FRS11 and local government

 

Local authority accounts are impenetrable to most council tax payers. This is a shame as the council tax payers are also the voters and therefore responsible for judging the local authorities. Arguably most council tax payers aren’t happy with numbers or accounts and therefore any type of accounting system would be impenetrable. But local authority accounts are impenetrable to most council tax payers who are qualified accountants.

 Local government accounts are directed by a Statement of Recommended Practice. This document attempts to interpret accounting standards fore local authorities in the light of their many statutory requirements.

The first (and arguably most significant of these) is the minimum revenue provision. Back in the midst of time (Ok 1987 ish), local authority councillors (it was said) found a way to make themselves more popular with voters. They would undertake large capital projects (for example build a leisure centre) but not pay for them. How was this achieved? Well they would borrow the money on an interest only basis making no provision to repay the capital. In 25 years time when the loan was due for renewal the Councillors would be long gone and paying for it would be somebody else’s problem.

 It was therefore decided (in the 1989 Local Government and Housing Act) that local authorities should put aside an amount each year to repay debt. It wasn’t necessary for them to actually repay debt each year as this may not be efficient treasury management practice; but each year the council tax should include a charge for debt. This charge was to be approximately 4% of outstanding debt and was known as the minimum revenue provision. The Councillors could then be held accountable for their spending.

 This sounds fairly logically; as a householder you would want to put aside money to repay any outstanding debts. However in the corporate world we are all ready charging depreciation (to represent the consumption of the asset).

 Local government want to comply with accounting standards, they really do…but they also like the minimum revenue provision. What to do?

 Well, first they charge depreciation (and any extra consumption of economic benefit) to the service that uses the asset. If for example education has a mini-bus for school trips; then the depreciation on that mini-bus will be charged to education. They then go on to calculate any surplus or deficit that the authority has made. Then they reverse out the depreciation (and impairment) and replace it with the Minimum Revenue Provision (MRP).

 This is extremely complicated; so complicated local authorities have to produce a statement that nobody else produces and in turn makes there accounts less understandable.

 What are the alternatives? We could just charge the MRP instead of depreciation- the problem here is that we are not showing the cost of assets used we only show the cost of those that are debt financed. We could just charge depreciation, this would make the accounts consistent with other organisations and would show the cost of assets used. It would mean charging the council tax payer a non-cash based charge but as that would represent the cost of the assets used it would make sense. We could always get around this by calculating the council tax on the cash requirement.

Financial Reporting Standards and the Public Sector

In the UK we have something that is known as Generally Accepted Accounting Practice. This is things that all accountants do (or should do) and is largely defined by accounting standards. Accounting standards are published by the Accounting Standards board which is a part of the Financial Reporting Council. They exist so that we know what generally accepted practice is.

 The reason we have generally accepted practice is to make published accounts meaningful. We treat like items in similar ways so that we can understand accounts produced by different organisations. Accounting standards aren’t overly prescriptive but where we have made a significant judgement this should be disclosed so readers of accounts know what happened.

 The Accounting Standards board sets accounting standards with the private sector in mind and recognises that accounting for the public sector is a matter for government. Significant differences exist (for example in funding streams) and therefore slightly different accounting treatments are required in places.

 Therefore in the public sector accounting standards are applied not directly but via some sector specific instructions. So in central government and the NHS standards are applied via manuals published by the treasury. They choose which accounting standards to adopt and how. In local government, higher education and charities practice is guided by a series of Statements of Recommended Practice published by the appropriate body (e.g for universities the SORP is published by the funding council).

 The government also sets targets for the public sector and specific parts of the public sector. The governments desire to set and meet targets leads to some strange anomalies.

 One of the fundamental accounting concepts is accruals (or matching). According to this concept income should be recognised in the period that it is earnt and expenditure should be matched to the income it generates. Therefore if we buy a big asset that will last more than one year we charge the cost of the asset against income over the life of the asset (so for example if we bought a mini-bus for £10k and expected to use it in the business over 10 years we would charge £1k for each year we owned the mini-bus). This is called depreciation.

 FRS11 (accounting standards are called either FRSs or SSAPs) deals with impairments. An impairment is the reduction in value of an assets.  One type of impairment is the consumption of economic benefit. The consumption of economic benefit occurs when we’ve used are asset up more quickly than we expected; we’ve consumed it. So, if we take the example of the mini-bus, we buy this mini-bus but we drive it like crazy fools and give all our friends lifts. After 5 years we take a look at our mini-bus and say ‘uh-oh that’s not going to last another 5 years- I’d give it another 2’. We have therefore not charged enough against income for our mini-bus. FRS11 Impairments of Fixed Assets and Goodwill tells us that we should charge the extra depreciation against income. Now.

 NHS Trusts have statutory targets, in theory the finance director and chief executive can be sent to prison for failing to meet these targets- in practice they are more likely to be given a stiff talking too or possibly lose their jobs. One of these targets is to break-even, if the NHS Trust suffers an impairment it makes it tricky for them to break-even. The government felt that the NHS Trusts shouldn’t fail to break even because of a change in accounting policy and introduced the funds flow arrangements

 

Department of Health

Primary Care Trust

NHS Trust

 

The NHS trust will recognise the impairment in their accounts. They will then apply to the PCT for funding. The PCT will give the Trust cash to cover the cost of the impairment; which creates a cost for the PCT. The PCT will then apply to the DofH for funding to cover this cost. The DofH will give them the cash. This creates a cost for the DofH and they will ask the NHS Trust to repay this through a repayment of capital in the next year.

 This is insane, it’s complicated and inconsistent. But what else could we do? Well there are 3 choices- firstly we could change the target. This is what happens if an impairment occurs in a PCT; rather than having a funds flow arrangement some bod at the DofH simply changes the target. Secondly, we could make the Trust bare the cost of the asset (after all they have consumed the economic benefit) or thirdly we could just not adopt that accounting standard.

 Making NHS Trusts bare the cost of the assets they have used would be my favourite. The real reason NHS Trusts are failing to meet their break even targets at the moment is because they were pushed to use PFI arrangements to finance necessary building works and are now having to service those contracts.

 The government was very keen on PFI because of another target. The sustainable investment rule which stated that all other things being equal public sector net debt should be less than 40% of GDP. PFI projects were kept off the balance sheet and therefore didn’t contribute towards debt.

But is it for Boys…

 

After the arts and crafts is for girls comment I’ve been trying to gender activities and I’m really struggling!

 

1)     Making a wooden car, powered by an elastic band and decorating it. Is this art or engineering? It’s partly about how things work…and it’s a car surely cars are for boys?

2)     24 Hour scalextric..Le Mans in 32 scale. The boy angle- racing cars; the girl angle- the event was put on by a theatre company to enable a 24 hour commentary as extended improv….it was all done by men….

3)      Woodland adventure…we went out to the woods with a group of 7 year olds. They collected sticks and built a den waterproofed with bracken. Then collected sticks, lit a fire with flints and cooked sausages on it. Is this homemaking and cooking or adventuring?

4)     Canoeing

5)     Cycling

6)     Playing Star Wars (dressing up and light sabre fighting)- is this dressing up and acting or is it fighting? It looks like a dance to me- they all know not to hit each other…dancing makes it definitely girls

7)     The kissing game…the girls pretend to be racoons then chase the boys and try to kiss them. Sometimes the boys let them…sometimes the boys chase the girls (apparently this is a girls game)

8)     And what about books…are books generally for girls or can some be for boys/ What about Robin Hood, King Arthur, The Famous Five….

9)     Films? Star Wars (boys) Indiana Jones (that was girls when I was young but is apparently boys now!). Film geeks are usually male but my colleagues only go to the cinema under sufferance…

Raising Boys

Raising Boys

 The talk on ‘Raising Boys in the 21^st Century’ was interesting. It made me feel like a feminist, man hater, bra burning fanatic. The talk was based on a book that I haven’t read; this is a critique of the talk not the book.

 To start with we take 4 examples of ‘failing boys’

 The first is five years old and is very active- always climbing, fighting and jumping. He plays roughly and the only time he is quiet or still is in front of the TV.

 The second is 8 and a half, going on 30. He can talk about a serious topic intellectually and enjoys exploring something that captures his interest. However  he struggles to socialise with other children and when a subject doesn’t capture his interest he misbehaves in class.

 The third is 14, he hates school and gets into trouble drinking and smoking etc.

 The fourth is 16 and disappears into a black bedroom, he lacks communication and spends lots of time plying computer games.

 The UK has the unhappiest children in Europe and boys are the biggest problem, they struggle educationally (75% of children with reading difficulties are boys, 80% of those with developmental and mental health issues, 90% of crime is committed by boys etc)

 So we’ve conjured up a picture of doom and gloom, with lots of stereo types we can all recognise. This gets us into a nice nostalgic mood….remember the golden years, lets go back there..

 So why has this happened?

 Well of course there was the feminist movement that drove woman out to work and away from the home so that traditional female nurturing skills were not passed on. My god some women don’t even cook….

 There is an imbalance between the traditional male/female skills. From the stone age men have been more aggressive, competitive and risk driven . They needed to be to catch mammoth…Woman have been better at social skills, community based skills.

 The media…boys like TV more it captures their attention in a different way to girls.

 So what should we do?

Love

Language

Discipline/boundaries

Play

Literacy

 I’ve nothing particularly against the idea that we should love our children, or talk to them or even that they should have lots of outside time. However I d object to the original analysis.

 Firstly I object to the idea that men didn’t used to fail. That they used to be successful developed people. Men used to be violent, they used to hit their wives and children and this was considered acceptable. Woman weren’t allowed to succeed –they weren’t allowed to go to university, in the 1960s the number of girls passing the 11+ was limited. Men succeeded when there was no competition. And finally there wasn’t a golden age where all children (or even all male children learnt to read). It was a class based thing- huge numbers of working class children got no opportunity for education.

 Secondly I object to the woman in the home argument. For centuries working class woman have had to work, to feed themselves and their children. Woman had to work as servants, take in washing, work in mills…in short do hard backbreaking work for long hours and little pay. They weren’t at home nurturing…Even in the 1950s many women worked. Also studies (wish I could remember which damn study) have shown that working woman spend a very small amount less quality time with their children than stay at home mums; but the husbands of working woman spend significantly more time with their children than the husbands of stay at home mums. The children have a net gain on parental attention.

 Plus where are the fathers in this? Children learn partly my emulating the adults around them. My sons image of what it means to be a man will be formed by looking at his father. His father is a caring man who spends time with him and tries to explain the world around him.

Education in the 1980s

I took my GCSEs in 1990. I got an A for English and yet my grammar is terrible. It was the year of ‘anything goes’. My English teacher had been instructed that you could not mark students down for poor grammar (or spelling or punctuation) if it did not impede the comprehension of the piece in question. Unfortunately as a professional the world is not quite so forgiving. Children were sent out into the world of work without the skills that they needed to write without embaressment. Luckily I read a lot and mainly manage to write in a way that is comprehensable even if I don’t know why…

Affect and Effect

I’ve just found out that these words actually mean different things. I’m very excited as it will prevent lots of professional embarrassment. I had had it explained to me that they were verbs or past participles or something but as I had no idea what these mean it didn’t really help. Feeling rather desolate about a writing project that will engulf much of my summer and would require both words to me used often I looked them up in the dictionary and discovered that they are not different forms of the same word but different words. As they have different meanings its fairly obvious were you would use one or the other.

Affect: make a difference to

Effect: a result or bring about a result

 

Obviously I’ve used the dreaded colon in the above and I’m still not sure about these. I did once buy a book on grammar but I think it may have been the wrong one as I didn’t understand a word of it.

Are you a girl?

Last week I was having a conversation with another parent about play schemes. I was telling her about Sports Camp as it’s a bit cheaper. Oh good she said that would be better my son doesn’t like crafts arts and crafts are for girls. I was too taken about to respond as my initial response…if you say that to my son again I’ll punch you seemed inappropriate. Last holidays my son went on a scavenger hunt and collected all kind of feathers and leaves then made a collage. He also made an alien out of clay. He loved it and I think he should be allowed to. He also enjoyed climbing and go-karts. It shouldn’t be a choice- you can only be a boy and do sports or a girl and do crafts. Apparently the best go-karter was a girl.

  On the other hand on Saturday my son got mistaken for a girl 3 times and I’m not sure that’s good for him. He’s a stout hearted chap and has a good way of dealing with it. He simply ignores the person who thinks that he is a girl. Clearly the woman leaning down saying…you’re a pretty little girl, don’t you look like your mum..isn’t talking to him. He just completely blanks them. Just to be clear I hadn’t dressed him in a skirt or anything; he was wearing navy waterproof trousers and navy waterproof jacket; and green wellies. He is however growing is hair long to be like his dad, and therefore wears a bandana to hold his hair back from his face. I feel I should do something about it but I’m not sure what. Somebody teased him at school and he came home and said..James thinks long hair is for girls, how silly is that…I don’t want to make him cut his hair.

 Any way tonight I’m going to talk on ‘Raising Boys’ and I’m very apprehensive about it. I’m not sure I really think we should raise our children differently according to their sex. Girls should be able to climb trees, play football and go on adventures; boys should be able to do craft and go to the theatre. Breaking down these stereo types should give us more opportunities to find out what we enjoy and do it.

In defense of the chancellor

MPs expenses are producing much excitement at the moment; and many people didn’t vote in the European elections because they were so disgusted by the whole thing. But what is it that we really object to?

There seem to be a number of issues that should be addressed and these are becoming confused.

1 Extravagance; duck houses,  farrow and ball paint, expensive bed linen,mock tudor beams.

 MPs earn around £60k. Only 10% of the population earn over £40k. In a single income household earning £60k puts you in the top 5% of the population. People who earn more tend to spend more- not just by buying more stuff but by paying more for the stuff they buy. Its how Waitose stay in business. MPs propably buy expensive things with their own money too. They think its normal.

I wouldn’t want somebody to go through what I spend my money on. I recently spent £20 on lemons so as not to lose face at the school fair. And I have considered a volcanic limestone bath…MPs are spending money that is not theirs as if it were. This is what the rules tell them they can do.

MPs are not being corrupt here. However it demonstrates our MPs are not in touch with the population, that they don’t live as most people do.

If we want politicans who are aware of the problems faced by most people we should have asked some more searching questions at election time. 

 

2 fraudulent expenditure

MPs have defended themselves by talking about the rules and how these need to be changed. However some expenditure has clearly been outside of these rules or so clearly wrong that MPs should have known not to do it. I refer to married MPs both claiming 2 home allowances and claiming mortgage interest for non-existent mortgages. Press reports suggest that the former has upset people more. But this is where out indignation should be focused. Its not as entertaining as mock tudor beams or 2 toilet seats but much more important.

3 MPs claiming for low value items

You can’t have it both ways- (see 1) MPs should not be extravagant but shouldn’t claim for low value item?

Be reasonable. This is actually OK.

Also they can add up- I travel for business frequently and find that the amount I spend on water alone is considerable.

4 Mistakes

One MP was being lampooned in the press for claiming his council tax twice in 6 months. This is clearly wrong BUT the full story emerged and showed that he had claimed his council tax twice in 6 months- but had then realised and repaid it. He repaid it before it was discovered by the press and I think therefore suggests genuine error.

The Chancellors £700 service charge may fall into this category. H claimed for his service charges as he paid them (6 monthly in advance). 2 months into the period he moved and didn’t repay the remaining 4 months. clearly he should have but I’m not sure that this wouldn’t have slipped through my otherwise excellent administrative procedures in the same situation.

A major area of difference exists at the moment between the 2 political parties regarding the use of fiscal policy. This is the biggest division in British politics since the 1982 election. Labour is pro-fiscal stimulus, the conservatives against. This is a huge ideological difference that could impact on the lives of ordinary people in way that MPs expenses never would. WE SHOULD TALK ABOUT THAT