Not all Surpluses are bad!

As a finance professional working in social housing, I have watched with some dismay and increasing irritation the media fuelled witch hunt about the increasing surpluses that some housing associations are publishing in their statutory financial statements.

accounting-imageAs any accountant will explain to you, if you bother to ask them, the surplus in an income and expenditure account has become an increasingly abstract concept. It definitely isn’t the spare amount of cash that some would seem to have us believe. It is an attempt to measure the financial performance of an organisation using a very specific and increasingly complex set of rules. The size of surplus is much less important than what it is being used for – as there are a number of very legitimate and indeed planned uses of such surpluses. These uses are accounted for in different ways so that they do not go through the income and expenditure accounts of organisations but will be clearly seen elsewhere in financial statements. Typically in the nearby Cashflow Statement!

Legitimate and worthy uses could include:

  • building or buying additional social housing
  • repaying finance used to build or buy social housing, including in some cases buying it from local government under the stock transfer regime.

When I look at many social landlords financial statements I see that most of their vilified surpluses are being used almost exclusively for the above two purposes but seldom is this mentioned in the irate press. Instead there seems to be an inference that these surpluses are a sign of some kind of abuse of their social purpose. This I could understand if these surpluses were being used to pay large dividends to shareholders or large bonuses to staff. But hardly any social landlords have share capital that pays out any kind of return and if bonuses were paid these would actually reduce the surpluses.

So my plea is to look a few pages on in financial statements and see what uses any surpluses are being put to before condemning organisations for betraying their purpose.

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About Sean Kent

Accountant and non-executive director based in Norfolk. Interests include coaching, food, wine and technology.
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