Select Committee on Treasury Minutes of Evidence


APPENDIX II

STATEMENT OF ACCOUNTING OFFICER RESPONSIBILITIES

  1.  Under Section 5 of the Exchequer and Audit Act 1921 [in the future under the Government Resources and Accounts Act 2000] the Ministry of Agriculture, Fisheries and Food is required to prepare resource accounts for each financial year, in conformity with a Treasury direction, detailing the resources acquired, held, or disposed of during the year and the use of resources by the department during the year.

  2.  The resource accounts are prepared on an accruals basis and must give a true and fair view of the state of affairs of the Ministry, the net resource outturn, resources applied to objectives, recognised gains and losses and cash flows for the financial year.

  3.  The Treasury has appointed the Permanent Head of the Ministry of Agriculture, Fisheries and Food as Accounting Officer of the Ministry with responsibility for preparing the Ministry's accounts and for transmitting them to the Comptroller and Auditor General.

  4.  In preparing the accounts, the Accounting Officer is required to comply with the Resource Accounting Manual prepared by the Treasury, and in particular to:

    —  observe the relevant accounting and disclosure requirements, and apply suitable accounting policies on a consistent basis;

    —  make judgements and estimates on a reasonable basis;

    —  state whether applicable accounting standards, as set out in the Resource Accounting Manual, have been followed, and disclose and explain any material departures in the accounts;

    —  prepare the accounts on a going concern basis.

  5.  The responsibilities of the Accounting Officer, including responsibility for the propriety and regularity of the public finances for which the Accounting Officer is answerable, for keeping proper records and for safeguarding the Ministry's assets, are set out in the Accounting Officers' Memorandum, issued by the Treasury and published in Government Accounting.

NOTES TO THE ACCOUNTS

1.  Statement of Accounting Policies

  The financial statements have been prepared in accordance with the Resource Accounting Manual issued by HM Treasury. The particular accounting policies adopted by the Ministry are described below. They have been applied consistently in dealing with items which are considered material in relation to the accounts.

1.1  Accounting Convention

  These accounts have been prepared under the historical cost convention, modified to account for the revaluation of fixed assets at their value to the Ministry by reference to their current costs.

1.2  Basis of Consolidation

  The Ministry accounts comprise a consolidation for the core-Department and its on-vote Agencies; Farming and Rural Conservation Agency (FRCA), Central Science Laboratory (CSL), Veterinary Laboratory Agency (VLA), Veterinary Medicines Directorate (VMD), Pesticides Safety Directorate (PSD), Meat Hygiene Service (MHS) and the Centre for Environment, Fisheries and Aquaculture Science (CEFAS). The Agencies also each produce and publish their own annual report and accounts.

1.3  Grants and Subsidies

  Expenditure on grants and subsidies, partly or fully funded by the EU, are accrued where the claims have met all the conditions appertaining to the particular scheme but have not been paid. The element of the expenditure that is reimbursable by the EU is taken as accrued income.

  The Treasury Resource Accounting Manual requires that the expenditure should be recognised as close as possible to the underlying event or activity that gives rise to a liability. In respect of the livestock schemes the underlying event or activity is deemed to be the completion of the livestock retention period and for the arable schemes the delivery of the harvest. The underlying event for other schemes is date of approval of the claim.

  By the very nature of the size of the Common Agricultural Policy, this will lead to a large creditor for money owed to the farming community and debtor for money owed by the EU.

1.4  Tangible Fixed Assets

  (a)  Title to the freehold land and buildings shown in the accounts is held as follows:

    (ii)  Property held by the Department of the Environment for which the Ministry assumed responsibility on 1 April 1996 as major occupier and therefore shown in the Balance Sheet.

  (b)  Freehold land and buildings have been included on the basis of professional valuations with subsequent indexation using relevant indices. Plant, equipment, fixtures, fittings, IT equipment, vehicles and vessels have been restated using the appropriate indices. The minimum level for capitalisation in the core-department accounts and agencies is as follows:


£

Core department
2,000
CSL
2,000
CEFAS
2,000
FRCA
3,000
PSD
2,000
MHS
2,000
VLA
3,000
VMD
500


  (c)  Internally developed computer software has been capitalised in accordance with Treasury instructions as a tangible asset and included with IT Equipment.

1.5  Intangible Fixed Assets

  The Ministry holds a number of licences and copyrights but the income from these is of a minor nature and they have not been capitalised. Should the income from these licences and copyrights increase to be of a material amount then capitalisation will be recognised. In addition, the Ministry holds various software licences which have been capitalised.

1.6  Depreciation

  Freehold land is not depreciated. Depreciation is provided at rates calculated to write-off the valuation of freehold buildings and other tangible fixed assets by the straight line method over the estimated useful life of the asset and is charged in the month of disposal but not in the month of purchase. Depreciation is not charged on investment properties, assets declared surplus and for sale and assets under the course of construction. Lives are normally in the following ranges:


Freehold Buildings5 to 60 years
Plant, Office, Scientific, IT equipment 3 to 15 years
Fixtures and Fittings5 to 10 years
Vehicles4 to 15 years
Vessels20 years

1.7  Stocks and Work-In-Progress

  (a)  CEFAS, CSL, FRCA and VLA hold stock levels material to their business and are brought into the consolidated accounts at the lower of cost, or where materially different, at current replacement cost, and at the net realisable value only when they cannot or will not be used. Core-MAFF holds a small stock of items to assist with the work of the Animal Health and Veterinary Group.

  (b)  Work-in-progress is valued at the lower of cost and net realisable value.

1.8  Research and Development

  Expenditure on Research and Development is treated as an operating (programme) cost in the year in which it is incurred. Fixed assets acquired for use in R&D are depreciated over their useful life in accordance with the asset category to which they belong.

1.9  Operating Income

  Operating income is shown net of value added tax and comprises fees and charges for services provided to external customers, agencies and Public Sector repayment work on a full-cost basis and receipts from the European Union.

1.10  Administration and Programme Expenditure and Income

  The Operating Cost Statement is analysed between Administration and Programme costs, together with associated operating income. Administration costs reflect the costs of running the Ministry. Programme costs reflect non-administration costs, including payments of grants, subsidies and other disbursements by the Ministry.

1.11  Capital Charges

  A charge, reflecting the cost of capital utilised by the Ministry is included in the operating costs. The charge is calculated at the Government's standard rate of six per cent on all assets less liabilities, except Donated Assets and funds held by the Office of the Paymaster.

1.12  Foreign Exchange

  Revenue and expenditure incurred in foreign currencies are translated at the rate of exchange ruling at the date of the transaction. Balances held in foreign currencies are translated at the rate of exchange ruling at the balance sheet date.

1.13  Pensions

  The majority of present and past employees are covered by the provisions of the Principal Civil Service Pension Scheme (PCSPS) which is non-contributory and unfunded. Although the Scheme is a defined benefit scheme, liability for payment of future benefits is a charge to the PCSPS. Departments, agencies and other bodies covered by the PCSPS meet the cost of pension cover provided for the staff they employ by payment of charges calculated on an accruing basis. There is a separate statement for the PCSPS as a whole. However, the majority of the members of the Meat Hygiene Service transferred from local authorities on the founding of the Agency are members of the Local Government Pension Scheme Regulations 1995 and administered by the London Pensions Fund Authority (LPFA).

1.14  Early Departure Costs

  The Ministry is required to meet the additional costs of benefits beyond the normal PCSPS benefits in respect of employees who retire early. The Civil Service White Paper "Continuity and Change (Cm2627)" published in July 1994 announced new arrangements for funding early departure costs of civil servants departing between 1 October 1994 and 31 March 1997. Under these arrangements, 20 per cent of the cost will normally be borne by Departments and the remaining 80 per cent, which would otherwise fall on departments' running costs, will be made up centrally from the Civil Superannuation Vote.

  Government policy is to include the full cost of a department's activities in its accounts even where, as in this case, some of the costs are borne elsewhere in Government. Normal accounting practice is to provide for the full cost of early departure of employees in the year in which the early departure decision is made. However, for departures covered by the 80:20 arrangements, such treatment would not reflect the 80 per cent of the costs which will be borne by the Civil Superannuation Vote rather than the department. Consequently, the Treasury issued a direction that, whereas the 20 per cent element borne by the Department should be charged to the Operating Cost Statement immediately and taken to provision on the balance sheet, the annual payments from the Civil Superannuation Vote in respect of the 80 per cent element should be reflected (as notional costs) in the departments' Operating Cost Statement when actually paid.

  From 1 April 1997 the 80:20 arrangements ceased for newly retired staff with the department taking full responsibility for the full costs of this revised policy.

  The Ministry may, in certain circumstances, settle some or all of its liability in advance by making a payment to the Paymaster General's account at the Bank of England for the credit of the Civil Superannuation Vote. The amount provided is shown net of any such payments.


 
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