Friday, December 11, 2009

A modest suggestion on the MPS expenses nonsenses 

Tearing-haired frustration at yet another round of MPs expenses nonsense. One part of this is the utterly incompetent accounting practices so glaringly exposed, especially when it comes to claiming ‘part of a set of receipts’.

Here is what I do for the accounts of an annual families summer camp organised by Quakers. I get a lot of claims for various reimbursements of legitimate common costs incurred by participants. If some item on the receipt is not part of the claim the whole thing goes on the spreadsheet like this:

Items to be reclaimed, if necessary itemised by nominal category.
Total of items on this receipt NOT to be reclaimed.
Total of all items under category A to be added to reclaim schedule
Total of A plus B, which should exactly equal the amount shown on the crude receipt.

And I file these away so that if I get a charities-commission audit check I can prove what is what. And that payments have not been made for dubious items. And that despite being 'on a receipt' a claim has not in fact been made for a non-allowable item. Even Quakers can make mistakes.

I then refund the amount under category C.

I have looked at some of the MPs expenses claims forms online and I could not keep track of and control my camp expenses if I had to work on the so-called system exposed there, either as a claimant or a cost controller. It is a farce. I have looked at the claims online for my local (non-LibDem) MP and he or his staff have shown avoidable chaotic errors basically I believe because there is no proper accounting system in force.

Here is a modest suggestion for our party. Produce a set of standard accounting software tools for MPs to handle expenses. Build in some basic accounting double checks. Require all our MPs (and Peers) to produce and file in their core accounts monthly schedules of expenses generated by this software to back up any Parliamentary Fees Office claims. Nobody to make expenses claims unless they can produce such further systematic documentation.

Then insist that the fees office and require all MPs and so on of all parties work to the same standard. But put our own house in elementary good shape first.

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Friday, December 04, 2009

The Bonus fallacy and tournaments 

Most people, I suppose, think of a ‘bonus’ as something extra. A pay ‘bonus’ in this definition means something earned by ‘defined exceptional circumstances’ – not something paid over as routine. So good work, increasing efficiency, improved customer satisfaction – all the might earn a bonus.

The ‘Financial Sector’ likes to claim that their ‘bonuses’ are just like this, a kind of posh term for ‘payment by results’ or ‘piecework rates’. This may be the kind of hot air that suggests the collective noun ‘a Wunch of Bankers’.

The reality may be the ‘Tournament System’ so ably described for lay readers in Tim Harfords book ‘ The logic of Life’. Specifically the chapter on ‘why your boss is overpaid’.

This is how I understand Harford’s argument.

Basically most jobs cannot easily be assessed by performance by results. And jobs that involve handling big flows of money are difficult to constrain in the public interest. So what happens is a pay system analogous to a top tennis tournament. The winner, the champion, the chair of the Board, is guaranteed a huge wad of cash. Second place wins much less but still a worthwhile consolation. The aim though is to inspire the twenty or so people in the immediate lower tiers to work their socks off in order to make the organisation work. They need to be guaranteed enough money not to be seduced into rival tournaments. In turn this premier league gives incentives for a strata of much less well paid potential contenders, the people who may actually create the wealth for the organisation if wealth creation is part of the deal.

It is actually irrelevant whether the people getting the top prizes are competent or even active in the organisation. All they have to do in this system is avoid doing conscious damage, and avoid distorting the company accounts too blatantly to make shareholders pay covertly for top corporate benefits.

But admitting that the pay structure is a kind of danegeld paid out to prevent other forms of legalised looting by corporate insiders would be highly embarrassing. So the term ‘bonuses’ has been conscripted to make the general public believe that some kind of payment by results is in place.

Trouble is that when huge losses are the financial order of the day, payment by results suggest no ‘bonus payments’, in the popular sense, should be made. But if you accept that the system is a tournament, it becomes unworkable without some element of obscene overpayments.

The RBS board (and others) are trying to maintain the ‘tournament system’ without actually admitting that is what they are doing. As I understand Harford, he also believes that an element of Tournament Economics’ is inevitable, so he does not suggest a solution.

Is Harford right? If so should we be bringing in the implications of ‘tournament economics’ into our political discourse?

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very nice posting ..keep posting like this ....
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