End of year spending

tails_naf

I found out a very surprising/disappointing thing this week.

I'm sure we have all heard of the following:
A department is given a certain budget each year, and at the end of the year whatever is not spent is given back. Any money given back means the budget was too large, so next years budget is automatically reduced. So a lot of departments spend spend spend at the end of the year to make sure the full budget is spent, ensuring next year's budget is not reduced.

Well I found out to my dismay this is still happening, at least in certain local authorities. In fact one LA is so flush, they have started the 'crazy spending' for year end already. I know this because I know a contractor who does work for said LA, and told me he's flat out doing loads of jobs here and there, and they are all minor/unnecessary.

I would have thought this budget over-spend was very low hanging fruit and would have been sewn up pretty early on into this financial crisis, but unfortunately it doesn't seem to be.

Does anyone know if this is common practice still across the board?

The_Honeybadger

I have a connection in a Government department who are under ferocious pressure from senior management to get the budget spent quickly or else they will be severely cut back for 2012. The reason the mad spending has started already is that the negotiations for budget allocation for 2012 are already underway, no point backloading the spend to the end of the year as the key decisions will be made in the coming 6-8 weeks. Local authorities are notorious for this carry on but it happens right across the public service. If this money is spent on spurious and unneccesary projects then that really is a disgrace, but no minister wants to hand back money at the end of the year.

thebman

yes I think the point is why haven't we reformed this so that budgets aren't automatically reduced because LA managed to stay within them.

The whole thing is so obviously flawed.

HivemindXX

The key issue is whether these end of year projects are actually of benefit or not. If there are projects which exist purely to waste the money then these should be identified and stopped but I suspect these exist far more in peoples heads than in reality. There are plenty of jobs which might be low priority but should be done without having to invent a makework project.

It makes sense for the local authorities to keep some money on hand in case something unexpected happens. It also makes sense for them to spend this when the end of the year approaches and then are confident that there won't be any emergencies.

For example there were lots of road repairs done around the country recently. I've read on here that some perfectly good roads were resurfaced simply to get rid of the money but I've not seen any evidence of that with my own eyes. Any roads I've seen that got major repairs were in a bad state before. I'm sure the LAs kept the money for those repairs in the bank until the last minute as an emergency fund. When they decided there probably wouldn't be a suprise expense in this budget period they spent the money.

uncle_sam_ie

This happens in the private sector too. My dad had his own business and was always busier at the end of the tax year with company's using up their budgets.

fliball123

uncle_sam_ie wrote: »

This happens in the private sector too. My dad had his own business and was always busier at the end of the tax year with company's using up their budgets.

Yeah but my tax euros dont go to pay your dads budgets

thebman

HivemindXX wrote: »

For example there were lots of road repairs done around the country recently. I've read on here that some perfectly good roads were resurfaced simply to get rid of the money but I've not seen any evidence of that with my own eyes. Any roads I've seen that got major repairs were in a bad state before. I'm sure the LAs kept the money for those repairs in the bank until the last minute as an emergency fund. When they decided there probably wouldn't be a suprise expense in this budget period they spent the money.

Not aware of them at present but certainly a local road was resurface about 5 years ago maybe more now that not only didn't need to be done, they made the surface worse as it was done to a very good standard first time round.

Runs by a privately run castle so that might have factored in and it is a main road. Plenty of roads in the area need to be completely reworked because they have sunk into bogs and one resulted in a road death a few years later where a vehicle overturned going over a bump over a drain where the road sunk either side of it. Easy to say it is just some back road but it goes by preserved land and is supposed to be a tourist attraction and has CCTV up to prevent illegal dumping etc... but no tourist could drive down the road. Took a brother in law down it a few years ago who works in insurance and he was giving out about it for about an hour afterwards.

I would say the people responsible for that decision were directly responsible for the death of the person. I would say they think they were too, they had guys out trying to repair it before RTE arrived at the scene later that day just after they finished up repairs actually.

Oh and that same stretch of grand road has been redone again twice since then though the latest one was to facilitate a bypass.

uncle_sam_ie

fliball123 wrote: »

Yeah but my tax euros dont go to pay your dads budgets

I know but,I'm just saying.

fliball123

uncle_sam_ie wrote: »

I know but,I'm just saying.

But this is the point..and I garentee if this private company was 18bilion a year in the hole they would have no budget whatsoever to work with so do not compare the public sector with the private sector as its uncomparable

thebman

uncle_sam_ie wrote: »

This happens in the private sector too. My dad had his own business and was always busier at the end of the tax year with company's using up their budgets.

True in a private company the budget is given to them. I'm not sure this is even necessary for LA who could be enabled to raise their own taxes. Too much central tax collection in Ireland IMO.

uncle_sam_ie

fliball123 wrote: »

But this is the point..and I garentee if this private company was 18bilion a year in the hole they would have no budget whatsoever to work with so do not compare the public sector with the private sector as its uncomparable

Aren't we in this 18 billion hole because we "had" to bailout reckless private banks giving money to reckless private property developeder's.

fliball123

uncle_sam_ie wrote: »

Aren't we in this 18 billion hole because we "had" to bailout reckless private banks giving money to reckless private property developeder's.

This my friend is a falacy we currently owe 149 billion 50 of which is because of the banks and the other 99 due to overspending...which is still increasing by about 18 odd billion a year...the banks was a once off cost which has more or less reached the bottom and nothing compared to the sh1te that our deficit is geting us into

thebman

uncle_sam_ie wrote: »

Aren't we in this 18 billion hole because we "had" to bailout reckless private banks giving money to reckless private property developeder's.

No the 18 billion hole is state spending alone (though it is less now from cuts to expenditure made already).

We are in this mess because our regulators didn't regulate and this has still not been fixed. Our politicians were happy to have a property boom and in fact introduced massive incentives to balloon it. All balloons burst and public expenditure was not readied for this event.

uncle_sam_ie

So, should we do away with the public sector altogether and just privatize everything? Let the slaves pay for there own medical expenses and such. That suits me fine, I'll be alright.

fliball123

uncle_sam_ie wrote: »

So, should we do away with the public sector altogether and just privatize everything? Let the slaves pay for there own medical expenses and such. That suits me fine, I'll be alright.

Well certain quangos and semi states should be sold..ie ESB, CIE and Aer Lingus basically keep a hold of the infrasture in ESBs case the grid...if we sold them we could open up a 3 new companies without the over inflated wages and pensions and go to war with the above..get them to drive prices down for the irish citizen...And lets be clear public sector services have been diminishing year in year out since the downturn yet we have seen our effective rate of tax go from 46 to 59% at the very least you would expect to have medical care if your paying nearly 3/5s of your wage in tax...

uncle_sam_ie

fliball123 wrote: »

Well certain quangos and semi states should be sold..ie ESB, CIE and Aer Lingus basically keep a hold of the infrasture in ESBs case the grid...if we sold them we could open up a 3 new companies without the over inflated wages and pensions and go to war with the above..get them to drive prices down for the irish citizen...And lets be clear public sector services have been diminishing year in year out since the downturn yet we have seen our effective rate of tax go from 46 to 59% at the very least you would expect to have medical care if your paying nearly 3/5s of your wage in tax...

Yeah, and don't forget RTE. The state could do without an entertainment company.

fliball123

uncle_sam_ie wrote: »

Yeah, and don't forget RTE. The state could do without an entertainment company.

Very true...we need to start cutting the stuff out I totally aggree

thebman

uncle_sam_ie wrote: »

So, should we do away with the public sector altogether and just privatize everything? Let the slaves pay for there own medical expenses and such. That suits me fine, I'll be alright.

A lot of private companies offer free healthcare or contribute to workers healthcare too.

I think the state in general is poor at providing services and should contract them out TBH. It has too much of an invested interest for government to try to interfere in an attempt to buy votes.

I think it should contract out services it wants provided and focus on effective regulation of the services it contracts out to ensure they meet minimal standards.

I think that works in general, the NCT is run on such a system AFAIK and seems to work very well and not be offering poor worker conditions.

uncle_sam_ie wrote: »

Yeah, and don't forget RTE. The state could do without an entertainment company.

I agree with this. I think it is a pretty poor indication of our government that we close down a hospital in Roscommon before our entertainment company to save money.

Scofflaw

This kind of thing happens in most organisations large enough to have separate sub-budgets for business units. If the business unit knows that, say, the overall budget will be cut 10% next year, they'll do their best to spend any budget lines they've been given, because otherwise they're guaranteed that that budget line will be cut before any other savings are looked for, and they're no less likely to be looked to for other savings afterwards.

A case of perverse incentives.

cordially,
Scofflaw

fliball123

Scofflaw wrote: »

This kind of thing happens in most organisations large enough to have separate sub-budgets for business units. If the business unit knows that, say, the overall budget will be cut 10% next year, they'll do their best to spend any budget lines they've been given, because otherwise they're guaranteed that that budget line will be cut before any other savings are looked for, and they're no less likely to be looked to for other savings afterwards.

A case of perverse incentives.

cordially,
Scofflaw

Everyone knows this but how prudent (hypotetically) is it or would it be to say let the HSE have a hoolie for xmas to make sure they spend there budget when we are borrowing 18billion?

Sand

A strong audit together with a transparent culture demanding actual efficient return (through services or facilities) on spending, and dealing harshly with wasteful spending would deal with this quite easily. People respond to incentives.

The problem with the Irish state spending in general is that its neither transparent or directed for any particular purpose.

Scofflaw

fliball123 wrote: »

Everyone knows this but how prudent (hypotetically) is it or would it be to say let the HSE have a hoolie for xmas to make sure they spend there budget when we are borrowing 18billion?

As Sand says, a strong and transparent audit, publication of accounts, would help - or at least make it necessary to be more inventive with last-minute budget items.

Personally, I'd consider returning some of the saved money directly to the business unit employees as a year-end bonus. Politically hard to defend, but if you know that a quarter of what you don't spend will be returned to you as a year-end bonus, you might think twice about signing off on 5000 leaflets just to spend the money.

cordially,
Scofflaw

tails_naf

Scofflaw wrote: »

A case of perverse incentives.

That's the key I think. If a LA managers 'bonus' (or rather part of his/her salary) was contingent on coming in under budget, I'd say this end of year spending would be very different.

Publishing of accounts would probably show the issue, but would still require someone to analyze it.

I think incentives are the only way to ensure it happens.

I'd like to know what % of budgets, on average, are wasted in this way - could it be 10%, 20% - if so, that would be very significant in terms of cuts if it was controlled properly.

barneystinson

tails_naf wrote: »

Publishing of accounts would probably show the issue, but would still require someone to analyze it.

Isn't that someone known as the Comptroller & Auditor General?

Armin_Tamzarian

Scofflaw wrote: »

As Sand says, a strong and transparent audit, publication of accounts, would help - or at least make it necessary to be more inventive with last-minute budget items.

Personally, I'd consider returning some of the saved money directly to the business unit employees as a year-end bonus. Politically hard to defend, but if you know that a quarter of what you don't spend will be returned to you as a year-end bonus, you might think twice about signing off on 5000 leaflets just to spend the money.

cordially,
Scofflaw

I guess though this could lead to a problem in the opposite direction.
Departments underspending in order to line their own pockets.

thebman

Armin_Tamzarian wrote: »

I guess though this could lead to a problem in the opposite direction.
Departments underspending in order to line their own pockets.

This is true bonuses don't work as an incentive in general contrary to popular opinion unless you only have one goal and that goal is directly linked to the bonus.

I.E.
A salesman sells product, this is basically all a company wants him to do. So he gets commission for it. Now he might have other job roles but basically as long as he makes sales, the company is happy even if they have to bend the truth a little to do so.

A programmer creates programs. Give the programmer a bonus on early project completion and the programmer will most likely do what is necessary to get the bonus. This could mean leaving bugs unfixed etc... in the hope that it the testing team doesn't find them so they get their bonus.

The below video explains it better than I can :P

https://www.youtube.com/watch?v=rrkrvAUbU9Y

Armin_Tamzarian

thebman wrote: »

This is true bonuses don't work as an incentive in general contrary to popular opinion unless you only have one goal and that goal is directly linked to the bonus.

Given that it is Ireland we are talking about I shudder to think what a Government dept. would do if they were told that they were getting an end of year bonus that was inversely proportional to how much the spend throughout the year.

thebman

I think the only way to do it is to make it as transparent as possible so it is easy to spot waste so that these decisions are held accountable by the people.

Politicians motivation seems to only come from if they'll be found out for it (there is good evidence that it isn't just politicians :P) so politicians and people in general don't mind doing something that they know is wrong if they think nobody will ever find out.

Transparency has to exist to stop waste IMO and the people making the decisions need to be answerable for the decisions they make or they simply won't care about wasting money too as it is essentially much like a large multi-national organisation in that people don't really care if they are wasting money as long as they have it to spend and it isn't their money.

How do you make someone care about spending money that isn't theres though other than making them answerable to the people who's money they are spending?

Armin_Tamzarian

thebman wrote: »

How do you make someone care about spending money that isn't theres though other than making them answerable to the people who's money they are spending?

Accountability, plain and simple, it's the only way.
I've witnessed it in a military environment, where people have been put under the splotlight by an Auditor and asked to explain the logic behind all sorts of daft spending decisions.
It certainly made them, and anyone in the vicinity, more careful with the spending of other people's money.