Finance glossary

Note: This glossary focuses in particular on financial terms relevant to the UK Government.

Accounting Officer
The senior official ultimately responsible for all spending of a government department or arm's
length body. The Accounting Officer for a government department is usually the Permanent
Secretary. The Accounting Officer must personally sign off the Annual Report and Accounts of the
body s/he has responsibility for, and may be called to appear before a select committee to answer
questions on financial management.

Accounts Direction
A written document instructing officials how to prepare accounts.

Accruals Accounting
A method of recording expenditure as it is incurred (i.e. when the activity which generates the costs
arises), and income as it is earned, rather than when cash is paid or received. This method of
accounting is now used in the UK throughout the public and private sectors (with the exception of
very small charities and businesses). In the public sector context it is also sometimes known as
'Resource' accounting.UK Government Budgets (the DEL and AME limits) are also set in accruals
rather than cash terms, and although departments still have to forecast cash movements, they are
free to seek as high a cash requirement in their Estimates as is necessary to support the accruals
budgets allocated.

The principal advantage of accruals accounting over cash accounting (where cash movements are all
that is recorded) is that accruals accounting allows better financial management and scrutiny by:

 matching expenditure in any period to revenues earned and obligations incurred in that
period; and
 matching the cost of assets to the period in which they are used or consumed, by charging
depreciation on them.

Administration budget
Budget limits controlling the resources set aside for the running costs (largely staff and associated
costs) of a government department, and which form part of its Resource Departmental Expenditure
Budget (DEL). Administration budgets are ring-fenced budgets, set at the time of a Spending Review.
The other part of the Resource DEL, outside of the Administration Budget is referred to as
programme expenditure. If the department's administration budget is breached, the department's
accounts will be qualified by the auditor (see qualified accounts).
Foreword

About this document

i. This document updates the version published in 2007. Like the original,
it sets out the main principles for dealing with resources in UK public
sector organisations Some of the specifics, especially those in the
annexes, relate to England rather than the devolved administrations,
which have their own detailed rulebooks. But the same basic principles
generally apply in all parts of the UK public sector, with adjustments for
context.

The key themes also remain. They are the fiduciary duties of those
handling public resources to work to high standards of probity; and the
need for the public sector to work in harmony with parliament.

iii.While these principles are invariant, the advice in this document cannot stand
forever. The law, business practices, and public expectations all change. So
public sector organisations can and should innovate in carrying out their
responsibilities, using new technology and adopting good business practice.
Throughout parliament always expects the government and its public servants
to meet the ethical standards in this document and to operate transparently.

iv.As before, the main text of the document is intended to be timeless. The
Treasury will revise the annexes from time to time as the need arises. All the
text is available freely on the gov.uk website.

v.Above all, nothing in this document should discourage the application of

sheer common sense.
Chapter 1
Responsibilities

The relationship between the government, acting on behalf of the Crown, and parliament,
representing the public, is central to how public resources are managed. Ministers implement
government policies, and deliver public services, through public servants; but are able to do so only
where parliament grants the right to raise, commit and spend resources. It falls to the Treasury to
respect and secure the rights of both government and parliament in this process.

1.1 Managing public money: principles

1.1.1 The principles for managing public resources run through many diverse
organisations delivering public services in the U. The requirements for the different
kinds of body reflect their duties, responsibilities and public expectations. The
demanding standards expected of public services are set out in box 1.1.

Box 1.1: standards expected of all public services

honesty impartiality openness accountability accuracy

fairness integrity transparency objectivity reliability

carried out

in the spirit of, as well as to the letter of, the law

in the public interest
to high ethical standards
achieving value for money

1.1.2 The principles in this handbook complement the guidance on good

governance in the Corporate Governance Codelapplying to central government
departments. Some of the detail applies to England only, or just to departments of
state. There is separate guidance for the devolved administrations. Where
restrictions apply, they are identified.

1.1.3 Much of this document is about meeting the expectations of parliament.

These disciplines also deliver accountability to the general public, on whose behalf
parliament operates. The methods of delivery used should evolve as technology
permits. Public services should carry on their businesses and account for their

1
Pie Corporate Coyernance Code — see httosAwm_goy.ukigovernmenVoublicationsicoroorate-govemarice-code-for-centhal-
governrrierit-departrrients

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stewardship of public resources in ways appropriate to their duties and context and
conducive to efficiency.

1.2 Ministers
1.2 1 In the absence of a written constitution, the powers used to deploy public
resources are a blend of common law, primary and secondary legislation,
parliamentary procedure, the duties of ministers, and other long-standing practices.
This mix may of course change from time to time.

1.2.2 As the Corporate Governance Code makes clear, the minister in charge of a
department is responsible for its policy and business as part of the broad sweep of
government policy determined in Cabinet. They:

determines the policies of the departmental group;

chairs the departmental board;

allocates responsibilities among the ministers in the department;

chooses which areas of business to delegate to officials, and on what

conditions;

looks to the department's accounting officer (see chapter 3) to delegate within

the department to deliver the minister's decisions and to support the minister
in making policy decisions and handling public funds; and

also has general oversight of other bodies on whose behalf they may answer in
parliament, including the department's arms length bodies (ALBs).

1.2.3 The Mirustenal Code' requires ministers to heed the advice of their accounting
officers about the proper conduct of public business. See section 3.4 for how the
minister may direct the accounting officer to proceed with a policy if a point of this
kind cannot be resolved.

1.2.4 The minister in charge of a department may delegate defined areas of its
business, or of its parliamentary work, to their junior ministers. Ministers have wide
powers to make policies and to instruct officials.

1.2.5 Only ministers can propose legislation to parliament to raise public revenue
through taxation, or to use public funds to pursue their policy objectives. Specific
primary legislation is normally required to spend public funds (see section 2.1).
Similarly, taxes may be collected, and public funds may be drawn, only with
parliamentary authority; and only as parliament has authorised.

.2.6 It is not normally acceptable for a private sector organisation to be granted

powers to raise taxes, nor to distribute their proceeds. Parliament expects these
responsibilities to fall to ministers, using public sector organisations.

1.2.7 The House of Commons (and not the House of Lords) enjoys the financial
privilege to make decisions on these matters.

2
https://www.gov.ulggoverrerrientooublications/rninisteriall-code

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 1.3 Parliament
1.3.1 Parliament approves the legislation which empowers ministers to carry out
their policies. It also allows finance for services when it approves each year's
Estimates. See the Estimates Manual} for more,

1.3.2 From time to time parliament may examine government activity. Select
committees examine policies, expenditure, administration and service delivery in
defined areas. The Committee of Public Accounts (PAC - see section 3.5) examines
financial accounts, scrutinises value for money and generally holds the government
and its public servants to account for the quality of their past administration.

1,4 The Treasury

1.4.1 Parliament looks to the Treasury to make sure that:

departments use their powers only as it has intended; and

revenue is raised, and the resources so raked spent, only within the agreed
limits.

1.4.2 Hence it falls to the Treasury to:

set the ground rules for the administration of public money; and

account to parliament for doing so.

.4.3 This document sets out how the Treasury seeks to meet these parliamentary
expectations. The key requirements are regularity, propriety, value for money and
feasibility (see box 3.2). The Treasury:

designs and runs the financial planning system4 and oversees the operation of
the agreed multiyear budgets to meet ministers' fiscal policy objectives;

oversees the operation of the Estimates through which departments obtain

authority to spend year by year;

sets the standards to which central government organisations publish annual

reports and accounts in the Financial Reporting Manual (FROM. This adapts
International Financial Reporting Standards (IFRS) to take account of the public
sector context;

sets Accounts Directions for the different kinds of central government

organisations whose accounts are laid in parliament; and

may also work through the Cabinet Office to set certain standards applicable
across central government, for example functional standards5.

3
httos://mwv.gov.ukigoverrhmentioublications,isupoly-estrnates-gurdance-manual
4
See the Consolidated Budgeting Guidance for more - httos://voiorg.gov.ukigoveirirnenginubl ica 'ions/cons& dated-
budgetIngduida nce

5
See Functional Standards - GOV. U K {V.0101. gov.uk).