Excess Votes 2009-10 - Public Accounts Committee Contents


Excess Votes in 2009-10

1. This Report is part of the framework of Parliamentary control over government spending. Resource-based Supply requires Departments to estimate and manage the financial resources needed during each financial year; on an accruals basis for commitments to provide services, and on a cash basis to meet commitments as they mature. Parliament authorises Departments' proposed cash spending and use of resources.

2. The resource-based Estimates reflect accruals and non-cash consumption of resources, such as depreciation, and a cash limit is also voted by Parliament. A breach of the total resource-based Estimates, or of cash limits, results in an Excess Vote. In 2009-10, Parliament granted total net resources of £502.4 billion and total cash of £518.1 billion in Supply Estimates to 56 Departments, pension schemes and other vote-funded bodies.[1]

3. Under the House of Commons Standing Order number 55(3)(c)[2], the Committee of Public Accounts scrutinises the reasons behind any individual Departments exceeding their allocated resources, and reports to the House of Commons on whether it has any objection to making good the reported excesses. Once the Committee has reported, HM Treasury presents the Statement of Excesses to Parliament, to be voted into the Appropriation Act in March. The passing of this Act authorises the additional grant by Parliament to regularise the excesses incurred by Departments.

4. Figure 1 shows the excesses incurred in 2009-10 by two Departments. In both cases, as neither Department has savings elsewhere that can be applied to the excess, Parliament is being asked to approve the additional resource.
Figure 1: Summary of 2009-10 Excess Votes required
Department
Resources
Cash
Excess

£
Amount to

be voted

£
Excess

£
Amount to

be voted

£

The Statistics Board

Excess Cash




251,000



251,000

Government Actuary's Department

Request for Resources 1: (Providing an Actuarial Consultancy service)

Excess Resources (with resulting breach to Administration Budget) [3]

Excess Cash





747,000




747,000






67,000






67,000

Total
747,000


318,000


The Statistics Board: Excess on Net Cash Requirement

5. As a Supply financed Department, the Statistics Board should draw down resources from the Consolidated Fund and use these to finance its activities. All payments made, whether or not the payments have cleared through the Board's Bank account during the period, are included in reporting the Board's Net Cash Requirement for the year.

6. On 31 March 2010, the Statistics Board processed a payment run of £251,000, despite having already spent the voted cash resource. This occurred due to the Statistics Board failing to adjust the available cash balance for payments which had been made but had not cleared the bank account. This resulted in a breach of the Net Cash Requirement by £251,000.[4]

7. A number of factors led to the payment run being authorised when it should not have been: weaknesses in the processes for the calculation of cash available; unfamiliarity with the Supply process; and a lack of timely review by management. Another contributory factor was changes to payment performance targets. In March 2010, the Government amended the target payment terms to suppliers from ten days to five days. As a result, the Board worked to pay as many creditors as possible before the year end.

8. Although the specific cash breach was caused by a failure of year end financial controls, there is also an ongoing risk around the management of Supply limits throughout the period. The cash management processes operating throughout the year meant that there was a real risk of exceeding the approved limits at year end. This risk materialised in 2009-10 and the management review processes failed to prevent the cash excess.

9. The Board has undertaken a number of actions to ensure that a similar event does not occur including increased awareness of the cash limit within the finance team, enhanced controls procedures and documentation, and an Internal Audit report to identify any further improvements. Management of financial resources will become even more important in 2010-11, particularly as the Statistics Board receives significant additional funding for the 2011 Census.

Government Actuary's Department (GAD): Excess on Request for Resource, Administration Budget and Net Cash Requirement

10. During autumn 2009, GAD became aware of an unexpected liability to an employee who has been on long-term sick leave since 2005-06. The former employee had been assessed as eligible for lifetime injury benefit payments, backdated to the start of his sickness absence, due to events that occurred prior to this date. Amounts paid out by the Department during 2009-10 as a result of this award totalled £186,510.

11. In accounting for future costs relating to this liability, GAD concluded that, at the balance sheet date, it had a "present obligation" arising from a "past event" under accounting standards to make future payments. GAD had estimated the future cost of the benefit payments to be £571,000, and created a provision in the accounts for this amount.[5]

12. It is the need to account for the costs relating to this one-off event that has led to the Resource Excess of £747,000, and the administrative nature of the provision also means that GAD breached its Administration Budget by £741,000. It was not possible for the Department to seek additional funds to cover this provision in the Spring Supplementary Estimates, as, at the date that the Estimate had to be submitted, uncertainties surrounding the timing and amount of the provision still existed.

13. GAD also breached its Net Cash Requirement by £67,000 as cash flow at the year end was insufficient to meet the Department's obligations and repay an advance from the Contingencies Fund in full.

14. As noted above, GAD incurred unexpected expenditure in relation to the injury benefit award. Although the Department knew that £176,185 had been paid out in respect of this liability prior to 1 January 2010, the opportunity to request extra cash to cover these payments as part of the Spring Supplementary Estimates was not taken. A further factor contributing to the excess was that the cash forecasting and budgeting process had not been fully realigned with the increased level of business and the corresponding need for increased levels of working capital.

15. To help improve the working capital levels, the Comptroller and Auditor General has indicated that GAD should not only seek to secure extra cash through the Estimates process but also review its credit control policies to ensure debts, especially from other Government Departments, can be collected in a timely manner. Invoices overdue at year-end from other Government Departments totalled £206,000 (11% of total debtors). If these amounts had been collected, GAD would not have exceeded its Net Cash Requirement.

16. The breach of the resource, administration and cash limits was due to a one-off event outside of GAD's control. Going forward, the Comptroller and Auditor General has indicated that GAD needs to enhance its working capital management procedure to account for its increased levels of business and to seek additional cash in periods of growth where needed.


1   Central Government Supply Estimates 2009-10, February 2010, HC 257 Back

2   Standing Orders of the House of Commons Public Business, April 2010 (New Parliament), HC 539 Back

3   The amount of £747,000 is required to be voted to meet the Government Actuary's Department's excess resource consumption and so no additional resources are required for the £741,000 breach of the Administration Budget. Back

4   The Statistics Board Resource Accounts 2009-10, HC 305 Back

5   Government Actuary's Department Resource Accounts 2009-10, HC 116 Back


 
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Prepared 11 February 2011