So tell me Minister, how exactly did we find €3.6bn?

2 Nov

My column from the Evening Herald (2nd November 2011) on the discovery by the Department of Finance that we owe €3.6Bn less than we thought; due to an accounting error in the Government’s figures. 

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Wednesday November 02 2011

IN one of his early routines the American comedian Bob Newhart explained how he had to turn to comedy when his career in accountancy came to an abrupt end. He described how he had, as a fledgling accountant, developed his own theory of accountancy which stated that getting within 10pc of the total was enough.

While the idea did not catch on with his bosses in the 1960s, it appears the theory has been rediscovered and redeployed in the Department of Finance.

Finding that we have €3.6bn more that we had is a lot better than finding we have €3.6bn less — but don’t you just feel that if it had been the latter the cuts target for this December’s Budget would have doubled.

At this point I had intended to explain the discrepancy. Having spent about six years in Government reading and dealing with Government estimates and balance sheets I felt sure I was up to the job.

But after about 45 minutes of reading statements from various agencies my head melted and I needed to lie down in a darkened room.

Those who understand these things better, tell me that this has all got something to do with the amount being rolled over like a Lottery prize that isn’t won, though it is possible that I got the analogy wrong.

Liabilities

The one thing I know is that the problem stems from confusion between the National Treasury Management Agency (NTMA) and the Department of Finance.

Up to 1990 only the Minister for Finance could borrow money on behalf of the State. In 1990 that power, along with the responsibility to manage assets and liabilities and negotiate rates on the State’s borrowings, was given to the NTMA.

The NTMA proved itself quickly with savings on the interest paid on our debt roughly equivalent to reducing tax rates by about 10pc.

However, while the authority to borrow and manage the debt was delegated to the NTMA, the responsibility for the accounts and borrowings has always rested with the Minister for Finance and his officials.

There was a change in how the NTMA dealt with the State’s Housing Finance Agency and how it listed their assets and liabilities in its accounts which was not picked up on when the State’s general government debt was calculated.

It is vital that the confusion is cleared up and succinctly explained as soon as possible by the minister and his senior officials in both the Department and the NTMA.

The error is all the more embarrassing as the head of the Finance Department is due to take up an appointment in early 2012 as Ireland’s nominee to the European Court of Auditors.

This organisation is, according to its President , responsible for examining ” … whether financial operations have been properly recorded and disclosed, legally executed and managed so as to ensure economy, efficiency and effectiveness.”

Disciplines

It also raises an interesting general issue regarding the management of government departments. The Irish civil service uses a “generalist model”.

Department officials get a broad experience across a range of disciplines and policy areas. Across their careers, most civil servants can expect to be trained and work in a number of different areas. The benefit of this rotation system is that you get people with a broad vision, enthusiasm and wide experience of varying sectors.

Moving high flyers between sectors and departments helps stem the “it’s the way we have always done it here” mentality. But, it also has a downside. There are fewer specialists in those areas where they are specifically qualified and some posts that should require specialist skills and training are filled by people without them.

It’s just like Sir Humphrey said in a classic Yes Minister episode: “Well obviously I’m not a trained lawyer, or I wouldn’t have been in charge of the legal unit.”

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