Central Government Accounting – Consolidated Financial Statements Margareta Söderhult November 3, 2015

Central Government Annual Report Consolidated financial statements Income statement Bridge table income statement – budget balance Balance sheet Statement of cash flows The Central Government budget outcome Information on EU flows, National debt Additional analysis and other information to the Parliament So these are the main parts of ESV:s supporting documentation for the Central Government annual report. The consolidated report is based on generally accepted accounting and valuation principles which have been kept constant as far as possible over time. The introduction of a accrual accounting model in 1993 provided the opportunity to draw up a consolidated balance sheet and income statement for the Central Government based on the accruals concept and generally accepted accounting principles. EU flows - Fees to and grants from the EU We have disclosures (notes) for all posts in the income statement, balance sheet and cash flow statement with more information, explanation and analysis.

Collection of information Some 230 independent agencies Agencies transfer their financial statements and outcome to the central accounts Central accounts – The Aggregated Central Government Accounting System (Hermes) Agencies mail their annual reports to ESV This is the overall model for the collection of information on Central Government finances. Each agency is an independent accounting unit, that is they have their own accounting system. But most agencies use Agresso. Each agency also makes its own annual report. The accounting in each agency should fulfil the needs both of the agency itself and those of CG on an aggregated level. The agencies send files with the needed information to the Central Government accounting system. The scope is legally based – The Budget Law.

Aggregated CG accounts and the agencies´ systems Hermes SRS Separate accounting systems at some 230 government agencies Storage in Hermes on Central accounts ESV’s quality assurance and processing Wise, IBM Cognos Controller S-codes Revenue headings Appropriations etc. This picture shows some of the data processing of the financial information in the Central Government sector. The information reported this way includes reporting codes with information concerning the balance sheet and income statement, but it also includes information of the outcome of the central government budget as far as the agency is concerned. The central government budget information consists of appropriations for expenditure and revenue headings, mostly for taxes. It also includes information for the National Accounts After processing at ESV the information from ESV goes to Government offices, primarily Ministry of Finance, and other receivers, reports and files.. Most of the information is also published on the ESV home page. Basic data – register IBM Cognos Controller – CG Annual report WISE – Outcome of the CG Budget, Financial statistics, Forecasts... Outcome of the C G budget Income Statement, Balance Sheet National Accounts

A few of the most important agencies The Swedish Government offices (including all the ministries) Armed Forces Police Tax Agency Social Insurance Agency Transport administration Public utilities The Swedish Maritime administration Swedish National Grid Aviation administration The agencies differs very mush in size. The forty biggest agencies cover more than 90% of the total turnover and/or the balance sheet total (assets). Tax Agency (Skatteverket) Transport administration (Trafikverket) Public utilities are also included in the consolidated statements: The Swedish Maritime administration - Sjöfartsverket Swedish National Grid – Svenska kraftnät Aviation administration - Luftfartsverket

Plan of reporting codes (S-codes) Compulsory Used for reporting and consolidation Type of expenditure and income Economic category Type of asset and liability Connected to voluntary standard chart of accounts The plan of reporting codes is based on the chart of accounts. The plan of reporting codes is compulsory, and the codes are used for the agencies´ reporting of financial information each month or three-month period. The codes are constructed to be used both for budget follow-up and reporting to National Accounts. Information can be analysed on full accrual as well as modified accrual bases and cash bases. The agencies then have their own chart of accounts which is connected to the plan of S-codes. Each account in the agencies chart of accounts is linked to a reporting code. The account classes are the same as those of the reporting codes for most agencies Reporting requirements are regulated in the Bookkeeping Ordinance. There are S-codes for posts in the balance sheet and income statement as well as for distribution by type. Type of expenditure and income – salary, grant Category – according to the system of National Accounts Type of asset and liability – fixed or current assets, tangible and non tangible etc. (By function=ändamål)

The plan of reporting codes 1xxx Assets 2xxx Liabilities and capital 3xxx Revenue 4xxx Labour cost 5xxx Cost of premises, goods and services 6xxx Depreciation and sales of assets 7xxx Transfers and collection of taxes 8xxx Change in capital 1 Assets- Fixed assets (immaterial, material, financial), Lending, Stock of goods, Claims, Cut-off items, Short-term securities (cash and bank) 2 Liabilities and capital 3 Revenue 4 Labour costs 5 Cost of premises (lokaler), office services, external services 6 Sales of assets, Depreciation 7 Collection of taxes, transfers 8 Change in capital

Counterparty accounting The agencies are obliged to register their counterpart, if it is a government agency, in the CG accounting system The agencies are obliged to reconcile balances with another agency In order to make consolidated financial statements possible, (a consolidated balance sheet and a consolidated income statement) for the aggregated central government sector as one unit, counterparty accounting is used for transactions with other government agencies. The agencies are obliged to register their counterpart, if it is an agency, in the CG accounting system. They are also obliged to reconcile balances with other agencies. The reconciliation is used for eliminating internal items (next page). This reconciliation is seen as a very valuable tool in order to improve the quality of the aggregated financial statements. Cut-off items are not included in the reconciliation. To begin with there were some problems: – Which are C G Agencies – The Agency register available on the ESV web-page - Classification transfers/revenues. An important tool for getting the right classification!

The Consolidation Process The information is transferred to a consolidation system (IBM Cognos Controller) The reconciliation the agencies are obliged to do is used for eliminating internal items e.g. receivables/payables, contributions, revenue/expenditure Reconciliation and Consolidation Adjustments -match between Hermes and agencies reports -administrative controls -make clear classifications When making up the consolidated balance sheet and income statement on an aggregated level, we use a consolidation system called IBM Cognos Controller as mentioned before. Our methods are similar to those used by any group accounting department in a company consisting of many subsidiary companies. We make reconciliation and consolidation adjustments. We eliminate for internal items, e.g. receivables in one agency = payables in another. Contributions to other government agencies or from other agencies, revenue and expenditure connected to purchases from other agencies and so on… Also employers contribution for civil servants is eliminated Transactions between the government agencies shall not be apparent in the accounts for the public sector. Transactions between the revenue and the expenditure side of the CG budget shall be eliminated too. To ensure quality we also have a description in a process. We also have a Handbook including instructions, checklists, concern elimination descriptions, descriptions on complicated agencies and notes…… Standard forming decision The Government decides - the format of the CG Annual Report, -what shall be consolidated. For the outcome of the central government budget, we normally do not make adjustments, but our work is mainly quality control and analysis. This work results in comments and notes to the outcome for expenditure areas and single appropriations, and for income areas and revenue headings. The comments are used for the reporting to the parliament.

The general pension system Pensions from the Income pension system are included among transfers in the CG Annual report Pay-as-you-go system with the General Pension Fund (AP- fonden) as buffer funds (Social security sector in the National accounts). Pensions paid from the Premium pension system are also included among transfers Funded system with individual shares (Household sector in the National accounts). However… se next slide!

Not included in CG annual report The General Pension Funds – organisation for management of assets The Central Bank of Sweden The assets and liabilities of the Premium pension system Government owned companies Local government 290 municipalities 21 County councils The General Pension Funds (AP-fonderna) are legally a CG agency. Suggested to be included in the CG reports. But ESV also publish: An overview of the assets and liabilities of the Central Government sector including - the agencies government-owned companies The Central Bank of Sweden The General Pension Fund Time series since 1993

Biggest efforts in the consolidation process, 1 Calculation of tax revenue Based on successively updated forecasts Elimination of assets and liabilities of the Premium pension system Included in the balance sheet of the Pension agency Elimination of government internal flows of social contributions Large cash flows between Tax Agency, Social Insurance Agency and Pension Agency The VAT, value added tax, and excises (punktskatter) are reported with only one months delay and then are final outcome. But for personal income tax, corporation income tax and real estate fee we use forecasts to get the tax on the right year, fully accrual. We use the ESV forecast for the supporting documents of march 15. Around march 26 we change the tax revenue for a later forecast made by the Ministry of Finance, which then has newer information. The tax revenue could even be changed once more due to newer information, specially when reasessments (reviews) are completed, if the change is over a certain limit. ESV handle and register the updated forecast in Cognos-system and adjust the Income statement and descriptions in the publication. Reasessments – omprövningar, början april. Completed tax return – deklaration. The taxation final result from the previous year and the year before are included, in the balace sheet as receivable or liability. Some eliminations for civil servants, agencies taxes... The Pension Agency deals with all pensions, from the General Pension Fund, the Premium Pension system and from CG budget. Then the assets and liabilities of the Premium Pension system have to be eliminated. Elimination of government internal flows regards social security charges, old age pension fee and other pay roll taxes which are registered both on Tax Administration, Social Insurance Agency and Pension agency.

Biggest efforts, 2 Elimination/calculation of defence assets Classification differs on the agency level/consolidated level Elimination of CG bonds and interest – bonds owned by other CG agencies Adaption of value. Reconciliations. Elimination/reconciliation of agencies´ borrowing/lending in the National Debt Office There are several agencies in the defence sector, The Armed Forces, The Swedish Defence Material Administration and some more. We consolidate these in a defence group. Calculations and classifications also has to be done. Updated calculation of value of Government owned companies – Fourth quarter profit/loss is not included in the reporting from the “owner”-agency, get additional information. National Debt Office – all agencies are involved.

Biggest efforts, 3 Reclassification/elimination of items belonging to occupational pensions system Government internal insurance model. Analysis of transfers and grants Transfers divided into ESA categories Analysis of Net wealth/equity Establishment of cash flow analysis Not a consolidation of entities´ cash flow analyses The occupational pensions system (tjänstepensioner) More or less fictitious parts that has to be eliminated. Change in pension debt and pension costs are specifically recalculated for the annual report and reclassified to costs for personell for the CG concern. Transfers and social contributions are presented both in ESA-categories and by function/political categories also in the income statement. Analysis of Net wealth/equity The changes for the year are specified, also changes not due to the result of the year. The changes shall include the changes for the year of the settlement of the state account and result account for income from appropriations and means to or from the CG budget. Finally the Cash flow analysis Compiled by reporting codes for investments and the big agencies annual reports. Also self produced investments.

Time table, CG Annual report February 15 – reporting from CG agencies, special documentation February 22 – annual reports from all CG agencies March 15, ESV´s supporting documentation submitted to the Ministry of Finance Including consolidated financial statements and outcome of the CG budget March 15 – April 15: continued preparation within government offices, auditing by the National Audit Office April 15 - The annual report is submitted to the Parliament May 15 Auditor´s report submitted to the Parliament Rating the agencies The annual reports (and special documentation from the 40 biggest) on time. Matching between the financial documents and the reporting files to the system. Reconciliation with counterparts completed The National Audit Office – Riksrevisionen (agency under the Parliament) - audits all CG agencies according to generally accepted auditing standards–audit report to the ministries.(52 large agencies also have internal audit since mid-90s.) Riksrevisionen also audits the C G Annual Report – audit report to the parliament. The annual process then is completed by the audit By this procedure, the audit office is independently contributing to the assessment of the government´s performance. (When speeding up The National Audit Office (RRV) made a fast examination of the forty biggest C G agencies – audit statements.) Tools used to facilitate and speed up Earlier annual reports from the agencies, 20 februari Special documentation, financial documents, earlier from the forty biggest agencies, 15 februari Fast examination of the forty biggest by the auditors when we started Counterparty accounting A new consolidation system - IBM One closing day

The Aim of the Central Government Annual Report To provide essential information for the Parliamentary follow-up on Central Government operation A central source of information to Parliament for its assessment whether the Government has administered the funds placed at its disposal in the manner intended The aim of the annual report can be presented like this. To provide… To be a central source of information The annual report more stable than the budget outcome, easy to compare over the years. It´s stable thought it is developed gradually. Time series from 1993, very comparable since 2000.

Income statement Billion SEK 2016 2015 change Taxes 1 236 1 138 98 Revenue from charges and grants 110 12 Transfers -1 013 -962 -51 Allocation to funds -15 -7 -8 Costs for personnel -126 -123 -3 Premises, other operating costs -144 -136 Profit from CG owned companies -11 -4 Net cost for the C G debt -21 -22 1 Other financial income and expenses 10 7 3 Deficit for the year 27 -10 37 Transfereringskostnader och skatteintäkter ökade Det lägre resultatet beror på flera faktorer. Skatteintäkterna ökade med 24 miljarder kronor och transfereringskostnaderna ökade med 20 miljarder kronor. Nettokostnaden för statsskulden ökade med 14 miljarder kronor då den svagare kronan medförde valutakursförsämringar. AP-fondernas nettobidrag till staten minskade med 7 miljarder kronor. Resultatet från andelar i hel- och delägda företag förbättrades med nästan 5 miljarder kronor. Kostnaderna för statens egen verksamhet ökade med 5 miljarder kronor.   Försäljningen av aktier i Nordea påverkade resultatet netto för 2013 positivt med 17 miljarder kronor.

Balance sheet, assets Billion SEK 2016-12-31 2015-12-31 change State roads 139 136 3 State railroads 146 143 Construction in progress 84 78 6 Buildings, land 39 40 -1 Military equipment 98 95 Shares in wholly and partly owned companies 297 328 -31 Long term receivables 51 44 7 Loans 456 434 22 Other short-term receivables 113 112 1 Accruals and deferrals 77 67 10 Total assets 1 602 1 555 47 Kärnavfallsfonden växer Statens långfristiga värdepappersinnehav ökade med 1,7 miljarder kronor. Det största innehavet av värdepapper gäller Kärnavfallsfonden, som ytterligare ökat fondmedel placerade i bostadsobligationer med 1,9 miljarder kronor.   Staten lån till Riksbanken ökade Riksgäldskontorets utlåning till Riksbanken ökade med 33 miljarder kronor. Utlåningen till Riksbanken består av lån i dollar och euro och ökningen beror på växelkursförändringar i och med att den svenska kronan försvagats mot dollarn och euron under året. Utlåningen till andra länder minskade totalt sett eftersom Island under året betalade tillbaka resterande del av sitt lån i förtid. CSN:s fordringar ökade CSN:s utlåningsfordran ökade med 4,1 miljarder kronor och uppgick till 175 miljarder kronor, inklusive reservation för osäkra fordringar. Ökningen av lånefordran beror främst på att nyutlåningen var större än amorteringarna och att det tillkommit många nya låntagare som ännu inte blivit återbetalningsskyldiga. De beräknade osäkra fordringarna är i stort sett oförändrade jämfört med föregående år. Ny placeringspolicy för Insättningsgarantifonden och Kärnavfallsfonden Övriga kortfristiga fordringar har ökat med 60 miljarder kronor. Ökningen är hänförlig till repor i Insättningsgarantifonden och Kärnavfallsfonden. Placeringspolicyn för båda fonderna ändrades under 2014 och medger nu att affärer med återköpsavtal (repor) ligger öppna över bokslutsdagen. Motsvarande skuldrepor redovisas under Övriga kortfristiga skulder Skatteverkets fordringar på skattekontot har minskat med 6,9 miljarder kronor. I princip alla debiteringar av skatter och avgifter som Skatteverket gör ingår i skattekontosystemet. Värdepapper och andelar ökade Värdepapper och andelar ökade med 3,0 miljarder kronor och ökningen avser Riksgäldskontorets repor i egna statspapper. Placeringar i repor är en del av statsskuldsförvaltningen och kan variera kraftigt mellan åren. Storleken på placeringarna beror på placeringsbehovet vid bokslutstidpunkten.

Balance sheet, net wealth and liabilities Billion SEK 2016-12-31 2015-12-31 change Net wealth -405 -422 17 Reserves 168 154 12 Provisions for pensions 250 243 7 Central government debt 1 292 1 352 -60 Other liabilities 202 146 56 Accruals and deferrals 95 81 14 Total net wealth and liabilities 1 602 1 555 47 Fonderna ökade Fonder ökade med 8,4 miljarder kronor jämfört med 2013. Under året har Stabilitetsfondens behållning ökat med 3,4 miljarder kronor. Kärnavfallsfonden ökade med 2,8 miljarder kronor och Insättningsgarantifonden med 2,2 miljarder kronor under året.   Avsättningarna ökade Avsättningar för statens tjänstepensioner ökade med 6,6 miljarder kronor. Avsättningen påverkades mest av att räntan i beräknings­grunderna sänktes, vilket ökade avsättningen med 5,7 miljarder kronor. Statsskulden ökade med 110 miljarder kronor Statsskulden ökade med 110 miljarder kronor och uppgick vid 2014 års utgång till 1 347 miljarder kronor. Lån i svenska kronor ökade med 72 miljarder kronor och lån i utländsk valuta ökade med 38 miljarder kronor. Statens bugetsaldo för 2014 var -72 miljarder. Ökningen beror också på växelkursförändringar. Riksgäldskontoret ökade sin upplåning i obligationer m.m. i utländsk valuta med 126 miljarder kronor. Ny placeringspolicy Kärnavfallsfonden och Insättningsgarantifonden får enligt fastställd placeringspolicy delta i marknaden med återköpstransaktioner, s.k. repor, för statsskuldväxlar och obligationer (inkl. realränteobligationer). Dessa repor uppgick till 62 miljarder kronor och förklarar ökningen av övriga kortfristiga skulder. Tillgångssidan av dessa repor redovisas som Övriga kortfristiga fordringar. Skatteverkets slutavräkning av kommunalskatt till kommuner och landsting medförde en fordran 2014 men en skuld 2013. Lägre oförbrukade bidrag Oförbrukade bidrag minskade med 1,4 miljarder kronor. Svenska kraftnäts oförbrukade bidrag för investeringar minskade mest. Även förskotten från EU:s landsbygdsfond hos Statens jordbruksverk minskade. Förutbetalda intäkter ökade Övriga förutbetalda intäkter vid Riksgäldskontoret ökade med 9,7 miljarder kronor. Överkurser uppstår när Riksgäldskontoret emitterar obligationer och marknadsvärdet är högre än det nominella värdet. Mellanskillnaden är överkurs och bokförs som förutbetald intäkt som periodiseras över lånets löptid. Periodisering av skatter minskade. En förutbetald intäkt innebär här att de periodiserade skatteintäkterna är lägre än de betalda skatterna. För 2014 är skatteintäkten högre än årets inbetalningar och därför minskar de förutbetalda intäkterna.

Margareta Söderhult

Process Regulations Production Requirements at from from ESV the Central Government (CG) Production at various agencies Requirements from the Parliament the Central Government and other users Users Parliament Central Government Statistics Sweden National Institute of Economic Research National Debt Office Finance market Media ESV Products Reports e.g. CG Annual Report , CG Budget Outcome, Budget control, Budget forecasts, Basic data CG Net lending/borrowing, International reporting Monthly and annual -appropriations -revenue headings -payments Quarterly -expenditure by type -statistics for national accounts Annual outcome -balance sheet -income statement The Aggregate Central Gov. Accounting System at ESV Extras: The Ministry of Finance is responsible for matters relating to economic policy, the central government budget, taxes, banking, security and insurance, international economic work, central, regional and local government.

Accounting on agency level Accrual based accounting principles Adaption to Central government budget requests (accrual/cash, budget structure, code numbers etc.) SNA regulations Separate accounting system Each agency prepare an annual report Income statement, balance sheet Statement of appropriations Result of operations In order to show a more complete picture, we should look a little deeper into what happens on the agency level. The agencies mainly have accrual based accounting principles. However the accounting also includes adaption to other needs than those of income statement and balance sheet. The adaption to central government budget requests includes information on payments and specific rules regulating the budget. It also, of course, includes the different code numbers of the appropriations and revenue headings of which the budget consists. The adaption to the regulations of the system of national accounts includes codes that specify the general accounting information. The national accounts have in certain parts another definition (what entities are included) and timing than the general accounting. Finally the agencies prepare their own annual reports in a way similar to any corporation. The report includes an income statement and a balance sheet, a statement of appropriations – that is the part showing the agencies influence on the central government budget outcome. The report also includes the so called Result of operations, that is a description of the operations performed during the year, have the agencies fulfilled its goals etc. Ordinance on Annual reports and Budget reports Ordinance on Bookkeeping of Agencies