"PROPERTIES SHARED BY GOVERNMENT BODIES – ACCOUNTING ARRANGEMENTS A "
INFORMATION NOTE 23/2000 September 2000 Central Advice Unit 5th Floor Trevelyan House Great Peter Street London SW1P 2BY INFORMATION Tel: 020 7271 2833 Fax: 020 7271 2715 GTN: 271 2833 www.property.gov.uk PROPERTIES SHARED BY GOVERNMENT BODIES – ACCOUNTING ARRANGEMENTS A REVISION OF THE TREASURY GUIDANCE FIRST ISSUED AS AMG 30/95 Purpose The purpose of this Information Note is to advise premises managers and finance officers in Departments, Agencies and Crown NDPBs of the revision of AMG 30/95, which is to be incorporated as Appendix 5 in the yet to be published Civil Estate Occupancy Agreement (CEOA). A copy of CEOA Appendix 5 is attached as an Annex to this Information Note. This Information Note replaces IN 8/97, which contained the previous version of AMG 30/95. Action Premises managers and finance officers will wish to note the revision of AMG 30/95 and its application to properties shared by Crown bodies. They should consider adopting the new procedures in relation to new and existing MOTOs (Memoranda Of Terms of Occupation). Background AMG 30/95, originally written by HM Treasury and issued as part of the Efficiency Scrutiny on the Management of the Civil Estate, outlined the guidance for the billing of Occupiers in jointly occupied properties. It has been revised for inclusion in the CEOA, which is a development and revision of the Departmental Estate Occupancy Agreement (DEOA). The revised AMG 30/95 is based upon the accounting procedures developed by the DEOA Review Group and has been cleared by Treasury as being compliant with Government Accounting and other Treasury guidance. Further background related to the CEOA and accounting procedures is contained in Information Notes 6/99, 8/99, 29/99 and 14/00. Summary of main The following points are key new provisions: changes • Holders should provide an interim Reconciliation Statement to Occupiers of the Annual Service Charge (ASC) at the end of the third quarter. This process will provide the basis of the fourth quarter expenditure estimates. End of year reconciliation will take place at the end of the fourth quarter. • Recoverable VAT payments should not be passed on by the Holder to the Occupier. The Holder is responsible for all VAT payments on the lease and any subsequent recovery of VAT. • The full cost of Capital Charge incurred by the Holder should be provided for on its Vote as running costs and any receipts from the Occupier scored as Appropriations in Aid. Payments by the Occupier to the Holder should also be provided for on its Vote. • Where differences between the actual cost and the final revised ASC estimate falls between the acceptable variance of +/- 10% up to a maximum of £5,000.00, an additional refund/payment will not be necessary and the Holder should clear the suspense account using its normal internal procedures. Application The CEOA is still in draft, but can be applied in conventional MOTO (ie non-PFI scheme) situations and its use in these circumstances is encouraged. Consequently departments should note the guidance contained in the revised AMG 30/95 and consider adopting its procedures in relation to existing and new MOTOs. (Premises managers should note that changes to the terms of existing MOTOs must be agreed by both parties). Further Information Further information about this note can be obtained from Bridget Hardy, Estates Advice Manager, Central Advice Unit: Telephone: 020 7271 2708 Facsimile: 020 7271 2715 E-mail: firstname.lastname@example.org Fur ther copies of this or previous Information Notes can be obtained from Kenneth O’Connell on 020 7271 2711. Alternatively, they are available on the PACE Website at www.property.gov.uk. Departmental Policy Recipients of this Information Note should also consult adequately within their departments to ensure that any action taken is at the appropriate delegation level and complies with their own departmental policy and procedures. ANNEX PROPERTIES SHARED BY GOVERNMENT BODIES – ACCOUNTING ARRANGEMENTS A revision of Treasury Guidance first issued as AMG 30/95. 1. This note sets out guidance for the billing of Occupiers by Holders in shared properties. It draws heavily on Government Accounting, which in Chapter 23 says that each department should bring to account its share of the cost of shared services. Property divisions are reminded to consult their Finance divisions, and the full text of Government Accounting, where necessary. 2. In particular, the Civil Estate Occupancy Agreement (CEOA) provides that all Occupiers will be responsible for their proportion of any general costs. Such costs should be apportioned as prescribed in the standard Memorandum Of Terms Of Occupation (MOTO), i.e. on the basis of ALA (Agents Letting Area)/NIA (Net Internal Area) for most items, but on the basis of staff numbers for certain items (unless otherwise agreed mutually). 3. The CEOA provides for quarterly advance payment by Occupiers for Annual Service Charge (ASC) and rates on the basis of estimates provided by the Holder. The Occupier pays the estimated amount into the suspense account maintained by the Holder at the beginning of each quarter i.e. 1 April, 1 July and 1 October. At the end of the third quarter in-year reconciliation will take place comparing actual expenditure with the estimated expenditure apportioned to the first three quarters of the financial year.This reconciliation process will provide the basis for fourth quarter expenditure estimates. In January the Holder will demand, in advance, payments for the fourth quarter based on the revised estimates and adjusted to account for under or over payment during the earlier part of the year. At the end of the fourth quarter, end of year reconciliation will take place. Arrangements for reconciliation of ASC are included at paragraph 11. 4. HM Treasury’s PES(99)23 states that recoverable VAT payments, in the context of a MOTO, should not be passed on by the Holder (major occupier) to the Occupier (minor occupier). The Holder is responsible for all VAT payments on the lease and any subsequent recovery of VAT, even where leased accommodation and services are shared by an Occupier. PES(99)23 instructs Occupiers under a MOTO to surrender recoverable VAT provision and Appropriations in Aid where recoverable VAT payments have been passed on by the Holder. 5. The Vote accounting arrangements covering the relationship between Holders and Occupiers will, in most respects (i.e. for rent, rates, maintenance costs and all “bought- in” services), follow the principles set out in Government Accounting Chapter 23. This means that each department should score to its Vote its share of the services in question. The Holder when billed should score its share to its Vote as running costs where appropriate and the balance to a suspense account. The Occupiers should charge their shares to their Votes as running costs where appropriate. Money recovered from the Occupiers by the Holder should be credited to the suspense account. The date of payment by the Holder will determine the year of the charge to Votes. Arrangements for “throwback” of costs to the previous financial year (following final reconciliation of the figures prior to the departments’ books being closed) are explained in paragraph 11 below. 6. The rules in paragraph 5 above do not, however, apply to Capital Charge and services provided by in-house staff. For these services, the full cost incurred by the Holder should be provided for on its Vote as running costs where appropriate and it should score as Appropriations in Aid in any receipts clawed back from Occupiers who should score payments to the Holder to their Votes.The cost of Capital Charge and services provided by the Holder’s in-house staff will be demanded in accordance with the timetable as set out in paragraph 3 above. See also paragraph 11 below which explains the arrangements for “throwback” of costs to the previous financial year. 7. Where space is let by a department on commercial terms to the private sector or to an NDPB, whether or not on commercial terms, it should provide for the gross costs on the Vote as running costs where appropriate and score the associated receipts as Appropriations in Aid. 8. Sections 12.2.7 and 12.2.9 of Government Accounting explain suspense accounts as follows: “The term ‘suspense account’ in its widest sense covers any book-keeping entry opened to record payments and receipts which are not proper to, or cannot for the time being be carried to the Vote account. Departments must ensure that they have sufficient funds available to finance advances debited to suspense accounts, even though the advance will not be debited to the Vote account when it is made.” [Suspense accounts are often used] “for adjustable advances made to or by a department until the final amount chargeable to the Vote is known, eg ... to or from other Government departments in respect of inter-departmental transactions.” 9. Suspense accounts should be closely monitored and cleared before the Vote account is closed for that year (usually towards the end of May); the system of interim reconciliation and the use of Annual Service Charge (ASC) for certain costs should facilitate this process: “All accounts should be reviewed at least once every three months and should be cleared as quickly as possible. Any charges or credits to suspense accounts which affect the Vote account for that year should be cleared before the Vote account is closed. Clearance of suspense accounts for a particular financial year should neither be deferred to avoid an excess Vote nor accelerated to absorb a shortfall of expenditure (Government Accounting Section 12.2.10)”. 10. Government Accounting 21.2 says that Holders (major occupiers) must pay bills from contractors/suppliers promptly, normally within 30 days of receipt of invoice or in accordance with any contractual commitment.The Late Payment of Commercial Debts (Interest) Act 1998 enables a business to claim interest if another business (including Government Departments, Agencies etc.) pays its bills late (see DAO(GEN) 5/98). They should ensure that they limit their orders or commitments to the level at which payments can be accommodated within the amount voted by Parliament for the year. However, if a department cannot limit its obligation in this way, it should meet its obligations to pay, even if this would result in an excess Vote. 11. Suspense accounts must be cleared to nil before the Vote Account is closed (Accounts branches normally set a deadline of end May). In the event that the account is in credit, then the amount concerned must be apportioned between Occupiers and transferred to their Votes. If the account is in debit, then that must be apportioned to Occupiers and transferred to their Votes in exactly the same way. The debit or credit is then charged to the Vote for the year just ended (this is called ‘throwback’); it cannot be charged to the current year’s Vote. With regard to ASC, where the difference between the actual cost and the final revised ASC estimate falls within the acceptable variance (+/- 10% of ASC up to a maximum of £ 5,000.00), an additional payment / refund will not be necessary and the Holder should clear the suspense account in accordance with its own internal procedures. Where the difference between actual cost and the final revised ASC estimate falls outside the acceptable variance then credit or debit should be cleared in full as above. It should be noted that there is no acceptable variance with regard to other costs, and suspense accounts should be cleared in full. 12. It follows that it is important that Holders keep Occupiers informed of likely expenditure against estimates as the year progresses (and should inform them immediately if any significant and unexpected payments materialise later in the financial year - the third quarter in-year reconciliation should help in this respect), so that Occupiers can take steps to increase or reduce provision on their premises subheads as necessary. 13. After the end of the financial year, the Holder should provide Occupiers with a record of actual expenditure in that year so that a comparison can be made with the estimates on which imprest payments were based, and large variations can be explained. An example of a final reconciliation statement is included as Appendix 6 of the CEOA. On checking of invoices presented by supplying depar tments, Government Accounting says that: “The customer department is not expected to incur costs by duplicating the checks carried out by the supplying department. But the customer department should satisfy itself that it has received the goods and services provided... and that charges are consistent with the catalogue prices or quotations (GA 23.3.11)”. The Occupier will want to scrutinise the annual statements with this in mind. 14. The Holder will also need to ensure that its Appropriations in Aid provision on its Vote is adequate to cover the anticipated receipts for Capital Charge and shared services provided by in-house staff, and receipts from any commercial tenants or NDPBs (whether or not occupying space on commercial terms). Standard Vote management practice is that any excess Appropriations in Aid on the Vote as a whole would have to be surrendered as Consolidated Fund Extra Receipts (CFERs). If it appears likely that expenditure will be above the estimate, and the department cannot find resources within the same line (subject to GA 11.7.6g) from compensating underspends or by re-prioritising expenditure, then Treasury may agree to virement providing that there are adequate savings elsewhere on the Vote and that the proposed transfer of provision meets the rules set out in Section 11.7 of Government Accounting (and, in particular, GA 11.7.6f). However, the department should be aware that they would incur a DEL cash limit breach if savings are not within the DEL cash limited part of a mixed Vote.