C10 Contingent Liabilities

Background

Contingent liabilities are potential calls on Government funds, i.e. dependent upon particular events happening in the future.
They include commitments to pay subscriptions to international financial institutions, guarantees, indemnities and letters of comfort whether given in the normal course of business or otherwise.

Contractual commitments, or commitments to pay grants in future years, do not count as contingent liabilities when made in the normal course of DFID's business.
Certain contingent liabilities have to be reported to Parliament, e.g. those for which we do not have statutory authority (i.e. activities not covered by legislation). They are reported by Financial Management Group (FMG) by way of a Departmental Minute.

Compliance Tasks

1. Programme Guidance Risk and Assurance Group (PGRAG) and Financial Management Group (FMG) must be consulted if it is proposed that DFID give a guarantee, indemnity, or a letter of comfort.

Task assigned to: All Staff

2. A contingent liability must only be accepted when it is absolutely necessary for an activity to proceed, or where statutory authority for specific activities already exists.

Task assigned to: All Staff

3. Before any contingent liability is accepted, whether in the normal course of DFID business or not, Project Staff must make a careful appraisal of the risks, including where appropriate, the legal aspects and consult PGRAG and FMG.

Task assigned to: All Staff

4. A guarantee or indemnity not covered by statutory authority for more than £250,000 (Two hundred and fifty thousand pounds) must be notified to Parliament by FMG, by Departmental Minute, and before acceptance of the liability.

Task assigned to: All Staff

5. Spending Departments must review all their liabilities, reportable or not, at least once a year as part of the annual Resource Accounts.

Task assigned to: All Staff

Risks of non-compliance

• Unexpected call on Public Funds
• Spending not consistent with the International Development Act (IDA) 2002 and the Human Rights Act (HRA) 1998
• Potential criticism from Internal Audit and National Audit Office.