Annex E
FORMAT OF RESOURCE-BASED SUPPLY ESTIMATES
AND ACCOUNTS
This Annex contains, at Appendices I and II, further
illustrations of resource-based Main Estimates, Supplementary
Estimates and outturn schedules and selected notes, based on data
from the Department of Social Security (DSS) and the Ministry
of Agriculture, Fisheries and Food (MAFF) from the 1998-99 live
test of in-year monitoring and control under RAB.
2. A detailed commentary on the information
shown in the departmental illustrations, and the lessons learned
from producing them, is also provided at Appendices I and II.
The remainder of the introductory section of this Annex provides
further clarification and explanation of various matters related
to the structure and operation of resource-based Estimates, including
a number of issues raised by the National Audit Office (NAO).
FORMAT OF
RESOURCE-BASED
MAIN ESTIMATES
3. The basic format and operation of Resource
Estimates was set out in the Treasury's January 1999 and July
1999 RAB Memoranda. To recap on some key points which may require
clarification:
— Part II of the Estimate is split
between resource (ie current) expenditure and capital expenditure
sections. Voted limits apply to the net total resources column
and to the appropriations in aid (AinA) column at the level of
the Request for Resource (RfR), as well as to total non-operating
AinA and the net cash requirement at the departmental level. In
the illustrations at Appendices I and II, for example, DSS has
four RfRs and MAFF has a single RfR, in each case demonstrating
the level of Parliamentary control that will apply for these departments
under RAB. Movement between a department's RfRs would require
Parliamentary approval through a Supplementary Estimate.
— All figures contained in the Part
II matrix are shown on an accruals basis. A reconciliation from
the accruals-based totals is then provided, taking account of
non-cash items and working capital movements, to determine the
net cash requirement of the department.
4. The Estimate formats used in the illustrations
at Appendices I and II are broadly consistent with the examples
contained in the earlier Memoranda, with just one substantive
change. To meet a specific concern mentioned in the PAC's Sixty-seventh
Report, Session 1997-98: Resource Accounting and Resource-based
Supply (HC 731), a gross column has been included, for information,
as column 4 in the Part II matrix of the Estimate to denote the
sum of the gross amount of each line in the RfR contained in columns
1 to 3. Gross columns along these lines are shown in the examples
at Appendices I and II and will be included in the "shadow"
resource based Estimates for 2000-01 produced for Trigger Point
4.
5. It should also be noted that the inclusion
of the new non-cash elements of resource budgets in AME rather
than DEL for a transitional period, discussed earlier in this
Memorandum, will in some cases mean an increase in the number
of functional lines in the AME section of departments' RfRs, and
some departments will need to include AME sections in their RfRs
for the first time. However, following SR2002, when it is intended,
in the light of experience, that these items will be included
in DEL, there will no longer be a need for such transitional AME
lines.
RESOURCE-BASED
AMBITS
6. The Treasury's July 1999 Memorandum set
out the criteria governing the Ambits of resource-based Estimates.
These criteria will be used by departments in the "shadow"
resource based Estimates for 2000-01 produced for Trigger Point
4. The following paragraphs clarify certain aspects of the operation
of resource based Ambits in the light of various points raised
by the NAO. These issues are reflected in the illustrations at
Appendices I and II.
— The Ambit of Resource Estimates covers
capital expenditure associated with individual RfRs, as well as
current expenditure. This is the case whether a department has
a single RfR or more than one RfR in its Estimate.
— Taken together, the Ambit of the
Estimate also covers the voted net cash requirement of the department,
which represents the cash consequences of current and capital
provision contained in the Estimate for the year in question,
as well as for other years, where appropriate. This includes circumstances
where a department's net cash requirement for a particular year
contains cash payments for which no related resource consumption
occurs in the same year. In these circumstances, the service to
which the cash payments relate would be reflected in the Ambit
of the relevant RfR even though there would be no corresponding
functional line in the Part II matrix of the Estimate (thereby
preventing any unauthorised resource consumption being incurred).
This would be the case in relation both to cash associated with
current resource items and with capital items which had accrued
in a different financial year. In this way, legitimacy for the
cash expenditure would be conveyed through the inclusion of an
appropriate reference in the Ambit.
— These arrangements mean that there
is no need for a separate Ambit to cover cash or capital expenditure,
as the terms of the Ambit will ensure that statutory authority
is in place to allow all necessary payments to be made from the
Estimate.
— Ambits of Resource Estimates will
be on a functional basis, thereby providing a direct read-across
to the functional lines contained in the Estimate beneath the
level of the RfR. This ensures that there will be no loss of clarity
in Ambits or in the functional lines in the Part II matrix as
a result of the move to RAB, and therefore no relaxation on the
virement rules.
— The headings of individual RfRs (which
are broadly equivalent to Votes under cash-based Supply) will,
however, be objective-based where possible, to denote the broad
purpose of the expenditure covered by the RfR and to provide a
link between Schedule 1 of the accounts and the analysis by aim
and objective in Schedule 5. The wording of individual RfRs has
no implications for the Ambit of the Estimate or for the virement
rules under RAB which, as under cash-based Supply, relate to the
functional lines of the Estimate.
APPROPRIATIONS IN
AID IN
RESOURCE ESTIMATES
7. As noted above and in previous Treasury
Memoranda, all columns in the Part II matrix of resource-based
Estimates are on an accruals basis. Appropriations in Aid (AinA)
will thus be scored on an income basis under RAB, so that the
AinA figures voted by Parliament will relate to the accrual of
income rather than to the receipt of cash by the department. The
resulting cash flows will be tracked by departments in such a
way that, regardless of the year in which they arise and are applied
to meet cash requirements, they equal, over time, the amounts
authorised and reported on an accruals basis.
8. The AinA figures will be accounted for
as a full amount of revenues due, with any loss due to bad debts
being charged as expenditure against the current expenditure section
of the Resource Estimate. This treatment follows commercial practice,
and, as the NAO has noted, aids transparency and accountability.
It is also likely to provide appropriate incentives for departments
to ensure the recovery of any debts arising in relation to accrued
AinA income.
CASH AND
ANNUALITY
9. Under RAB, the fundamental principles
of Supply in relation to cash remain unchanged. While cash and
resource expenditure will not necessarily match each other precisely
in a given year, there will be a full reconciliation between the
two, and voted limits will apply to both in Resource Estimates.
10. Departments will be expected to manage
their cash flow under RAB in a way that is consistent with the
limits voted by Parliament. Only cash receipts which relate to
income that is accrued as AinA, either in the same year or in
a different year, can be used by the department to meet cash expenditure
in the year in which the cash is received.
11. If a department were to require additional
cash during a particular financial year, either to fund new expenditure
or to take account of changes to working capital which had not
been forecast at the start of the year, it would need to seek
Parliamentary approval through a Supplementary Estimate. Any unexpended
cash held by a department at the end of the financial year will
be treated as though it had been returned to the Consolidated
Fund and will be deducted from the amount available to be drawn
down from the Consolidated Fund in the following year. This will
ensure that the net cash requirement for any given year is not
exceeded. If, however, a department were to overspend in cash
terms during a financial year, an Excess Vote would be required,
as now. Thus the fundamental principle of annuality in relation
to cash is preserved under RAB.
12. It is conceivable that a self-financing
department which charges fees at a level which allows it to net
off income against expenditure (including any non-cash costs)
over a run of years, so that gross expenditure and AinA amounts
usually result in a token net amount, could—in certain years,
depending on working capital movements—be in a position
to surrender extra cash receipts to the Consolidated Fund. As
explained in the Treasury's January 1999 Memorandum, in order
to avoid what could otherwise, in those years, be a negative cash
requirement for the department, the excess cash amount would be
surrendered by the department to the Consolidated Fund as "Excess
cash to be CFER'd", shown in the accruals to cash reconciliation
box of the Estimate, thus bringing the net cash requirement to
a token £1,000.
13. While, as noted earlier, AinA will be
scored on an income basis under RAB, the Treasury's July 1999
Memorandum noted that Parliament might wish to be aware of the
total amount of cash which may be retained by a department in
a particular year to offset expenditure in the year due to its
relationship with income that has been or will be appropriated
in aid. That is why it is intended that a note to this effect
should be included in Resource Estimates. The ability of a department
to use this cash to finance expenditure applies in-year only,
however, and the cash may not be carried forward to be spent in
a future year and does not therefore affect the principle of annuality.
INFORMATION TO
SUPPORT THE
ESTIMATES
14. As noted in earlier Treasury Memoranda,
resource-based Main and Supplementary Estimates will contain forecast
operating cost and cashflow statements. Examples are shown in
the illustrative Estimates at Appendices I and II.
15. The core sections of Estimates, both
under cash and under RAB, show the voted element of a department's
business only, and do not take into account non-voted expenditure
and funding from sources outside the annual Supply process. By
including a forecast operating cost statement and cashflow Statement
within the Estimate, departments will be providing Parliament
for the first time with a more complete picture of forecast departmental
expenditure:
— the forecast operating cost statement
will show all income and expenditure forecast by the department
for the year that falls within the departmental boundary; and
— the forecast cashflow statement will
show all cash inflows and outflows for the department for the
year, even where the financing is from a source other than Supply.
16. Whenever a department presents a Supplementary
Estimate for approval, it will provide an updated forecast operating
cost statement and cashflow statement to ensure that the full,
department-wide, picture is presented alongside the implications
for the voted element of income and expenditure.
17. Inclusion of these forecast statements
is also valuable since they can be compared with the corresponding
outturn statements included in resource accounts. This will allow
departmental planning and forecasting to be better assessed both
in relation to voted expenditure and AinA and departmental expenditure
and income more widely, and in relation to cash payments, receipts
and working capital movements.
18. It is not intended, however, to include
a forecast balance sheet in the Estimate. The balance sheet is
not a record of flows in the way the other statements are, but
a snapshot of the assets held by a department at a particular
point in time. If a forecast balance sheet were included with
the Estimate, it would not add additional information that is
not more readily available elsewhere:
— forecasts of new capital acquisitions
can be seen in the capital column in Part II of the Estimate;
— forecasts for changes in stocks,
debtors and creditors are shown in the resource to cash reconciliation
box in Part II of the Estimate;
— disposals of capital items are shown
in the non-operating AinA column of the Estimate and are subject
to an aggregate voted limit which will be controlled by Parliament;
— information about existing capital
employed can be obtained by looking at outturn balance sheets
in departments' resource accounts that will already have been
presented to Parliament;
— departments provide more detailed
information about their future capital plans, utilisation of their
current asset base and the systems in place to ensure value for
money in their Departmental Investment Strategy; and
— for departments with significant
asset holdings where further information of a particular and distinct
type might be of value (perhaps to show projected changes in relation
to military stocks or hospital building programmes) this information
will be shown in a more accessible form in the relevant departments'
planning documents.
FORMAT OF
SUPPLEMENTARY ESTIMATES
19. The detailed format of, and procedures
for handling. Supplementary Estimates under RAB were set out in
the Treasury's January 1999 Memorandum. The format of the illustrative
Supplementary Estimates for DSS and MAFF shown at Appendices I
and II remains largely unchanged from the January 1999 Memorandum,
which included at Annex A Supplementary Estimate formats based
on Home Office data.
20. There are however some minor changes
to the headings used in the Part II tables of Supplementary Estimates
since the previous illustrations shown to the Committees, following
discussions with the NAO. In addition, as with resource-based
Main Estimates, a gross column has been included in the Part II
matrix to show the total expenditure against each functional line
prior to the subtraction of amounts to be appropriated in aid,
and a new line has been added to the "changes proposed"
table in Part II to show changes to capital expenditure. As with
the Home Office examples provided to the Committees in January
1999, the "changes proposed" table shows previous provision,
gross expenditure changes, AinA changes, net changes and the new
provision.
RELATIONSHIP BETWEEN
ACCOUNTS AND
ESTIMATES
21. In Appropriation Accounts, Estimate
figures are shown alongside outturn to reveal under and overspends
both at the whole Vote and more disaggregated levels, thereby
demonstrating how the composition of expenditure has varied in
relation to the Estimate. In previous resource account illustrations,
and in the existing version of the RA Manual, there is no such
detailed variance data provided in the relevant note to the accounts,
since it is possible to establish detailed variances between Estimate
and outturn by comparing the final Estimate Part II table with
the relevant notes to the accounts.
22. However, to ease comparison between
Estimate and outturn, the Treasury proposes, following discussions
with the NAO, to include in the relevant note to the accounts
two additional columns to show Estimate and variance figures alongside
the detailed net outturn data. An illustration of this revised
presentation is shown in the DSS example at Appendix I. The revised
presentation should help Parliament to see readily how the composition
of expenditure varies in relation to the Estimate.
23. As indicated in the illustrative examples
attached, the intention that variances between Estimate and outturn
should be shown at the RfR level on the face of Schedule I, along
with explanations of reasons for variances both to RfR totals
and to the net cash requirement, is unchanged.
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