Tell me more about government accounts please!

June 20, 2011

These are my notes from a talk I gave at the Open Government Data conference in Vienna last week. Then at the end I ask for help in understanding government accounts.

I’m going to talk about open government financial data, then about what is needed to get better stories on public accounts into the national press.

We don’t treat government financial information the way we do business financial info.

In business we ask lots of questions of the accounts.

There are hundreds of books that will show you how to answer these questions. These books will guide you through the few well chosen figures in the accounts and show you how to apply basic arithmetic so you can answer many questions about the business.

It’s neat that you can find out so much from so few figures.

In business accounts are there 3 main financial statement that relate to each other:

  • the profit and loss statement that shows the profit from sales of a companies products minus all the costs involved in getting those products sold
  • the balance sheet this shows a statement of what a company owes and is owed and what the company owes others
  • the cash flow this shows the transactions that took place over the financial period that led to the current state of the balance sheet

But combining values in the profit and loss statement and the balance sheet you can determine such things as:

  • how long it takes for a customer to pay when they buy on credit
  • how long goods are held on average by the company before they are sold
  • how much it costs on average to hold these items

And what’s more when these questions are answered we know what values are acceptable and what is something to be interested in. For example we know that gross margins more than 50% or less than 20% are unusual.

Unlike investors in a business, as tax payers we tend not to ask such specific questions about how well government runs our accounts.

We don’t often ask:

How well is our tax investment going?

There are a few reasons for this:

  1. public accounts are scattered all over the internet on different government websites – and so we don’t have easy assess for comparisons
  2. the return on investment for tax payers is public services not a big appealing pile of cash for personal gain as it is for business investors
  3. we don’t have 100s of books and lots of discussion about a set of questions to ask of public accounts

You might be wondering why business style accounts are even used for government.

In the UK we have GAAP standard accounts for pretty much every government body and we also have high level accounts that will be published for the first time this year when the Whole of Government Accounts project publishes the first consolidated public accounts.

Right now we have statistical accounts published by the Office for National Statistics, the accounts are all held in the Blue Book.

Internationally there is a movement to align different countries accounts.

Australia and New Zealand publish consolidated accounts.

And you might ask if we should be looking at accounts at all? If we want to make finances accessible to the public – maybe lists of what money is spent on is easier.

To get an idea of what accounts offer that lists of spending don’t I’m going to show an idea at the heart of all accounts – business and public. The idea is that an organisation requiring money to run can be considered in terms of three things:

  1. the amount the organisation owns and is owed to it
  2. what the organisation owes to others
  3. if you take what is owned and owed from others and use that to pay off all the debts, then the resulting figure is the return to the investors

This relationship can be shown in this equation:

amount owed to the company and amount owned by the company
– the company debts = return to investors

This equation can be rearranged to show:

amount owed to the company and amount owned by the company
= return to investors + the company debts

this shows what is owned in terms of the debts and profits that have been required to get it.

We can show this relationship should always be equal in that the assets of a company are equal to the claims over those assets.

We can show this in this chart:
asset-claim

This is a business just getting off the ground. The company owner has paid £10,000 of their own money into the company bank account.

In return for investing the owner gets 10,000 one pound shares in the company.

This business needs more money to get started, so they get a loan so there is more in the assets block, but it has also created a liability of equal size in the claims.

Now the business buys a car to visit customers, spending £9,000 on a car means the assets change to look like this:

We can see how these figures interact. This balancing of assets and claims is the principle of double-entry bookkeeping, where the two boxes are altered to show a transaction. The final state of the boxes is displayed on the balance sheet of the accounts somewhat like this:

So accounts are used to check money spent and debt accumulated and claims over the money making the business run. This seems like useful information in addition to the lists of spending item by item, as it gives a more manageable set of key figures to start with.

However we choose to look at government accounts with the aim of communicating to a wider audience, we need to consider if the information is:

valuable and interesting

This combination of often struck with business accounts.

This is a story that started by looking at the accounts of Innocent and noticing that they hadn’t donated to their self-created charity since 2008.

I couldn’t find a good story that originated from government accounts to show you.

I write about government financial stories all the time but they never make a big impact the way the Innocent story does.

The story I’ve written that has the best response is about groundhogs.

It involved testing the theory that groundhogs can predict the weather.

I wrote it at the right time for it be picked up by people interested in it in America. It shows that timing and the right keywords are very important for an online story to do well.

To get to a stage where we as journalists, as app makers can show something interesting about government spending we need building blocks.

I think these are important building blocks:

Spending with suppliers

This is the spending above a defined spending threshold for government bodies. So for local authorities it is spending over 500 pounds, for central government and health authorities it is spending over 25,000 pounds etc. On it’s own this data pretty much only tells us who the suppliers are. You can look for patterns in the data, like regular payments or very high amounts, both of which may help to ‘narrow down’ what payments worth investigating. But ultimately we do not know what the supplier’s role is or what they are doing with the money they get. My experience of investigating the more interesting transactions is that I get very small returns for the effort I put in. For example finding out more about Essex County Council’s contract with IBM gave this unhelpful reply. The value of this data is when it is combined with other sets, the best one I can think of is contracts…

Contracts

That is the contracts government is publishing plus others obtained through FOI. Potentially this could be used to make sense of what the suppliers should be doing. It will take years to get all this though, as contracts are only being published as they are signed off, and FOI can be tricky as good old commercial confidentially is often used and is difficult to deal with.

Accounts

There is a set of accounts for every government funded body in the UK. HM Treasury have a version of these accounts in digital form so they can use them for the whole of government accounts project. The other option for getting these accounts is to download the pdf of the financial statement or annual report from each public body’s website. I’ve been looking for useful ways of interpreting public sector accounts and knowing what values to expect for certain calculations – so we have some sense of when there is something wrong in the accounts. It is also worth mentioning that the whole of government accounts project will publish this year and this will be the consolidated accounts from every public body. It is not clear how the treasury plan to publish this work but worth finding out.

Budgets

The BBC have done an excellent job of collating local authority budgets for this financial year (full data in excel here). I think this is the first time the budgets have been published in the same year they apply to. Would be nice to see this data put to good use.

Summary reports e.g. PESA, CRA
It is good to have these as top level checks for public finances.

I’m sure that within all of these data sets there are good stories worth telling and a good resource for apps.

Starting more discussion about how to understand public accounts and what values are acceptable would, I think, be a good community project.

So far I’ve read :

  • Accounts De-mystified – The Astonishingly Simple Guide to Accounting by Anthony Rice (5th Edition). This explained double entry bookkeeping nicely and what the cash flow statement means relative to the balance sheet
  • How to read a financial report – for managers, Entrepreneurs, Lenders, Lawyers and Investors by John A Tracy. This shows how to calculate really useful values of company activity by combining values on the balance sheet the profit and loss and then focussing hard on the cash flow statement.
  • HM Treasury Analysing Resource Accounts: user’s guide. This is a guide from 2001, I’ve yet to find anything as good but up to date.

I would love suggestions for books to read on public accounts, ideally books that will show which parts of the balance sheet and cash flow statement to combine to give useful metrics on government performance, and will give expected ranges for these metrics – so it is clear when something requires further reading or investigation.

I was thinking of getting this book, does that look worth it?


Data journalism

March 25, 2011

Things I think about data journalism:

  • Timing the article is everything ( or at least really very important). No-one cares about public spending on the day we go to war.
  • There are two sorts of data journalism: those that generate the news and those that follow the news and ride on trending google searches. They are effective at different times in the news cycle. In crisis times the latter work really well and there is a true skill in getting fast enough to respond.
  • It is a battle against time for both types of data journalism. The cost per word of data journalism is high and the risk a story will pay off is high. You have to know what you’re looking for and be focused.
  • Choosing the right data set is a ++ important skill. There is lots of data out there but what do people care about? Choosing data well reduces the risk of a story not emerging.
  • Coping with big data sets to show patterns where a poltical or buisness system is not working or is corrupt and then digging down to find individuals responsible is the big new offering that data journalism can bring.
  • Specialism in an area of data is how data journalism can be really impressive, just to cope with the jargon in each profession. But the core skills of manipulating data, putting it in a database and scraping and so forth are needed for all big data stories.
  • If all else fails in terms of making data interesting latch the story into something tantalising e.g. hooking into dating never hurts as you can see from Tim Harford’s article about the inflation basket compared to mine .

Finally some answers

January 30, 2011

It’s an innocent enough question:

what does the government spend money on?

Now, I’m not an accountant and I’m not a statistician and personally I don’t have a political axe to grind, I just want some answers to this question that make sense.

This attitude gives me a lot of freedom: I don’t have to get bogged down in any system of understanding spending unless it really helps. But this attitude also gives me a lot of opportunity to look a right idiot, because I’m effectively feeling my way around this unfamiliar financial and political world, pushing for information that may or may not be useful in the end, asking questions that must seem really stupid to experts.

I think it’s only fair that I document my fools progress so that other people who might be on a similar mission can be helped along their way.

So, from the beginning to right now, this is what I’ve found out about government money.

I should add that public spending is making more and more sense to me these days and while I don’t have all the answers right now, I do have a vision for the future and some useful stuff to share.

In the beginning

When I first thought about government spending I had some vague idea that there would be lists of spending, one for each department or maybe one big list for all of government, showing money in and money out for each department. It would just be a matter of finding these sacred and quite possibly hidden lists. I mean someone in the department must be keeping track of the money in and out, right?

The people at Where Does My Money Go? had something that matched my idea of a list of spending. The list they found on the Treasury website showed different government departments and how much they had spent on certain types of public services. I helped to interpret this and the team went on to make this colourful interactive display.

The beauty of this display is allows drilling down into the details of the spending. This is a relatively new technology and lends itself to spending data nicely, it makes those lists accessible and it doesn’t feel like work to look through them they way it does to look into a spreadsheet.

But we quickly found that the list we had used raised more questions than it answered. We only had spending for certain departments, nothing in detail on local councils, and the only details we had were in these odd sounding categories of spending that were designed to allow comparisons between UN countries.

I had a feeling that there must be more detail that we weren’t getting, but where was it?

Therein’ I pestered the heck out of the poor folks at the Treasury about where these spending lists are stored and what else is stored there.

The short answer is that it was all stored in something aptly called COINS, which is a database for frequently revised budgets and something else that is really, really interesting and that I’ll come back to shortly.

A moment of clarity

While I was looking at this spending it slowly dawned on me that just looking at money in and out isn’t the full story of the way public money is managed. For one thing the lists of money in and out, on their own, soon become unwieldy and make it hard for people to answer questions about public spending.

For another thing, Governments don’t just receive and spend money, their wealth is also made up of the things they own like buildings, roads and also determined by the money they owe — the debts as we all know too well.

This is when I found out that accountants have elegant ways to deal with all of this financial jumble.

Let me explain accountancy in the terms I’ve come to understand it.

There are three main figures to consider.

Let’s split the finances of an organisation into either 1) something it is owed or owns and 2) something it owes to someone else. That is two of the 3 main figures explained already.

Just these two figures can give us a simple but important measure of how healthy the finances are. Hypothetically if the organisation received everything it was owed and then sold off everything it has and used that to pay off all its debts, how much would be left? What is left is our third figure. This is what all the people who invested in the organisation would be left with for their return on their investment.

For the mathematically minded this can be expressed at:

1 – 2 = 3
or
owed and owned – debts = return to investors

We should find that if we sum the amount of money that people invest and the profit the organisation makes, the result is equal to the third figure.

Just to put this into context for the case where the organisation is a council or government body, the investors are the taxpayers and the bond buyers.

Another way of looking at these three figures is that organisation is ultimately balancing the money it has for its activities and the money it receives and borrows to make its activities happen. So it balances what it owns and is owed (figure 1) with its debts and investments and profits (figures 2 and 3).

For the mathematically minded that is:

2 + 3 = 1
or
investment and profits + debts = owned and owed

just a rearrangement of first expression.

If you ever heard of double entry book-keeping then keeping this equation equal is basically it: accounting for what is produced with what is needed to produce it.

There’s lots more to accounting than this, obviously, but I hope I’ve conveyed that this way of categorising financial information is neat and yields useful information.

Here’s the killer

You might ask: wouldn’t it be ideal if each publicly funded body published their accounts under these categories so we can understand their financial health?

It turns out that the government have been producing resource accounts for every department and every local authority for years, and this is the killer: in 2001, yes, 10 years ago, they even produced a guide to interpreting these accounts so that we, the public, can extract all kinds of useful information.

You might ask: wouldn’t it be ideal if someone collected together all the public accounts? Even better if they summed the accounts into one set by eliminating all double counting where public bodies exchange money between themselves.

It seems that at the same time as the resource accounts started to emerge in the early 2000s, the Treasury started to run something called ‘Whole of Government Accounts’. It brings together, or consolidates, all the resource accounts of pretty much every public body into one set of resource accounts. What a perfect way to categorise all public spending at a high level.

Guess where Whole of Government Accounts is stored? In COINS. Disappointingly when COINS was published all of the Whole of Government Accounts was removed. The Treasury plan to publish the first ever version of Whole of Government Accounts this spring.

The vision for the future

The government is currently publishing more spending information than any of their predecessors. We have all central government spending over £25,000 and soon we’ll have all local government spending over £500.

How do we make some sense out of all this spending data?

Lots of information can be made manageable if it can be categorised well.

I’m interested in using the categorisation system in the resource accounts. According to the introduction to resource accounts, it is possible to calculate departmental costs ranging from staff wages to money spent on programmes with their own objectives, as well as lots of useful information about assets and liabilities (what I referred to as figures 1 and 2 above).

I believe using this accounting system and allowing a user to ‘drill down’, as they currently do in Where Does My Money Go?, from this high level organised system into the details of the spending will give ‘accountability’ to the accounts.

There are many difficulties in data compatibility between the resource accounts and the lists of transactions that are currently being published, but I think with some iterations of the data being published, these difficulties could be overcome.

What do you think?


Data I would like

September 17, 2010

I’ve been thinking about data sets I know about, but they aren’t public yet. I can’t see any reason why they should be private, but they are.

Here is a list of the data sets the government won’t publish, maybe you can suggest a reason why or add to the list in the comments:

  • All the raw data behind The Whole of Government Accounts (WGA). I mean the raw data from the C-packs and L-packs at the stage that it is used for making the WGA report.
  • All of the raw data from the Revenue Forms in particular the RO and RA submissions.
  • The Best Value Accounting Code of Practice (BVACOP) from CIPFA.
  • The Centralised ONS Repository of Data (CORD) and the Central Shared Database (CSDB) from the Office of National Statistics (ONS). At least to understand more about how the ONS manage the financial data they receive.
  • Anything at all from HM Revenue and Customs about how our tax data is stored.
  • Companies House database.
    • This is not a very long list, but the data I’ve listed here will explain the financial health of our country in more detail than we, the public, have ever had access to.


Auditing of Whole of Government Accounts

September 10, 2010

I’ve been curious about The Whole of Government Accounts (WGA) for some time. Curious as to why there is barely any information available on an exercise that seems to be so valuable to public understanding of the financial health of the country.

As I’ve mentioned before, the UK Whole of Government Accounts will be published for the first time, for the 2009-10 financial year, in Spring 2011, but the project has been running in private for the last 10 years.

I’m interested in the auditing process that goes on for the WGA, as this seems to be the stated reasons for not publishing the accounts before.

I’ve learnt that under the terms of the Government Resources and Accounts Act, the Controller and Auditor General is the appointed external auditor and he will provide his opinion and report on the WGA financial statements.

The accounts will be audited on his behalf by the National Audit office (NAO) who will, in part, draw upon assurances from the external auditors of the individual component bodies included in the WGA.

The work of the auditors will be conducted in accordance with an audit strategy memorandum prepared by the NAO. In conducting their audit, the NAO will follow International Standards on Auditing, UK and Ireland (ISAs) so far as they are applicable to WGA.

Prior to 2009-10, Treasury commissioned the NAO annually to review the dry run WGA accounts. These accounts did not constitute full and formal sets of financial statements, and there was no statutory basis for publication. Therefore the work of the NAO did not constitute a
formal audit, nor was a formal audit opinion issued.

Instead, the objectives of the reviews were for the NAO to report back to Treasury on the extent to which they had reservations concerning the development of the processes for preparing WGA and the effect that these may have on the dry run statements, notes and commentary. Though not formal audits, the NAO followed ISAs so far as they were applicable.

So, I requested this report.
The reply stated that the report does exist but that it would:

inhibit the frankness and speed of exchange between the us (the audit commission) and the Treasury in relation to future reports on the WGA process.

So we’ll have to wait until next spring it seems.


Keeping track of the spending cuts

August 17, 2010

I’ve changed the way you can let the ‘Where Does My Money Go?’ team know about a spending cut.

It’s really easy now, you just need to paste in the url of a place the cut is reported … and that’s it!

You can add more details about the cut on the next page of the form, but it is not required as we will do the rest.

Also I made a spreadsheet of all the Tax Payers Allience proposed £50 billion spending cuts.

Would be really interested to see how these suggested cuts compare with what’s happening in reality, and also the suggested cuts of, say, the IFS.

Contact me if you want to help with those comparisons.


Where, in the country, is our tax money used?

August 15, 2010

The point of this blog is to follow the path of our money from the point it is handed to the government as tax, to the point it leaves their hands to give benefit to somewhere.

It is that ‘somewhere’ I have recently been looking into — I’ve been investigating the stage where the money leaves the government hands. Who benefits and in what way?

The Treasury devoted some resource to answering this exact question.

The Treasury Data

The data set has a name, it is the Country Regional Analysis (CRA). I’ve collected all years of this report back to 2005 in a CKAN package.

How the data is gathered

Every year the Treasury gather the CRA data by giving each central government department a spreadsheet. There is an example CRA spreadsheet on the CRA page.

You can see that the Treasury fill the spreadsheet with the department’s spending codes (programme object group) from COINS. The department is then asked to work out which regions, in the country, benefited from each of their spending codes.

The regions are quite crude, the whole of England is split into 9 regions and then there is the option of Northern Ireland, Scotland and Wales.


There is also an option for everyone in the world befits.

Some of the ways of tracing the funds are easy, say, if there is a spending code for a local initiative that people from only one region are entitled.

A more complex analysis would be something like if there is a spending code for a museum that people travel from all over the country to see, then a statistician is called upon, and they will determine which parts of the country benefit from this service probably based on visitor surveys etc.

How to get something useful out of the CRA

The 2009 CRA data had lots of inconsistent use of classification of the spending. We wrote scripts to fix many of these problems.
The 2010 CRA is much better but still requires some work.
The 2010 CRA comes in two sets. Both sets describe the same spending, it is just one (called table 9) describes the *areas* the money was spent in more detail, and the other data set (called table 10) describes the *type* of spending in more detail.

Table 9 and 10 have to following fields in common:

  • Department code
  • Department name
  • COFOG level 1
  • HMT Functional Classification
  • Programme Object Groups
  • Programme Object Group alias
  • ID and non ID
  • CAP or CUR
  • spending for dates 2004-05 to 2009-10

when we find a match between table 9 data and table 10 data for the fields above then we need to give it the NUTS 1 region code and spending for 2010-11 from table 9 and the ‘CG LG or PC’, COFOG 2 and HMT subfunction class from value from table 10

Then the full detail of the spending in one line.

When this join is done, there is one more problem to fix with the data.
This issue all stems from the fact that local authorities do not have programme object groups.

We think the best solution is to replace the ‘dummy sprog …’ programme object group that is used in the CRA for local authority spending, with something like ‘Local Authority Spending’ rather than using ‘Unknown’.

What we have done with the CRA

We, at ‘Where Does My Money Go?’ have used the Treasury’s data for this display:

But I’m sure there are many more uses to be had.


Speaking at OpenTech 2010

August 15, 2010

I’m speaking at this Opentech this year.
I’m showing the results of my work on COINS for the first time.
Should be good.


A post on the cost of UK energy and cost of mitigating climate change

August 11, 2010

Just a quick post to say that I’ve added a new post on the cost of UK energy to the Where Does My Money Go? blog:

http://www.wheredoesmymoneygo.org/2010/08/04/how-much-does-our-energy-cost/

I am doing more detailed analysis to follow up the ball park figures I present.


HMRC are, at their option, exempt from freedom of information law.

July 16, 2010

An important part of the Where Does My Money Go? project is to gather more information about our taxes.

I thought the obvious place to look for that kind of information is HM Revenue and Customs (HMRC), so, I explored their website. I found:

  • A nice section on the HMRC annual reports. These reports gave a very high level breakdown of our national income, which I copied into this CKAN package.
  • A nice selection of National Statistics on the tax gathered. Those national statistics give a pretty good overview of the different types of tax paid in different regions, by different genders for a number of different years.

But I wanted to find out more. I wanted to know how they store the tax data and in how much detail, but I couldn’t find any of this on their website.

I knew that HMRC have a contract, called the Aspire contract, with Capgemini to manage all of the countries tax data. I thought a good way to understand the way tax is stored is to understand what Capgemini do for HMRC.

My friend Francis Irving (who works for MySociety) had made a request for the Aspire contract which was rejected.

This is fair enough, we thought, it was a big request, the Aspire contract is probably the size of a lawyers table. So we tried to construct better requests for information. I asked for the performance targets for Capgemini and that was refused.

So this refinement of request followed by rejection of request was a pattern that continued until Francis had a revelation.

Francis explains:

For a while the idea has been in my mind that the statements of Government bank accounts would, ultimately, be an excellent way to get detailed public sector spending information.

Recently I heard about the Government Banking Service, and so made an FOI request from HMRC for the most basic of information – a list of which bodies hold accounts using it.

This is the response I got.

They give several exemptions that only apply to some accounts, but one odd exemption that applies to all the information that I requested.

This is section 18(1) of the Commissioners for Revenue and Customs Act 2005 (CRCA) (via section 44 (another act prohibits disclosure) of the FOI act):

“Revenue and Customs officials may not disclose information which is held by the Revenue and Customs in connection with a function of the Revenue and Customs.”

This seems to be a “nuclear option” which lets HMRC refuse any FOI request.

No ICO complaint has ever won on this one – here’s a list of them that WhatDoTheyKnow volunteers have been keeping.

Further investigation reveals that CRCA Section 20 does allow for limited public interest disclosure to various bodies (e.g. police, intelligence bodies, health & safety etc), but to get it published for any other reason you have to get the Treasury to issue a relevant Statutory Instrument.

This is problematic, as it means FOI potentially provides no scrutiny of how our tax is collected.

So there we have it! A mystery solved, at least we know where we stand with HMRC. I’ve booked an appointment to see my local MP about this situation.

Thank you to Francis and the “What Do They Know?” volunteers, particularly Alex Skene, for shedding light on this situation.


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