Select Committee on Treasury Minutes of Evidence


APPENDIX I

ILLUSTRATIVE ESTIMATES AND OUTTURN STATEMENTS FOR THE DEPARTMENT OF SOCIAL SECURITY IN RESPECT OF 1998-99

This Appendix contains illustrative resource-based Main and Supplementary Estimates and outturn statements for the Department of Social Security (DSS).

  2.  The illustrations build on data provided by DSS for the 1998-99 "live test" of in-year monitoring and control under RAB and on outturn statements prepared for dry run audit by the NAO as part of the Trigger Point 3 assessment. The illustrations reflect the public expenditure control framework announced by the Treasury in June 1998, and take account of the arrangements for introducing resource budgeting in the 2000 Spending Review (SR2000) announced in December 1999.

  3.  The following illustrative documents are attached to this Appendix:

    I.  Illustrative resource based Main Estimate for 1998-99.

    II  Illustrative resource based Spring Supplementary Estimate for 1998-99.

    III.  Ilustrative outturn statements for 1998-99.

  4.  The following paragraphs discuss some key points which have emerged from the preparation of the illustrative resource based Estimates and accounts. In addition, some of the points covered below have been included to exemplify issues discussed elsewhere in this Memorandum.

ILLUSTRATIVE MAIN ESTIMATE

  5.  As with the MAFF illustrations at Appendix II, the illustrative DSS Resource Estimates reflect the standard-formats set out in earlier Treasury Memoranda, taking account of certain changes made following discussions with the NAO, referred to above, such as the inclusion of a "gross total" column in part II of the Estimates. The formats also take account of the arrangements for conducting SR2000, involving the inclusion of the large new non-cash items of resource budgets in AME rather than DEL for a transitional period.

  6.  It is envisaged that there will be four RfRs for DSS, replacing the three current cash-based DSS Votes. The transitional budgeting arrangements have an impact only on RfR1 of the illustrative DSS Estimate. No Parliamentary limits are affected.

  7.  Beneath the level of the RfR, the Estimate is broken down into functional lines at broadly the same level as the sectional lines currently contained in DSS' cash Votes. Whilst the resource based format does not map precisely to the existing cash based Vote structure, it offers clearer and more meaningful information on DSS' activities.

  8.  Comparisons between DSS' cash based 1998-99 Estimates and the attached illustrative resource based Estimates also need to take account of the following factors:

    —  during 1998-99, responsibility for the Contributions Agency was transferred from DSS to the Inland Revenue. DSS decided with NAO agreement, that the Contributions Agency should be excluded from the 1998-99 dry-run resource account in order to present the best picture of the department's activities. Accordingly, to ensure comparability, the Resource Estimates have been adjusted to match the coverage of the resource accounts. As that was not the case with the published cash Estimates, differences arise in respect of some figures;

    —  during 1998-99, the department transferred its freehold and historic leasehold properties to the private sector under a Private Finance Initiative contract. The department received £250 million from the contractor which has been treated in the Resource Estimate as non-operating AinA as it relates to the sale of land and buildings;

    —  cash Estimates do not, of course, include figures for items which are resource only in nature, such as depreciation, cost of capital and auditors' fees.

  9.  The Ambit included in the illustrative Resource Estimates is provisional. As noted in the Treasury's July 1999 Memorandum, the Treasury is currently reviewing resource based Ambits across departments generally against a detailed set of criteria, with a view to ensuring greater clarity and consistency.

  10.  Prior year figures have not been included in the illustrative Estimates as these are not available on a resource basis, except at an aggregate level, for 1997-98. As with the MAFF illustration at Appendix II, VAT is treated on a resource accounting basis in the illustrative DS Estimates, with expenditure shown net of VAT except where VAT is irrecoverable. CFERs are shown in Part III of the Estimate on both a cash and an accruals basis.

  11.  A forecast Operating Cost Statement, forecast Cash Flow Statement and forecast reconciliation between Net Operating Cost, Net Resource Outturn and Resource Budget Outturn are included alongside the Main and Supplementary Estimates, to show a fuller picture of the DSS' activities for the year in line with the outturn detail provided in the dry run resource accounts. This represents a significant increase in the information available with the Estimates, and ensures that differences between resources voted through Supply and activities outside the scope of Supply are more transparent than under cash accounting.

  12.  Further detail of these differences is provided later in this Appendix. Estimates will, once RAB is fully implemented, also be accompanied by other supporting information, some of which will be provided at Trigger Point 4 alongside departments' shadow Resource Estimates for 2000-01.

ILLUSTRATIVE SPRING SUPPLEMENTARY ESTIMATE

  13.  DSS presented a cash Spring Supplementary Estimate in 1998-99. In the cash Spring Supplementary, additional cash was sought for Vote 1 (broadly equivalent to RfR3 in the Resource Estimates) and a token cash amount was requested for Vote 3 (broadly equivalent to RfR1 in the DSS Resource Estimates). As can be seen from the attached illustration, a Spring Supplementary Estimate would also have been presented if resource-based Supply had been in place.

  14.  In DSS' illustrative resource-based Spring Supplementary Estimate, it is envisaged that additional resources would have been sought for both RfR1 and RfR3, as well as for the department's net cash requirement:

    —  the additional £8,471,000 net resources sought for RfR3 mainly arose as a result of a transfer from the Department for Education and Employment (DfEE) in respect of Youth Training Bridging Allowance for JSA Severe Hardship Payments made to young people who would otherwise be eligible to receive a Bridging Allowance from DfEE, although some other actions also had an impact. The additional amount requested was not, as was the case in the cash Estimate, offset by AinA. Under RAB, AinA scores on an income accrued basis and the receipts which were scored in the cash Estimates arose from the recovery of overpayments of benefit which are not classified as accrued income. The Resource Estimate takes account of such receipts by reducing the debtor balance held on the DSS balance sheet;

    —  the £71,695,000 increase in the department's net cash requirement reflects the cash implications of the resource changes outlined above in relation to RfR1 and RfR3. Of particular interest is the impact of receipts collected as a result of the recovery of overpayments of benefit against RfR3. Under cash, these amounts would have been identified for the first time in the Supplementary Estimate at the point at which they were repaid and treated as cash receipts to be AinA's against the Vote. Under RAB, however, debtor amounts in respect of such overpayments will have been shown on the departmental balance sheet since they were identified, and the collection of cash receipts in respect of them will result in a reduction in debtor balances held by the department which, in turn, will amend the working capital figures in the accruals to cash reconciliation in the Estimate to take account of the cash received.

  15.  The "changes proposed" table shown above Part II of the illustrative Supplementary Estimate shows the movement and changes in relation to the functional lines affected within RfR1 and RfR3 and changes in capital and cash requirements are also shown. No change in non-operating AinA income was anticipated in the Spring Supplementary.

  16.  As with the illustrative Main Estimate, significantly more information compared with that shown in cash Estimates is provided about CFERs in Part III of the Estimate and about DSS' plans for expenditure in the year in the accompanying forecast OCS, cashflow statement and reconciliation note.

ILLUSTRATIVE OUTTURN STATEMENTS

  17.  In addition to the illustrative Main and Supplementary Estimates contained in this Appendix, illustrative outturn information for DSS has also been provided. This comprises:

  18.  Dry run resource accounts for 1998-99 have been produced by DSS for TP3 and have been subject to a dry run audit by the NAO. The accounts were prepared using the same data as that used in the attached illustrations but were in a different format, principally because they needed to reflect the format of existing cash-based Votes rather than the planned resource-based RfR structure.

  19.  The NAO's TP3 audit work identified some issues in respect of the preparation of DSS' balance sheet in relation to assets and liabilities for programme expenditure using the department's existing benefit payments systems and methods of payment. The issues identified in the resource accounts are not new and have also arisen in relation to accounting for cash in this area. The result is that there is a possibility that the balance sheet numbers in the attached illustration could change, with implications for DSS' on resource-based Estimates. DSS has been working closely with the Treasury in this area and it is felt that the figures provide a sufficiently reliable basis for the preparation of resource budgets and Estimates.

  20.  As with the MAFF illustrations at Appendix II, the prior year figures shown in the accounts are illustrative and have not been subject to audit, since 1997-98 did not form part of NAO's TP3 audit programme.

  21.  Issues which have been identified by the NAO in their dry run audit have no bearing on the value of the attached illustrations which seek to demonstrate the level and type of information which will be contained in resource accounts, and how data will flow through during the year from resource based Main and Supplementary Estimates to an illustrative resource account using "real" data for a "real" department.

  22.  As indicated above, the figures and formats used in this illustration differ from those used in the DSS dry run resource accounts which are being submitted to the Social Security Select Committee. As well as differences arising as a result of a four RfR structure, differences may also arise as a result of the introduction of comparisons with Estimate figures which were not included in the dry run resource accounts.

Schedule 1

  23.  Schedule 1, the Summary of Resource Outturn, is a schedule included with resource accounts to show outturn against the voted element of the account and which provides a comparison with Estimate figures in relation to resource expenditure at the level of the RfR1, capital expenditure and the overall net cash requirement. Schedule 1 also provides explanations of variances between outturn and Estimate. Any breach of voted limits would be clearly identified here in respect of either resources or cash excesses. In addition, a more detailed comparison of outturn and Estimate data at the functional line level is provided in note 8 to the accounts.

  24.  The variation between non-operating AinA outturn and Estimate which is evidence in Schedule 1 of the attached illustration is due to the receipt from the transfer of freehold and leasehold properties to the private sector under a PFI contract being treated as non-operating cost AinA in the Estimate but as income in the accounts. There is a corresponding variation of operating AinA shown for RfR1. Subsequent to the production of the Estimates, the buildings were considered to be the property of the Crown and accounting rules therefore dictated that the receipt must be shown as income in the OCS rather than as the sale of a fixed asset. The NAO agreed with the accounting treatment and it has therefore been followed in the outturn statement of this illustration.

Schedule 2

  25.  Schedule 2 comprises the Operating Cost Statement (OCS) and the Statement of Recognised gains and losses (SRGL). The OCS shows resources consumed during the year in support of the department's administration and programme expenditure net of departmental income financed by the Consolidated Fund and the National Insurance Fund. 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.

  26.  As can be seen from the illustrative documents attached, there are three totals at the foot of each operating Cost Statement:

    —  "Net Operating Cost", which is derived from the Operating Cost Statement and is the total of departmental current expenditure on an accruals basis within the departmental boundary defined in the Resource Accounting Manual (RAM). This total, therefore, contains expenditure financed from sources other than Supply, such as the national Insurance Fund, as well as from the Consolidated Fund and includes some income which will be treated as Consolidated Fund Extra Receipts;

    —  "Net Resource Outturn", which is the sum of current resources voted to the department. The figure is thus equal to the total net resources shown in Part II of Estimates and in Schedule 1; and

    —  "Resource Budget Outturn", which is the sum of current resources on an accruals basis which are managed by the Treasury in its budgeting process. The Resource Budget Outturn figure is split, for information, into DEL and AME components which are managed by the Treasury in different ways.

  27.  The main differences between Net Operating Cost and Net Resource Outturn for DSS result from the way in which expenditure financed by the NIF is shown. In Parts I and II of Estimates and Schedule I of the accounts, payments to the DSS from the NIF in respect of administration costs incurred by the DSS are treated as AinA income, while in both forecast and outturn OCS they are treated as a source of financing. Further information about the NIF and its relationship with the DSS accounts is provided in the illustrative Note 1 attached.

  28.  The resource budget only contains items which form part of the departmental programme. Therefore, welfare to work expenditure, which forms part of a central budgeting programme, is not included in the DSS resource budgeting total. Both Supply and non-Supply expenditure are included. The treatment of the DSS' non-departmental public body (NDPB) is slightly different in the resource budget compared to treatment in the resource accounts. As the budgeting structure takes into account all public sector expenditure and not just departmental expenditure, the scope of the resource budget is wider than for the accounts and thus includes NDPBs as though they were part of the department, so that capital expenditure by the NDPB forms part of the DSS capital budget rather than its resource budget.

  29.  A full reconciliation between the three totals at the foot of the OCS is included in both Resource Estimates and resource accounts. An example can be found at note 7 to the attached illustration.

  30.  Other points worth noting on Schedule 2:

    —  irrecoverable VAT is charged to the operating cost statement or, in the case of asset purchases, is included in the capitalised purchase cost of the asset;

    —  CFERs shown at the base of Schedule 1 and in Part III of Estimates do not form part of the operating income in the OCS. Only negative public expenditure CFERs and revenue CFERs which relate to the recovery of costs recorded in the operating costs statement or to returns on investments are included in departmental Operating Cost Statements, neither of which apply to the DSS.

Schedule 3

  31.  Schedule 3, or the Balance Sheet, shows the assets and liabilities held by the department at the year end which are represented by taxpayers' equity. From the illustration it can be seen that the DSS had net assets valued at £994,994,000 on 31 March 1999. Further details of the items which make up the department's asset holdings would be included in the notes to the accounts.

Schedule 4

  32.  Schedule 4 is a cash flow statement which analyses cash inflows, outflows and changes in balances for the department for the year. The Statement analyses the net cash flow in respect of both operating activities and capital expenditure, and shows how the net cash flow has been financed.

Schedule 5

  33.  Schedule 5 is a statement of resources by departmental objectives. The Statement attributes DSS' costs to their objectives reconciling to the Net Operating Cost total. This Statement therefore allows DSS expenditure to be analysed in a second way, showing a different disaggregation to that used in the Operating Cost Statement.

Statement of Accounting Officer Responsibilities

  34.  A Statement of Accounting Officer Responsibilities (SAOR) for the DSS has been prepared in line with illustrative version shown at Annex C to this Memorandum. A description of Accounting Officer responsibilities will also be included in the explanatory notes to Resource Estimates.

  35.  Although the SAOR is included with the illustration for completeness, it is not fully operational at this stage as AO responsibilities for resource accounts will only come fully into play once the Government Resources and Accounts Bill, currently before Parliament, is passed and Accounts Directions have been given to departments.

Notes to the Accounts

  36.  The DSS illustration provides selected notes to the outturn statements. A full set of accounting notes on the basis of the RAM is included in the set of DSS resource accounts being submitted to the Social Security Select Committee. The notes included with the illustration comprise: a statement of departmental accounting policies; a reconciliation of net operating costs to net resource outturn and resource budget outturn; analysis of net resource outturn and net operating cost by function, and an analysis of capital expenditure, financial investment and associated AinA.

  37.  The analysis of net resource outturn and net operating cost by function note effectively shows the detailed outturn against Resource Estimate for the year. As noted earlier in this Annex, two new columns have been inserted into this note to show Estimate figures and variance between outturn and Estimate against each functional line. It is hoped that these additional lines will provide a clearer analysis of outturn against Estimate provision.

  38.  Associated notes for the core DSS operations are not provided with this illustration, but will form part of the resource accounts produced by the department under RAB. Examples of core department notes are included in the MAFF illustration at Appendix II.


 
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