Risk & Economy » Tax » Government brought to account

Private sector accountants, witnessing case after case of government accounts
being qualified, often feel that taxpayers’ money is woefully managed and
dreadfully misspent.

It’s a perception that, however steadfastly you hold it, Mary Keegan, head of
the Government Accountancy Service, dispels with a disarmingly frank and honest
discussion of the situation. At the very least, it’s hard to get worked up about
it in her presence, since she shows an awareness of the problem and a genuine
attempt to deal with it.

List goes on
But the problems are numerous. The Department for Work and Pensions’ numbers
have been qualified for 17 years in a row; part of HM Revenue & Customs’ tax
credits activities have been qualified through “fraud and error” for four years
in a row; and the EU’s spending of agricultural money and the structural fund,
admittedly outside of Keegan’s brief, have been beset with so many difficulties
that the court of auditors has not signed off the numbers for 12 years in a row.

“I think the answer is that we have to do what everybody is continuing to do,
which is to work on the systems and processes to improve them,” she says, with a
slightly weary resignation about the issue.

There is something to her argument. While private sector finance directors
may say there would be an outcry if their numbers were not signed off in the
same way, few of them have the duty of handing out tens of billions of pounds.

She has some good points, too, about the debate itself. “It would be
interesting to look at banking in the private sector and think about error rates
within banking systems. Even though we know there are errors which deal with
similar pieces of the population, their accounts aren’t qualified.”

Such errors are not regarded as material in the private sector. “The NAO and
its European equivalents take a view that it ought to operate to a slightly
lower level of materiality because it is dealing with taxpayers’ money,” she

Public sector accounting is changing. To outsiders, the pace will almost
certainly seem glacial, but Keegan, offering a rare interview, tells a good

“It wasn’t until 2000, essentially, that government departments produced what
private sector readers see as real accounts, resource accounts. Before that they
had been accounting on the basis of cash,” she says. “People forget that private
sector accounting concepts are relatively recent in central government.”

Qualified accountants
The government is working on several fronts to improve its act. One initiative
involves ensuring that all finance directors of major departments are qualified
accountants. When the initiative was announced in 2004, only 20% of government
spending was under the control of a qualified FD. Though the target of 100% by
the end of 2006 was not hit, 90% of spending is now overseen by someone with a

New entrants to the civil service fast track are now offered the opportunity
to train as accountants, and 17 will be taking up the opportunity this year.

Hundred group
Perhaps most eye-catchingly, the government is to set up its own version of the
Hundred Group, a public sector equivalent of the heavy-hitting private sector
organisation of FTSE-100 FDs.

It’s called – if you couldn’t have guessed – the ‘Government Hundred Group’,
and will unite the finance directors controlling the largest sums of money in
Whitehall. Zarin Patel, from the BBC, will be there, as will Warwick Jones from
the Bank of England. Sir David Tweedie is set to give a speech about IFRS to the
group in the autumn.

The attempt to get more accounting nous into Whitehall is a relentless one.
“When I see the first permanent secretary who is a professionally qualified
accountant I shall know we have cracked it,” says Keegan.

Given the predominance of private sector concepts being introduced into
government, is there a perception that private sector accounting is better than
that in the public sector?

“That’s a really difficult question to answer,” she says. “We suffer from the
same problems as the private sector. Systems break down and there are
misunderstandings and faults.

“If we do lag in any area it is because general management is less
comfortable with the financial numbers than you would find in a typical
boardroom in the private sector. In a private sector boardroom, people
instinctively measure things. They want to know how things are in terms of
spending. We are just developing that culture. Management by numbers is not
embedded in the civil service culture.”

There is, she adds, more of a focus on targets under this government, which
has changed the situation somewhat.

Quicker filing
Among the targets the accounting side are working on is one to get major
accounts filed more promptly. Working to March year-ends, that means getting the
accounts filed before the summer recess, which generally falls at the end of
July, giving them three to three-and-a-half months. Forty-two out of 49 managed
it this year.

“What’s happened to the other seven, you may well ask, and that’s what I keep
asking,” says Keegan.

But the figures are improving – it was 25 the year before and 10 before that.
“We’re 90% there,” she says, before correcting herself: “No, 85%, let’s not

There are several other projects she is working on. One is an attempt to get
all government accounts consolidated into a “whole of government accounts”
(WGA). It will be a remarkable achievement, to have hundreds of billions of
pounds of spending consolidated. The plan, originally, was to have a fully
audited set of accounts for 2006/07. But the timetable is slipping, so she is
aiming for 2008/09 instead.

That will partly coincide with the first year of government accounts under
IFRS. But it is also proving complicated. “It’s slightly later than we were
expecting. We are still not there, with a diversity in accounting treatments
with local government and central government.”

IFRS, itself, will pose a few problems. “There are one or two bits of
government where we do have financial instruments. That means the debt
management office and bits of government dealing with currency exchange issues.”

Much of the discussion has revolved around PFI coming on balance sheet. Much
of it is, but suggestions that more will come within the government’s numbers
have been widely noted since it could push borrowing numbers higher than one of
Gordon Brown’s golden rules, limiting debt to no more than 40% of GDP. The
Treasury usually stays silent on the issue.

“There are some off-balance sheet [bits] that we think will come on balance
sheet under the new standards,” Keegan says, a rare admission indeed.

It’s easy to look at the slipping of the date on the WGA project, or on the
failure to get accounts signed off, and to say that taxpayers’ money is being
misspent. But equally, there are signs of progress. It’s a measured approach to
the problem that Keegan herself takes.

“There are always things we can be criticised for. On balance, over the three
years I think we’ve made quite a big change in the way finance is perceived [in
government]. But there’s more to do.”

A version of this interview first appeared in our sister title,