Archive for the 'Whole of Government Accounts' Category

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?

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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.

Post at the Guardian

July 16, 2010

Just a quick post to link to a piece I wrote for the Guardian Data Blog. The article explains how The Whole of Government Accounts was excluded from the COINS publication and when I requested the Whole of Government Accounts I was refused.

Interesting rejection of a FOI request

July 13, 2010

The whole of government accounts (WGA) has been running every year, for 10 years, and during this time the public have seen exactly zero results from the exercise.

The WGA gives a very detailed picture of the financial health of every government funded body — so clearly would be really useful to where does my money go.

I was told by the small team at the Communities and Local Government that the WGA 2008/09 is sitting in the Treasury. I was also told that two departments failed the WGA audit (the department of health and the ministry of defense), which led to none of it being published.

So I asked for that report (minus the results for the two departments that failed the audit) in this Freedom of Information Request.

The rejection I got was unlike anything else I have received.

They have the information I requested, but the response went to on say:

“Ministers and officials need space in which to develop policy, including space for the development of policy through an interative process of testing and refining ideas. This process could be weakened if information was released prematurely or when proposals where not finalised, as this could lead to poorer decision-making”.

Any suggestions for how to proceed are most welcome.

I should also add that the WGA is stored in COINS, but none of the WGA was included in the COINS publication.

Reports on local authority finances.

July 9, 2010

Each local authority has a database to store its finances. OK, sometimes it is more complex than that; sometimes authorities share a database and there is often sharing of data between databases. But for the purposes of this blog post, it is fair to say authorities store their finances in a database. I believe that this database has the most detailed data that exists about the authority’s accounts.

I’ve been plugging away to getting a local authority to publish their finances database, with reasonable redactions of personal details and individual payment details, of course. But so far the resistance to such a publication is high — as you would probably expect — mostly because of the work involved. But I’m asking for this information because authorities will be required to publish spending above £500 by January 2011, so if they are going to publish over £500 then why not go the whole way and do it all? Optimistic, hey?

As things aren’t moving so fast with that line of enquiry, I’ve been looking into all the different requirements for Local Authorities to report their finances. The conclusion is that there is a lot of reporting going on, and I haven’t found out about what CIPFA require or reached a point where I know all the requirements clearly. But here’s what I’ve found out so far:

The acronyms stand for:

As you can see, local authority finances are quite something, and there’s a fair bit of work to be done to figure out what it all means in a way your average man on the street will appreciate. But I hope it is a start for people skilled in communicating complex ideas in a meaningful way, to investigate more, and maybe to ask for the raw data from these reports before it is aggregated and published.

A big chunk of COINS was not published.

July 6, 2010

When I saw the COINS data that was published at the beginning of June, I suspected there was something missing. I had been reading about the Whole of Government Accounts (WGA) exercise, which I have documented in the previous post. So I was expecting local council assets and accruals data of the sort that is captured in the L-packs and central government spending as captured each year in the C-packs. But is wasn’t there.

I conducted some more investigation, speaking to the team at the Whole Of Government accounts. There team is really quite small — only two people in Communities and Local Government WGA team and five or six people in the Treasury — but they do an *amazing* job of documenting all public assets and accruals. What is more, they have been running it every year for 10 years, each year gathering a detailed picture of local authorities financial health.

Anyway, based on my existing knowledge and my conversations with the WGA team and others, I can now confidently confirm the WGA is completely absent from the COINS data that was released. This means there is no reporting of local authority’s spending in COINS. A report from the WGA is planned spring next year. But I believe this will be at a very high level of detail — the sum of the whole government’s assets and accurals, not the details of individual authorities and departments.

Anyway, I can now confidently confirm the WGA is completely absent from the COINS data released. I have requested the 2008/2009 WGA data, with the Department of Health and the Department of Defence data removed, as these two departments failed the Audit.

Now I’ll wait to see what happens.

UPDATE: See the reply to the request for the Whole of Government Accounts 2008/09.

The whole of government accounts: an exercise in elimination

June 25, 2010

When the large sample of COINS data was published on the 4th June it was accompanied by a guide to the data. The guide is very useful, but one thing it doesn’t explain in very much detail is where the COINS data comes from. The guide lists the inputs:

COINS – the Combined On-line Information System – is used by the Treasury to collect financial data from across the public sector to support fiscal management, the production of Parliamentary Supply Estimates and public expenditure statistics, the preparation of Whole of Government Accounts (WGA) and to meet data requirements of the Office for National Statistics (ONS).

But in what form are each of these different types of financial data  entered into COINS? To answer this question for the Whole Of Government Accounts (WGA) data, I’ve been looking more closely at the data gathered for this exercise.

After reading the WGA materials on the Treasury and the Communities and Local Government web pages, and chatting to some very helpful members of the WGA team, my understanding of the WGA exercise is that it identifies exchanges of funds between public bodies. These exchanges include the flow of funds from Central Government bodies down to Local Authorities and all the exchanges of funds between departments. When the transactions between public bodies are identified, the WGA exercise makes some adjustments to avoid double counting the money. So, if body A gives money to body B, then WGA would be responsible for subtracting the amount body B received from body A’s total.

As we know the COINS data is made up of spending or income records for each department. In these department records there is a Counter Party ID (CPID),  if that identifies another government department that means that some funds have been exchanged between the two departments.

There are scripts used on the COINS data to look for  eliminations using the CPID code.  which has the code in every department’s spending, if money of the public body money was exchanged with and the WGA team perform lots of checks on this. You can see this process happening in the adjustments table in COINS.

There are two guides to the WGA, one for  local authorities and the other for central government departments.

Central Government Accounts

The process of WGA for Central Government departments is simply that each central government department is required to fill in a C-Pack once a year, which is a spreadsheet constructed by the WGA team.

Point2.4. of the Guide for the C-Pack (PDF) says:

The key deliverable is the C-Pack, and the upload of Resource Accounts data and CPID data into COINS.

Local Authority Accounts

The WGA process for Local Authorities is a slightly different exercise. The Local Authority is asked by WGA to fill in an L-Pack once a year.  If you follow that link to the L-Pack excel spreadsheet that the Communities and Local Government branch of WGA prepare, they you will see that it is quite a complex looking creature. I’m going on a training course to understand it better, but I do know that the results of every local authority filling out this form amounts to quite a significant documentation of public spending and income.

In fact the WAG guide for local authorities states:

Local government controls over 50% of public sector fixed assets, accounts for about 25% of net public expenditure and represents 10% of UK GDP.

Now, here is the interesting part. The Local Authority spending and income that is recorded in the L-Pack is not in the COINS data that was published recently.

Now, I thought this missing detail in COINS might be because the WGA would be published separately.

There is a WGA report expected in spring 2011, but on further investigation it transpires that the level of detail will be the same as company accounts. We will get some extra details in this report, for example spending on PFIs will be included for the first time. But essentially we will miss out on all the lovely detail from the L-packs and C-packs.

Conclusion

The WAG is an exercise in eliminating excess data that clouds the picture of public spending and income.  The WAG team’s work seem to keep process of reporting spending and income more manageable. This is completely understandable. But on the other hand it would be great to have this detail of exchanges of funds so we can understand public spending as it really is.

UPDATE: I now understand the auditing going on it Whole Of Government Accounts better.

Auditing, I believe, means matching up buyers and providers:

A perfect match is:
Barnet Council purchases £5.5 m from Enfield Council.
Enfield Concil sales £5.5 m to Barnet Council.

The COINS scripts would eliminate this to zero as perfect match.

Another example:
Barnet Council purchases £5.0 m from Enfield Council.
Enfield Council sales £5.5 m to Barnet Council.
COINS would eliminate 5.0m and and put 0.5M into suspense.
The the suspense needs to be investigated more to see where the mistake is.
This investigation is the job of the Whole of Government’s Account team.
You can set a tolerance in COINS, which is the extent of the difference between two accounts it will put into suspense. The tolerance was set to 5.0m for 2008/09 accounts. I will be set to 1.0m for
2009/10 accounts.