Select Committee on Treasury Minutes of Evidence


APPENDIX II

ILLUSTRATIVE ESTIMATES AND OUTTURN STATEMENTS FOR THE MINISTRY OF AGRICULTURE, FISHERIES AND FOOD IN RESPECT OF 1998-99

  This Appendix contains illustrative resource-based Main and Supplementary Estimates and outturn statements for the Ministry of Agriculture, Fisheries and Food (MAFF).

  2. The illustrations build on data provided by MAFF for the 1998-99 of "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)  Illustrative 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, and are intended to complement the commentary on the DSS Estimates and accounts at Appendix 1. 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 DSS illustrations at Appendix I, the structure of MAFF's 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 a single Request for Resources (RfR) for MAFF, replacing the single cash-based MAFF Vote, The functional breakdown of the RfR is broadly similar to the Vote structure breakdown that is in place for MAFF at present. The transitional budgeting arrangements increase the number of functional lines in the MAFf Estimate, but do not affect any Parliamentary limits.

  7.  The process of preparing illustrative Resource Estimates has highlighted the differences in coverage and treatment between cash-based and resource-based Estimates. These need to be borne in mind in attempting to make a detailed comparison of figures in the two sets of documents.

  8.  For example, apart from capital charges and depreciation, there are a number of other items which appear in resource based Estimates and accounts which are not included in their cash based counterparts, eg provisions for early departure costs, gains and losses on disposal of fixed assets and impairments. Also, the nature of accruals accounting is such that some items will score at different points in different time periods to the associated cash payments and receipts.

  9.  It is also worth noting that, in order to ensure consistency of treatment, the Resource Estimates and outturn statements have been adjusted by comparison with the equivalent cash based documents to take account of the treatment of VAT under RAB. Under RAB, it is intended that, as set out in the Resource Accounting Manual (RAM), accounting for VAT should be brought into line with the relevant Accounting Standards (SSAP5). As the RAM indicates, most activities of government departments are not "businesses" for VAT purposes and are therefore outside the scope of the tax. However, in order to avoid distortion of competition, departments may, under direction from the Treasury, recover VAT in respect of:

    —  specified services concerned with contracting out.

  10.  In that way VAT is, so far as possible, applied in the same way to government departments as to ordinary traders. The treatment of VAT in the attached illustration is in accordance with the RAM outlined above, in that amounts are shown net of VAT except where VAT is irrecoverable. Irrecoverable VAT has been charged to the operating cost statement or, in the case of asset purchases, is included in the capitalised purchase cost of the asset.

  11.  The Ambits included in Part I of the illustrative Main and Supplementary Estimates are 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.

  12.  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.

  13.  Forecast Operating Cost Statements and Cashflow Statements are included with the Main and Supplementary Illustrative Estimates, to show a fuller picture of the MAFF activities for the year in a format consistent with the outturn detail provided in the dry run resource accounts. As noted in the DSS illustration at Appendix I, Estimates will, once RAB is fully implemented, also be accompanied by other supporting information.

ILLUSTRATIVE SPRING SUPPLMENTARY ESTIMATE

  14.  MAFF presented a cash Spring Supplementary Estimate in 1998-99. As can be seen from the attached illustration, a Spring Supplementary Estimate would also have been required if resource based Supply had been in place.

  15.  The illustrative Spring Supplementary Estimate is for additional net resources of £28,836,000 and additional cash of £35,518,000. These increases arose mainly as a result of increased support measures for farmers. In addition, changes arose due to the take-up of EYF and transfers from other government departments as a result of the BSE inquiry.

  16.  In the illustration, an increase in capital expenditure is shown which relates to take-up of capital EYF by the department. Under RAB, such EYF take-up will involve consideration of the impact of the increased capital expenditure on the capital charge figures associated with the consumption of the additional assets purchased. Thus departments need either to assign resources from within their existing current expenditure allocations or take up sufficient current EYF provision to cover the addtional capital charge. The capital charge increase associated with the increased capital expenditure in the Supplementary Estimate was deemed to be assigned from within existing current expenditure provision.

ILLUSTRATIVE OUTTURN STATEMENTS

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

    —  Schedule 2—Operating Cost Statement and Statement of Recognised Gains and Losses.

    —  Schedule 3—Balance Sheet.

    —  Schedule 4—Cashflow Statement.

    —  Schedule 5—Resources by Departmental Objectives.

    —  Statement of Accounting Officer Reponsibilities.

    —  A selection of notes to the accounts, complementing those in Appendix I, which further demonstrate the wealth of information that will be available about departmental activities under RAB.

  18.  Dry run resource accounts for 1998-99 have been produced by MAFF 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 illustration but some figures and formats used may differ, as a result both of differences in timing in terms of their production, and of linkages with Estimate figures which were not included in the dry run resource accounts but do inform the attached illustration.

  19.  As noted in Annex A, the NAO's TP3 audit work identified some outstanding issues in respect of the prepation of MAFF's dry run resource accounts. In addition, MAFF's Schedule 5 was not complete in time for NAO audit at TP3, and the Schedule 5 included with this illustration is therefore unaudited. The result is that some of the figures in the illustration may be subject to review as corrections are made to underlying balances held in some areas. The figures are, however, sufficiently reliable to inform this illustration, which is intended to demonstrate the level and type of information which will be contained in resource accounts and to show 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.

  20.  As with the DSS illustrations at Appendix I, 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.

Schedule 1

  21.  Schedule 1 provides a comparison of Outturn figures with Estimate figures and identifies any breaches in Parliamentary limits. In a full set of resource accounts more detailed comparison data would also be provided in the notes to the accounts.

  22.  The variation between non-operating AinA outturn and Estimate shown in Schedule 1 below indicates a shortfall in the collection of non-operating income by MAFF for 1998-99. This arose as a result of MAFF delaying the disposal of a building beyond the end of the financial year which it had, at Estimates stage, planned to sell during the year. The concept of non-operating AinA does not apply under cash accounting and this shortfall would not therefore have been apparent in the Appropriation Accounts for 1998-99, although offsetting underspends in cash expenditure would have been needed to avoid an Excess Vote. If resource based Supply had been in operation in 1998-99, MAFF would have needed to find offsetting capital and/or cash savings to take account of the shortfall in non-operating AinA income, so as not to breach the net cash requirement voted by Parliament in Estimates.

  23.  As noted earlier in this Memorandum, prior period adjustments are disclosed on the face of Schedule 1 in the form of a specific reference in the explanation of variation box, and are included as part of current year outturn to ensure that Parliamentary authority is provided. Consistent with this, a prior period adjustment has been made in the attached illustrative Estimate as a result of a £1,624,000 addition to the MAFF balance sheet in respect of items which should have been included as at 31 March 1998. This adjustment, which has no cash implications, relates to a capital expenditure item and therefore has no impact on the department's resource requirement. Such adjustments are likely to occur very infrequently once RAB is fully in operation, though such changes are liable to occur during the early transitional period as departments identify, record and value all items to be included on their balance sheets.

Schedule 2

  24.  Schedule 2 comprises the Operating Cost Statement (OCS) and Statement of Recognised Gains and Losses (SRGL).

  24.  As with the DSS illustration, there are three outturn totals at the foot of the Operating Cost Statements. The differences between these three totals reflect the different coverage of Accounts, Estimates and Budgets and, in the case of MAFF, mainly result from differences in the scoring of non-voted expenditure, EU receipts and CFERs.

  26.  As can be seen from the explanatory note at the foot of the statement, the SRGL includes the impact of prior year adjustments.

Schedule 3

  27.  Schedule 3, the Balance Sheet, shows the assets and liabilities held by MAFF at the year end which are represented by taxpayers' equity. From the attached illustration it can be seen that MAFF had net asset holdings of £427,681,000 at 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

  28.  Schedule 4, the Cashflow Statement, analyses cash inflows and 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.

  29.  Payments of CFERs to the Consolidated Fund are shown in the cashflow statement. These include CFERs which were received too late in financial year 1997-98 to be paid across to the Consolidated Fund but were instead paid across in 1998-99. It can also be seen that some CFERs have been retained by MAFF at the end of 1998-99, again as a result of their having arrived in the department too late to have been paid across to the Consolidated Fund in the year. The receipt and payment of CFERs has no impact on the amount of cash which comprises the net cash requirement voted by Parliament and which is required to fund the department's net outgoings for the year.

  30.  It is worth noting here that, unlike CFER income and receipts, the CFER payments shown in the cashflow statement do not appear in Schedule 1. Also, the "Excess cash to be CFER'd" item shown in the reconciliation of resources to net cash requirement in Schedule 1 relates only to excess cash amounts in departments where income is normally expected to fully offset expenditure.

Schedule 5

  31.  Schedule 5 is a statement of resources by departmental objectives and shows a different allocation of expenditure to that used in the Operating Cost Statement.

Statement of Accounting Officer Responsibilities

  32.  A Statement of Accounting Officer Responsibilities (SAOR) for MAFF has been prepared in line with the illustrative version shown at Annex C to this Memorandum and is included with this illustration. However, the SAOR is not fully operational at this stage as AO responsibilities for resource accounts will only come fully into force once the Government Resources and Accounts Bill, currently before Parliament, is passed and Accounts Directions have been given to departments.

Notes to the Accounts

  33.  The MAFF illustration provides selected notes to the outturn statements. A full set of accounting notes prepared in accordance with the Resource Accounting Manual (RAM) is included in the set of MAFF resource accounts being submitted to the Agriculture Select Committee. The notes included with the attached illustration comprise: Statement of Accounting Policies; Tangible Fixed Assets; and Reconciliation of Net Operating Cost to Changes in the General Fund.

  34.  The Statement of Accounting Policies sets out the particular accounting policies that MAFF has adopted to produce the accounts. These policies are in line with the RAM.

  35.  Each of the further notes included in the illustration analyses data at both a consolidated Ministry level and a core department level. The Ministry analysis is in line with the consolidation used for the main financial Statements included in the illustration, whilst the Department analysis has a narrower scope and comprises only transactions which form part of the core department's activities (ie excluding on-vote Agencies).

  36.  The Tangible Fixed Assets note provides information about the assets held by MAFF at the start and end of the year. This note breaks down the total fixed asset figures held on the department's balance sheet showing asset groupings along with changes arising as a result of, for example, revaluations occurring during the year.

  37.  The Reconciliation of Net Operating Cost to Changes in the General Fund shows how the general fund balance held by MAFF has altered from that held at the last year-end. The main items that affect the General Fund are the cost of the department for the year excluding certain notional non-cash costs such as the cost of capital charge, and the funding from Parliament. In addition, there are a number of one-off adjustments to correct errors arising from the previous year and for the transfer of assets. Details of prior period adjustments made are also provided in the form of explanatory notes at the foot of both the Ministry and Department notes.


 
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