There has been no press statement forthcoming from the three parties who together are responsible for the €3.6bn “accounting error” reported today, which means that our national debt will be restated and will be €3.6bn less than previously understood. The story of the error was first reported this morning by Ireland’s TV3 ; the initial details were sketchy but this is what we know so far:
(1) The error relates to an advance in 2010 by the National Treasury Management Agency (NTMA), a State agency which reports to the Department of Finance
(2) The advance was made to the Housing Finance Agency (HFA) a State company which reports to the Department of Finance. The HFA’s auditors are KPMG and Ian d’Alton is the CEO; there doesn’t appear to be a designated finance director shown in the 2010 Annual Report
(3) The “accounting error” was discovered on Friday last, 28th October 2011.
The national debt was reported by the NTMA to be €114.7bn at the end of September 2011. This €3.6bn reduction will therefore reduce our national debt by 3.1%. Our Gross Domestic Product in 2010 was €155.992bn so the reduction of €3.6bn represents 2.3% of GDP. Our official peak debt:GDP in 2013 should fall from 118% to 116%. Wow!
It is not possible to see the advance by the NTMA to the NFA separated out in the 2010 report for the NTMA but the NFA’s 2010 annual report does say the following “section 17 of the Housing (Miscellaneous Provisions) Act, 2002 and section 19 of the Planning and Development (Amendment) Act, 2002 gives the Agency the power to request the National Treasury Management Agency (NT MA) to undertake borrowing and debt management on the Agency’s behalf. Under the terms of a formal agreement between the NTMA and the Agency, the Agency decides the general policy within which funding carried out by the NTMA together with the appropriate debt instruments, takes place. The Agency acts in close consultation with, and on the advice of, the NTMA in regard to its eurocommercial paper [ECP] and Guaranteed Notes [GN ] programmes. The NTMA had purchased €3.8 billion in GN s at 31 December 2010 (2009: €212k). Funding received through the ECP programme accounted for only €301 million of total Agency funding (2009: €4,084 million).”
In fact there is an error in the above, the GNs at 31 December 2009 were €212m, not €212k (see note 11 to the 2010 accounts on page 47 of the 2010 annual report) . The new lending by the NTMA to the NFA in 2010 was €3.620bn. So it looks like the following will have been the transactions:
(1) The NTMA sells Guaranteed Notes (GNs) to the market and gets €3.6bn in cash.
(2) The cash is transferred from the NTMA to the NFA
(3) The cash is received by the NFA and the debt to the NTMA is recognized.
So how did the mistake come about?
We don’t yet know, and the reporting so far is goobledygook (that’s an accountant’s assessment by the way!). Obviously the NTMA will have recorded the issuance of the Guaranteed Notes as part of the national debt. But it is not clear what happened next, but it looks as if the NFA classified the advance from the NTMA as part of the national debt or someone at the Department of Finance misclassified the advance.
We can but hope for a full explanation from Minister for Finance, Michael Noonan, of what appears to be a royal cock-up. The €228,466 a year Secretary General at the Department of Finance, Kevin Cardiff who took up the position in January 2010, will be moving to a new 6-year contract at the European Court of Auditors in February 2012.
UPDATE: 1st November, 2011. A spokesman for the NTMA has issued the following written statement this afternoon “The Department of Finance is responsible for the calculation of General Government Debt. The NTMA raised the issue (of potential double counting) with the Department of Finance on a number of occasions from as far back as Autumn 2010.”
UPDATE: 3rd November, 2011. There will be an emergency hearing this morning of the Oireachtas Committee of Public Accounts from 10.30am when the Secretary General at the Department of Finance, Kevin Cardiff as well as officials from the NTMA and CSO will be quizzed on the error. There will be live video streaming from the hearing on the Oireachtas website here (it’s in Committee Room 1). There were suggestions in the Dail yesterday that the NTMA was not completely blameless as it had produced an annual report for 2010 in which it alluded to a national debt figure which it now claims it had questioned.
NAMA Wine Lake 
Looks obvious to me. DOF counted HFA and NTMA debt, forgot that to include the former was to double count. I bet that it wasn’t the only time it happened, and that it won’t be the last. It happens all over the accounting world all of the time.
There’s a reason that “consolidation” is on the Advanced Accounting courses !
Interesting that this (good) news hits the wires on the same day that we see Anglo’s former FD arrested (again!)… Despite the fact that the NTMA raised this issue since Autumn 2010….Could it possibly be that they think it will confine the payment of $1,000 million of Anglo Irish (unsecured, unguaranteed ) bonds to the inside pages???
Yet another lesson for Citizens – do not trust politicians..power corrupts and all that…
…but they are using the proceeds from selling the US loans at LOSS to pay back the bondholders ok,who gave Aynsley this AUTHORITY!!!!
The Irish taxpayer is Not allowed know how much ‘haircut’ was negotiated on its loan book,why because you just got ‘burnt’!
‘But what was surprising was who ended up at the winners’ table — Lone Star Funds acquired about $5 billion in sub- and nonperforming loans, while Wells Fargo and JPMorgan Chase acquired the remaining performing loans in separate transactions.’
http://therealdeal.com/newyork/articles/behind-the-deal-assessing-anglo-s-auction
“The specific details relating to each transferred pool of loans is commercially sensitive,” Aynsley said in a statement. He didn’t specify the amount of discount the government-owned bank will take on the transactions.
Read more: http://www.foxbusiness.com/industries/2011/10/26/anglo-irish-ireland-at-milestone-with-sale-us-loans/#ixzz1cTyOcb3X
Accountamancy!!
I would say that the DoF forgot to uncount the HFA debt when it ceased to be commercial paper and became NTMA debt. Reasonably forgivable.
On the other hand, you have to wonder that they didn’t notice that there was 3.6 bn less cash on hand… I presume the NTMA did tell them that there was 3.6 bn less cash on hand?
At the General Election in March of this year the local Fine Gael candidate came to my door to canvass my vote. To give the guy his due he was one of the few who bothered to show his face and the only one that made any effort to engage in a discussion. The general tendency is to shove a leaflet through the letter box and scarper. So I’m not relating this story in order to ‘dis’ the guy.
To cut a long story short we got talking about the bailout and he rejected the suggestion that we should ‘burn the bondholders’ saying it would only net us about €12 billion. Only €12 billion! I suggested that he should be careful about making sweeping statements like that. Some people might not see the funny side.
Moral of the story is; if €12 billion is ‘small change’ in the current environment I don’t see why we should be getting excited about €3.6 billion or whatever it is. Think about it for a minute – if €3.6 billion can be ascribed to and ‘accounting error’ then the overall figures must be astronomical.
I’m more worried they’ll find Ireland is 55Bn worse than we thought….
http://www.huffingtonpost.com/2011/10/29/germany-accounting-error_n_1065158.html
“Apparently it was due to sums incorrectly entered twice,” said a ministry spokesman on Friday, adding the reason for the error still needed to be clarified.
“This is not a sum that the Swabian housewife hides in a biscuit tin and forgets,” said SPD parliamentary leader Thomas Oppermann. “To overlook such a sum is completely irresponsible.” (Swabians, from the south-west of Germany, are renowned for their savings skills.)
[…] Ireland’s €3.6bn error in its national debt; I can’t wait to hear the full explanation « NAMA… […]
what about this ?
http://www.reuters.com/article/2011/11/02/idUSL5E7M21HV20111102
would it be too paranoid to imagine that the irish gov and the efsf found a deal not to be short on cash (i mean, not as soon as this week)?
So, so far this year we have saved:
1) 3.6bn above (okay not a real saving but a lowering of our headline GGD)
2) 1bn (at least) per year in interest repayments (really looking forward to the interest dbet projections in the four year plan – likely to be completelt cancelled out in 2013 by the end of the promissory note interest holiday)
3) 7.6bn saved on the 24bn recapitalisation cost.
On the subject of accounting…
The projected deficit for the end of September was to be €14.3 billion (albeit indicative, stated in the IMF memorandum). Given that we were slightly under the June target of €11 billion, that should have been feasible.
However, looking at September’s returns, we’re showing a deficit of €20.6 billion, thanks mainly to promissory notes and interest payments (capital spend is slightly down, but so is tax). There’s a difference of €6.3 billion between the projected deficit and the actual deficit.
The scale of lending required to banks was know when the memorandum was issued. I appreciate that the tax take is down on the projections, but that’s also part of the problem – the projections are just nowhere near accurate enough.
From the perspective of a know nothing layperson (which I am), I cannot understand how can the numbers be so far off in the space of just one quarter.
We’re talking about over €6 billion here – probably about 4% of GDP. That seems crazy. I see things like this, and it just reinforces my lack of confidence.