Budget Transfer: Capital to Revenue Heads of Expenditure (TETRA Project)

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A decision made on 7 December 2011:

Decision Reference: MD-HA-2011-0093
Decision Summary Title:	Transfer from Capital to Revenue Heads of Expenditure		Date of Decision Summary:	01 December 2011
Decision Summary Author:	Finance Manager, Home Affairs Executive		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	n/a
Written Report Title :	Transfer from Capital to Revenue Heads of Expenditure		Date of Written Report:	01 December 2011
Written Report Author:	Finance Manager, Home Affairs Executive		Written Report : Public or Exempt?	Public
Subject: Internal budget transfer from capital to revenue heads of expenditure amounting to £1,218,102.30 to fund the purchase of goods and services in respect of the TETRA project in accordance with GAAP accounting.
Decision(s): The Minister approved a net budget transfer of £1,218,102.30 for 2011 as set out in the accompanying report.
Reason(s) for Decision: The expenditure has already been incurred and this transfer merely regularises the bookkeeping arrangements in correctly categorising the expenditure as revenue as opposed to capital in accordance with the Jersey Financial Reporting Manual. The States of Jersey implemented Generally Accepted Accounting Principles (GAAP) in 2009. GAAP accounting requires that only expenditure meeting the GAAP definition of capital expenditure should be treated as such. All other expenditure must be accounted for as revenue. This budget transfer is the movement in budgets between capital and revenue required to align the budgeting treatment of expenditure with the GAAP accounting treatment. This does not change the total amount of expenditure approved by the States.
Resource Implications: None other than those detailed in the accompanying report.
Action required: Finance Director to seek the approval of the Minister for Treasury and Resources in accordance with Financial Direction 3.7. (Treasurer’s Delegation).
Signature:		Position: Minister for Home Affairs
Date Signed:		Date of Decision (If different from Date Signed):

Budget Transfer: Capital to Revenue Heads of Expenditure (TETRA)

Budget Transfers – GAAP Accounting

Home Affairs Department Report for Minister
Subject:	Transfer from Capital to Revenue Heads of Expenditure
Exempt Clause:	n/a	Date:	01 December 2011

Author:	Finance Manager, Home Affairs Executive

Introduction

The purpose of this report is to seek the Minister’s approval for an internal budget transfer amounting to £1,218,102.30 from the Home Affairs capital head of expenditure to a revenue head of expenditure to fund the purchase of goods and services in respect of the TETRA project.

This expenditure has already been incurred and this transfer merely regularises the booking keeping arrangements in correctly categorising the expenditure as revenue as opposed to capital in accordance with the Jersey Financial Reporting Manual.

Background

The States of Jersey implemented Generally Accepted Accounting Principles (GAAP) in 2009. GAAP accounting requires that expenditure should be accounted for as capital only if it meets the GAAP accounting definition of capital expenditure, and revenue otherwise.

The Home Affairs Department has purchased numerous supplies, services and equipment totalling £1,218,102.30 in connection with the TETRA project in accordance with the States of Jersey Capital Accounting Manual:

 FRS 15 defines tangible fixed assets as ‘assets that have physical substance and are held for use in the production or supply of goods or services, for rental to others, or for administrative purpose on a continuing basis in the reporting entity’s activities’.

 A tangible fixed asset will generally have a life in excess of one year.

 The States of Jersey has adopted a £10,000 capitalisation threshold for individual assets except for land.

It is therefore necessary to make an internal budget transfer in order that the expenditure is properly classified as revenue expenditure in accordance with the Jersey Financial Reporting Manual.

Finance Direction No.3.6 ‘Variations to Heads of Expenditure’ sets out the procedures for the transfers between revenue and capital heads of expenditure. Authority to approve non-contentious budget transfers under £1,000,000 and GAAP related budget transfers with no limit has been delegated to the Treasurer of the States.

Recommendation

It is recommended that the Minister approves the internal budget transfer of £1,218,102.30 from the Home Affairs capital head of expenditure to a revenue head of expenditure in order to align budgeting with accounting treatment following the move to GAAP accounting.