The Double Standards of Government

The Government has failed its audit – begging the question of where is our money going, and why do they not follow the laws they govern?

Picture the scene: You are a director/owner of a holding company with multiple subsidiary companies. However, you only report the financial statements for the main holding company and 80% of the subsidiary companies. By doing this you will be subject to penalties for non-compliance and most likely become the subject of a fraud investigation. The reason for this is simple; by not reporting the financial statements of 20% of the subsidiary companies you could be hiding illegal activities. This could be anything from embezzlement to tax evasion, or drug smuggling to using company money for personal gain. Moreover, shareholders will also be in the dark as to the true financial activities of their investments.

Purpose of a financial statement

A financial statement aims to prevent and/or detect any illegal activities, or tax evasion, from happening by ensuring a company’s complete finances are transparent. It’s a sensible and logical exercise. However, the Government has failed its audit of its financial statement, so important questions need to be asked:

  • Why is it acceptable for the Whole of Government Accounts (WGA) to be qualified (i.e. failed) for the third successive time?
  • Why is there not an investigation as to why this has happened?
  • Why is someone not being held accountable for this injustice of double standards?

If the everyday taxpayer has to comply with statutory law, then so should the Government that enforces it.

Why did the Government fail audit?

The fact is that the 2011/2012 WGA, which was produced by the Treasury, have been qualified by the National Audit Office (NAO) for the third successive year. This means that the NAO doubt that the picture of the Government’s activities presented is true, complete and fair. The main reason for this is, according to the NAO, the Treasury did not include Network Rail and publicly-owned banks in the accounts. This is akin to the holding company neglecting to include some subsidiary companies within their financial statement. The reason given for the exclusion of these bodies was due to the different standards of reporting – the Treasury uses IFRS (Internation Financial Reporting Standards) for public sector accounting, but some of the independent bodies do not.

The purpose of the IFRS is to reflect a true and fair view of the business affairs of the organisation, particularly its financial position. If the independent bodies are not using the IFRS, then how can the taxpayer know for sure that taxes they are paying and entrusting to our Government are being put to the use that is intended for them? i.e. for the safe-guarding and running of our country. How do they know that their taxes aren’t being “lost” amongst the chaos and shambles of the Government’s accounting system? The answer is they don’t. Although in fairness, it’s probably not an issue for the banks to be exempt, because they can of course be trusted to handle public money with care and integrity, especially since they have a great track record of being financially responsible…

The signs of a shambolic system

The situation gets worse – the speed of which the report was produced was also criticised. The tardiness of the report could be an indication of an inept Government accounting system. If this is the case then surely the taxpayer cannot be reassured that the results of the WGA are accurate. If the Government can’t accurately keep track of what they’ve spent and where, then no wonder this country is verging on financial crisis with austerity cuts left, right and centre.

However, all is not completely lost, because even though the report was late, Margaret Hodge, Public Accounts Committee (PAC) Chair stated “The WGA for 2001/2012 was produced more quickly and contains better information than the previous two attempts, but it still has a long way to go before it is genuinely useful for my committee and government more widely.” This is a good sign that the situation is improving, but more needs to be done as it is not unreasonable to require that all money spent by the Government should be accounted for, and this should be shown in the WGA.

The benefits the accounts could bring

Margaret Hodge and the PAC have also slammed the Treasury over the usefulness of WGA, stating that the scope for it is vast and should be utilised to its full potential. For example, it should be used to identify the nation’s key financial risks – this includes the spiralling cost of clinical negligence, an eye-watering £17.5bn in the accounts. The WGA could determine how this is being managed, and then a plan can be drawn up to get this figure under control.

Moreover, according to the PAC, the WGA can highlight the financial consequences of past decisions, therebyhelping the government make better spending choices for the future. For example, analysing the £144.6bn currently owed under public finance intiative schemes and the approximate £60.9bn cost of nuclear decommissioning. It should also track government performance in important areas like tackling fraud and error, which the taxpayer currently has to pay £21.2bn/year for. Think how many nurses that could pay for…

The purpose of the WGA

The WGA aims to improve transparency and increase accountability by providing more complete data for the public sector, to encourage comparable data and provide complementary and complete information to support long-term fiscal analysis and decision making. The NAO report just highlights the lack of transparency, and data cannot be comparable if it is incomplete. The WGA’s lack of detail inhibits its usefulness and improvements cannot be made due to poor underlying data. For example, it does not break down expenditure by function or show how it is distributed across the UK’s nation. It’s a worrying state of affairs if the WGA cannot even determine which country money is going to and in what capacity it will be used for.

What now?

Judging by this report, taxpayers have a right to be worried about what their money is being used for, and they should question their MP and demand answers as to what exactly the Government is spending our hard-earned taxes on.

If you have concerns about the financial statements of a company that you are involved with, then contact Robert Marsden.

Click here to view the report, or alternatively click here to view the highlights.