government finances?

[darag]

I'm not an accountant but the government accounting
system seems antediluvian to me. It doesn't seem like
they keep proper accounts in the way any business
would; they don't seem to have a balance book or
depreciate assets or work on an accruals basis which
would allow them to properly budget for and distinguish
different types of spending. From what I see the public
accounts seem to be prepared on a cash basis.

Is this the case?

 

[daltonr]

Does anyone remember the guy who was on the last word a few weeks back, saying that the way the accounting for school improvements was hendled left a lot to be desired.

I couldn't understand the point he was trying to make, something about them not budgeting on a multi-year basis.

He certainly sounded like he agreed with the darag's point.

-Rd

 

[Almost30]

Most Govt Departments account for spending on a cash basis. The effect of this means that in a year when money is tight a section within a department could have spent 95% of their allocation in 9 months and then try to scrimp and cutback during the final quarter in order to meet their original budget. The opposite is also true. In a year where cash is plentiful and only 50% of a sections allocation is spent in the first nine months, then that department/section will embark on a spendthrift policy for the final quarter.

This is all due to the governments policy for budgeting. The government works off last years outturn/spend and gives an increase/decrease of x% for the following years budget. This encourages govt depts to use their entire allocation or risk losing it in the following year. Spending decisions are not always made on whether the cash needs to be spent, will represent good value for money etc.

I believe that most departments have tried to bring in some form of Multi Annual Budgeting, but again each years spending estimates are based on what has been spent in prior years, i.e. you never start from zero.

 

[darag]

Thanks almost30; that is what I suspected. Jeezus,
it must be a miracle that they ever get it right at
all. I'd imagine that even running a corner shop on
a cash basis would be a recipe for disaster never
mind an organisation with the complexity of the
government.

In case anyone is interested, my understanding of
this form of accounting is that even if you've
accepted an invoice for ten million quid, you don't
bother accounting for it until you actually send off
the check. Nor do you record invoices you've issued
until you receive cash. Effectively this means at
any particular time you're blind as far as
accounting and budget is concerned because you have
no idea what your unsettled bills are (i.e. the
value of issued purchase orders or received
invoices) nor do you know what money you are
currently expecting to receive. It means you don't
know where you stand for a particular year until
months into the next one. This makes it difficult
or impossible to make timely and informed financial
or budgeting decisions. This way of doing thing
hardly deserves to be called accounting at all.

This sounds like madness. Surely it would be worth
if for the government to pay zillions to some crowd
like PriceWaterhouseCoopers to set up more modern
accounting systems?