Black hole star-gazing

IT’S a simple question really – how’s the States of Guernsey doing? OK, that might imply you’re asking how well government is discharging its duties and obligations to you as a citizen (cue Eric Morecambe: what do you think of it so far…?) when you’re actually enquiring after its financial health. But, since we’re talking here about the just-published States of Guernsey Accounts 2022, that ought to be pretty plain sailing too.

Alas not. You get a sense of the tensions around the document when Treasury lead Mark Helyar has this to say about them: ‘I hope [the transition to International Public Sector Accounting Standards] puts to bed the myth that the accounts, which are independently audited, aren’t accurate or cannot be relied upon. This has never been the case, but it’s become a way of distracting from the genuine problem of our deficit which we must deal with urgently.’

Step back a bit and that’s a pretty astonishing statement for any Chancellor to be making – ignore the rumour and innuendo, the figures we produce can be trusted.

Er, how did we get into the position where doubts about government financial figures are so entrenched and accepted that they need to be countered?

The reason, unsurprisingly, is trust and complexity. As the machinery of Guernsey government developed and expanded on a committee basis from the ’50s onwards, so it has struggled to record financial outcomes in a meaningful way. If you remember the old ‘blue book’ accounts, these set out committee revenues and expenditure in great detail – even down to parking fines – and attempted to summarise the whole lot in a single A3 page pull-out.

Times, and accounting standards, change and the only value a column of figures has is if they’re accurate. Hence the innumerable accounting and audit scandals and the tightening regulations around them. It’s also why the States decided back in 2012 it needed to move from ‘we’ve always done it this way’ to a recognised accounting standard, something that won’t be completed until next year.

As States Treasurer Bethan Haines puts it in her latest report, apparently with a straight face: ‘There is some divergence between the [our] budgetary framework and accounting principles that exist within internationally recognised accounting standards.’

Both she and Deputy Helyar are keen to stress that these accounts have been independently audited – that trust thing again – so everything’s fine. But look at the equivalent documents from, say, Guernsey Electricity or Guernsey Water, and their respective auditors have this to say:

‘In our opinion, the financial statements give a true and fair view of the state of the Company’s/GW’s affairs as at...’. In short, audit opinion is generally formulaic and reassuring.

Look at the States’ sign-off, however, and it’s very opaque: ‘In our opinion, the financial statements for the year ended 31 December 2022 are prepared, in all material respects, in accordance with the accounting policies stated in note 1 to the financial statements.’ I know what you’re thinking, answers on a postcard please…

The point here is that for other elements of government activity, you’re assured the figures produced provide a true and fair view of what’s going on. There is no such reassurance for government as a whole. As Grant Thornton says in its opinion: ‘The accounting policies noted below may depart from rules within internationally recognised accounting frameworks, in order to adhere to internal reporting conventions.’

Don’t get me wrong, I’m not suggesting the accounts are wrong or intentionally misleading but they’re not prepared to the same standard as those from, say, a major company or organisation. Does it matter? Well, at a stroke of a pen as part of the transition to the new reporting framework, Treasury has just been able to ‘find’ an additional £1.7bn in fixed assets.

At the same time as recognising these assets, however, government has also to start depreciating them (accounting for their loss of value over time), which has added £30m. to the financial ‘black hole’ we’ve heard so much about.

As a result, the partially new-look accounts aren’t much help in answering my opening question – how are we doing? The actual black hole might be £3m., or the highly politicised £135m. quoted by that recent convert to GST, Deputy Helyar. Or £47.2m. based on a simple revenue v. expenditure basis, or £40.5m. if you factor in the performance by Aurigny and the Ports.

Confused? You bet. Drill down into the statement of responsibilities for preparing the accounts and it’s not clear what level of independent oversight there is on the underlying figures themselves. That rests with the relevant committee, authority and/or board, subject only to internal controls and monitoring.

These include checks by States Internal Audit – but there’s no indication of how frequently those are carried out, whether every committee has been vetted and when, or what the findings have been on the soundness, adequacy or application of the internal controls on which the whole process relies. Indeed, the underpinning level of financial control merely has to be adequate for the committee’s own purpose.

So what are we ordinary folk supposed to make of all this? The most significant aspect, given current blackholery, is that by using ‘internal reporting conventions’ government can massage (not falsify) the figures to paint pretty much whatever sort of picture it wants. Like displaying the assets of the public sector pension fund but none of the related liability. The second is that if the intention of the almost-reformed accounts was to restore trust in them, it’s failed – even on the basic PR level of explaining the financial deficit.

The third is the gap between what the States is currently taking in and what it wants to spend – which Deputy Helyar says is £135m. Add up all the stuff that’s not included in the accounts like Water, States Works and the Dairy etc, and you can quite credibly get the underlying deficit up to £200m. p.a. – roughly £5,000 from you and I as taxpayers each and every year. This is substantial and serious.

What’s also alarming is government – at a time of severe financial constraint – wants to take on an extra 300 staff. At current average rates, that’s more than £17m. a year while also competing with the private sector for much-needed labour.

So however you read the accounts, one thing is unambiguous – this is a government that has totally lost control of its spending.