Accounting Treasury Management q Annual Accounts q Accounting

Accounting & Treasury Management q. Annual Accounts q. Accounting Policy q. Treasury Management 1

ANNUAL REPORT & ACCOUNTS Improve understanding of – requirements for ARAc & how it’s produced – Financial Statements & elements of ARAc 2

Why? • Statutory requirement - Government Resources and Accounts Act 2000 (Accounts element), Companies Act (Report element). • One of the few opportunities for Parliament and the public to gain an insight into the performance and financial decisions taken by Government Departments. 3

FMPA Responsibilities • Ensure information disclosed meets required standards Financial Reporting Manual (FRe. M). • Manage the relationship with the NAO. • Ensure reader can more easily understand information 4

Accounting Boundary 2012/13 Departmental Accounts: 7 Top Level Budgets (TLBs) Executive Agencies Other minor groups incl. advisory & monitoring bodies Consolidation of ‘Arm Length Bodies’ – 2012/13 onwards: Entity TLB Responsible The Royal Hospital Chelsea Land Forces The National Army Museum Land Forces The Council of Reserve Forces and Cadets Associations Land Forces ABF The Soldiers’ Charity (will be reclassified from public sector wef Apr 2013) Land Forces The Royal Air Force Museum Air Command The National Museum of the Royal Navy Command Commonwealth War Graves Commission HO&CS The Commonwealth War Graves Commission Centre 5

Issues with Arm Length Bodies – Some bodies challenging ONS categorisation. – Quality of accounts. – Timing of publication. 6

ARAc Contents • Annual Report (incl Management Commentary & Remuneration Report) • Governance Statement • C&AG’s Certificate & Report • Financial Statements • Notes to the Accounts 7

Annual Report • Balanced, forward looking, performance • Consists of: – Director’s Report – Management Commentary – Remuneration Report 8

Remuneration Report • Salary • Bonus • Benefits in Kind • Pension • Pay Multiples 9

Pay Multiples 10

Governance Statement • Statement of Accounting Officer’s Responsibilities – • Governance Statement • How department controlled • Assurance Reports, DIA • Compliance with the Governance Code • Lead NEBM Report on Board’s performance • Highlights of sub-committees of Board • Risks affecting the Control framework 11

Comptroller and Auditor General • Certificate of C&AG to House of Commons • True and fair view? • Intended by Parliament? • Accord with regulations? • C&AG’s Report • Qualifications 12

2011 -12 ARAc – Certification Removal of 2 qualifications – Discrepancy between accounting & warehouse records capital spares and inventory + Existence of £ 0. 1 bn of BOWMAN radios 2 qualifications on statements remain – Valuation of inventory and capital spares associated with platforms taken out of service • Failure to fully comply with accounting requirements for determining whether a contract contains a lease • New regularity qualification. Outstanding approval for remuneration package for senior board member 13

Financial Statements: 1. Statement of Parliamentary Supply • Outturn against Estimate • • • DEL – Resource and Capital AME – Resource and Capital Non Budget Net Cash requirement Administration 14

2. Statements of Comprehensive Net Expenditure Operating Cost Statement • • Administration Costs Programme Costs Income Interest Other Comprehensive Net Expenditure • Movements in reserves 15

3. Statements of Financial Position • Non current assets – incl PPE, intangibles • Current Assets – incl inventory, receivables • Current Liabilities – incl trade payables due<yr • Non current liabilities – provisions, other payables • Taxpayers’ and other equity 16

4. Net Cash Requirement 2012/13 Net Cash Requirement 2012 -13 17

5. Statement of Cash Flow • Cash outflow on operating activities • Cash outflow on investing activities • Cash financing • Consolidated fund less loans and financing of assets • Net = the increase or decrease in cash 18

6. Statement of Changes in Taxpayers’ Equity • Net expenditure – ‘cleared’ to General Fund • Movements in assets and liabilities through reserves • Movements between reserves • Opening balance plus movement = closing balance 19

Notes to the Accounts 1 2 3 6&7 8&9 10 -19 20 -24 25 Accounting Policies Budgets and Estimates outturn Reconciliation to Budgets & Estimates Staff and other costs Income and Interest Details supporting the So. FP Pensions, Capital Commitments, Leases, Service Concession Arrangements, Contingent Liabilities Losses and Special Payments 20

Note 25 – Losses & Special Payments Reporting to Parliament as soon as possible Advance notification / closed cases Categories: bookkeeping, cash, stores, fruitless payments, constructive losses, claims waived Separate identification of items over £ 250 k 21

Note 25. 2 – Losses & Special Payments Threshold reporting cases to Parliament - £ 250 k Summary - All Closed Cases (including > 250 k): FY 2012 -13 Total number 25, 025 Total value £ 4, 030, 057 FY 2011 -12 Total number 16, 355 Total value £ 180, 796, 000 FY 2010 -11 Total number 16, 096 Total value £ 289, 630, 000 22

DEFENCE EQUIPMENT AND SUPPORT Advance Notifications at 31 March 2012, closed in 2012 -13 Cancellation of Nimrod MRA 4 (Constructive Loss) Costs associated with grounding HMS Astute & Subsequent towing. (Fruitless Payment) Early withdrawal of 3 Royal Fleet Auxiliary vessels (Constructive Loss) 3. 7 bn 1. 6 m 187. 5 m 23

New Advance Notifications in 2012 -13 £ 000 Impairment charges from early withdrawal from Germany (constructive loss) Cancellation of Queen Elizabeth Class aircraft carrier conversion programme (constructive loss) Loss of 2 Tornado aircraft after an accident (stores losses) 1, 233, 755 74, 561 23, 502 Advanced Notification from 2011 -12 Not Closed Early withdrawal from service of the fleet of Harrier aircraft (Constructive Loss) £ 1, 29 b 24

Role of the NAO • Government Resources and Accounts Act (GRAA) • Opinion - true and fair view • Prepared in accordance with the GRAA & HMT directions • Management commentary consistent financial statements • Report the expenditure & income used for purposes intended • Whether the Department’s Votes A has been exceeded 25

Basis of the NAO’s Opinion • Proper accounting records have been kept • Proper returns received from third parties • Information and explanations necessary for the audit • Annual Report & Commentary consistent with the financial statements & information obtained during the audit • Governance Statement reflects the Department’s compliance with HMT’s guidance 26

Wider Reporting and Future Changes • Whole of Government Accounts • True and Fair View • Faster Closure • Consistent – single version of the truth 27

Questions? 28