in the resources to cash reconciliation
part of the Estimates. This is no longer the case in the revised
Estimate. However, in the light of your query we could expand
future versions of the notes to the resource account (and Estimate)
to record proposed and actual expenditure against the main EC
programmes.
Notes to the Estimates
I am afraid that we are not yet in a position
to provide detail on what will be incorporated within the notes
to the Estimates. We are awaiting further guidance from the Treasury.
This is another issue that should be resolved over the next few
months.
Estimates. Clarification of the bottom line totals
The operating cost statement from the draft
resource account that was provided in support of the draft Estimate
did not clearly explain the derivation of the bottom line totals.
An explanation is provided in the notes to the revised resource
accounts. We could provide a similar level of detail in the notes
to the published Estimates if you would find this useful (bearing
in mind the figures in the draft are indicative only).
Resource account. Exclusion of assets
You queried the justification for excluding
from DFID's balance sheet assets purchased from the programme.
This assertion is not quite right. We only capitalise those assets
used in the administration of the aid programme. The vast majority
of such assets are funded from the running costs budget although
some, specifically those used in the administration of Field Management
Officers, are financed from the programme. The accounting concept
of substance over form supports the policy of not capitalising
assets to which the benefits of ownership will accrue to the aid
recipient. For example it would be difficult to justify showing
in DFID's balance sheet (and the "Whole of Government Accounts")
the value of items purchased for a particular project that will
remain with the project following completion. Such items are,
however, subject to inventory control for the duration of the
project. Given the disparate nature of our operation, you will
also appreciate the practical difficulties associated with attempting
to collate information on such items.
Resource Account. Valuation of property
You queried the basis of valuation and whether
the notes should draw any distinction between valuation on the
basis of open market value and depreciated replacement cost. As
you are aware, we own very little property (Abercrombie House
and five domestic houses overseas). Our properties are professionally
valued at least every five years on the basis of their open market
value and depreciated over their useful life as professionally
assessed. Note 11 to the account therefore records in respect
of freehold buildings both the open market value (cost) and the
depreciated replacement cost (net book value). Any subsequent
revaluation will be off set by an entry in the revaluation reserve
account. In light of your query we can clarify this in the notes
to the account if you wish.
Commonwealth Development Corporation
You asked for copies of CDC's annual report
and accounts for the past five years. Arrangements to supply these
are in hand.
Resource Account. Uncalled capital subscriptions
The position on the valuation of DFID's share
in International Financial Institutions (IFI) has changed since
we sent you the draft account in May. The shareholdings in IFI
are now calculated on the basis of the value of the institution's
equity (as per their latest audited balance sheet) divided by
the number of UK shares. This methodology has been agreed with
the NAO and Treasury. Uncalled capital subscriptions are accounted
for as contingent liabilities which appear as a note to the account
rather than in the Balance Sheet.
Resource Account. Accruals information
You sought an explanation as to why DFID was
unable to collect "comprehensive information on accruals"
(as per the notes). We will need to look at the drafting of this
section which, as currently written, refers only to the bilateral
aid programme. Full accruals information will be obtained in respect
of multilateral and administrative expenditure. The problem arises
in collecting accruals information in respect of the 2,500 or
so live projects that we have world-wide. It is not really practical
to do this. As a proxy we have agreed a methodology with the NAO
for estimating the amount. We will make this clear in future versions
of the notes.
Resource Account. Inconsistent terminology
You note the inconsistency between sections
of the notes to the resource account and the Departmental Report
with regards to NDPBs. We need to amend paragraph 1.2 to make
it clear that although we are responsible for CDC and the Crown
Agents Holding and Realisation Board we do not incorporate them
within a set of consolidated accounts because, amongst other things,
both have a high degree of autonomy, prepare their own accounts
and DFID is not in a position to exercise in year budgetary control
over them. Rather, we show the Government's share of both bodies
on the asset side of the balance sheet.
Mr Colin Raynor, Finance Office, Department for
International Development
November 1999
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