 Hello, colleagues. We are now turning to the second of the workshop sessions that were introduced in our first session some time ago. This one focuses on the identification of the in-scope institutional units that are components of the TSE sector. And the task here is to identify the features that make these institutional units truly in scope. And this is not an easy task because the terminology and the features that characterize the in-scope units are sometimes difficult to determine. So just to remind you, we determined in the initial of these workshop sessions that we had identified a set of institutions as well as individual action features that are in scope of this TSE sector. And what makes them in scope conceptually and logically is that they embody three very significant conceptual notions that really differentiate them from other sectors and other institutional units and even other individual purpose activities. These three features, these three attributes are first, private-ness. They're part of the private sector. Secondly, that they are primarily embodying the idea of public purpose. So even though they're private, their purpose is public. And thirdly, the participation in them is by free will, that there's an element of volunteerism in there being part of this particular sector. The sector attracts people, workers, as well as members on the basis of free will. But these three attributes are somewhat difficult to capture in the rough and tumble world of national accounting. They're very fuzzy and they're open to all sorts of ambiguities. And so what we've had to do is to identify a set of operational criteria that will identify these entities and pull them out of the rest of the SNA system. And what makes this difficult is that these units are actually present in more than one sector of the SNA system. So that the core sector, the core SNA, does not do a very helpful job of pulling these out. We saw this in the first session where we identified that the five components, the five subsectors of the SNA system, almost all have some entities that we would identify as part of the TSE sector. And our challenge is to pull them out. So NPIs for sure are separated among all the different sectors. There are some NPIs in the non-financial corporation sector. There's some in the financial corporation sector. There's some in the government sector. And there's some in the special sector called NPIS in SNA, nonprofit institutions serving households, which was a sector that was broken out for the first time in the 1993 SNA. But the same is true of the other potential components of this TSE sector. The cooperatives and mutuals also are split among these different sectors. There are commercial nonprofits that are market producers. And there's some in the financial area, mutual insurance companies, for example. But some of those fit the criteria for the TSE sector. And as you'll hear, some of them don't. And therefore, our task is to pull out the ones that truly do belong, that truly are in scope. And the same thing, of course, is true of social enterprises. Some of them are truly have the appearance and character of market producers and for-profit companies. And others are clearly in scope of the sector by virtue of their public purpose activities. So to do this, we had to come up with operational definitions. And we came up with a definition that has five key features as differentiating the TSE sector unit entities from other entities that are in the SNA. First of all, they are organizations. Secondly, they are self-governing. That is, they have their own capability to govern themselves. Third, they are non-compulsory. That is, participation in them is not required by law, except under very special circumstances that we will discuss. Fourthly, they are private. They're part of the private sector, not the government sector. And then finally, they are total or completely or partially limited in the distribution of any profit that they might earn. And this is a very crucial component of the definition that we have to work our way through. So in order to determine whether a set of institutions really belongs in this TSE sector, we've created a set of decision trees that we have to work our way through in order to make these judgments about particular groups of organizations. And I should emphasize that this does not have to be done organization by organization. It needs to be done by groupings of organizations. And the groupings can be legally specified or specified in other ways. First, we have to ask this question, is this class of organization really an organization? Does it have the attributes of an organization? And I'll come back and we'll walk through what that means. Secondly, is it self-governing? If it's self-governing, then it can be included. If it's not self-governing, it is out of scope. Is it private? Again, yes means that it could be if it fits the other criteria, if no, it's out of scope. Similarly, is it non-compulsory? Is participation a matter of choice for people? If it's yes, yes, it can be included if no, out of scope. Finally, does it totally or significantly prohibit profit distribution? If it does have a significant distribution limit, and if it is in bylaws or if it is in the law, then it is in scope. And if it has met all the other criteria specified before, then it is out of scope. And if it is not limited in the distribution of profit in the way that we will describe, then it is out of scope. So the task of compiling the institutional units is to run through each of these tests and satisfy yourself that the unit does meet the test. And only if that set of units meets the test and all of the tests can't skip one has to meet all five, only then is it treated as part of the TSE sector satellite account. So let's look at the first one, the organization test. There are really two tests for an organization. Each one of them is a little bit complicated. Certainly the second is, the first one is, is it legally registered? Is this class of organizations legally registered? This is not the only test because there are countries in which certain of these entities are not legally registered, are not, there's no legal category for them. This has been the case in some countries for nonprofit institutions for some time, for example. And in those countries, we cannot rest our case entirely on the legal registration, we have to look beyond it. Where do we look? We asked this somewhat more complicated question, is it socially recognized as an organization? And for that, it needs to have a certain degree of permanence to it. It needs to have some structure to it in the sense of a leadership pattern. It has to have a degree of continuity to it. So if three people meet for coffee one morning at a coffee shop and have a very interesting conversation, that does not make it an organization. It has to have a little more in a way of substance to it and permanence to it than that. So once we have settled ourselves, settled the question of whether it's an organization, we can then go on to the next key criteria test, which is whether it is self-governing. And this one becomes a little more complicated with four different questions that we have to satisfy ourselves about with regard to all of the different types of organizations that would be considered in scope. Can it own assets and incur liabilities in its own right with its own authority? Secondly, could it engage in transactions with other units in its own right? These are classic SNA concepts of what is an organization and what is a self-governing organization? Thirdly, does it bear full responsibility for its operations? That is, can it be sued? Is it responsible for any debt that it takes on? And then finally, fourthly and probably most importantly, can its governing body dissolve itself on its own authority? In other words, can the organization or can the class of organizations act on its own authority to put itself out of existence? To give you an example in the United States, we have both publicly owned and operated universities and privately owned and operated universities. My own university, Johns Hopkins University, is a nonprofit institution that fits the criteria of being self-governing because our board of directors could tomorrow decide to put the university into a receivership to put it out of existence. We have laws that stipulate that any assets have to go to a similar nonprofit institution, but fundamentally the board has it on its own authority to put itself out of existence. The University of Maryland, which is in the same state as my Johns Hopkins University, it is a public university. And for the board of that university to put itself out of existence would require the approval of our state legislature because it was the legislature that created the university. And so the board does not have that authority. And so this differentiates very clearly a public institution, government owned institution from a private institution. And it's a good way to specify what is meant by this self-governing test. So the next criterion is the non compulsory test. And in this one, there is also a series of steps to be determined. And it's actually a little more tricky than the ones before. The first question is, is membership or participation required by law? You would think that the answer to this has to be no, but in this case, it can be required by law and still fit the criterion if certain other features are stipulated. One of those features is whether the entity or the class of entities is a trade union or a labor union or similar occupational association. The reason this is here is that we have many cases in many countries in which occupational associations essentially administer compulsory laws about the qualifications of the people practicing a particular occupation. This is true, for example, very frequently in the law in bar association so-called or in medical associations where the government has essentially given over to an occupational association, a nonprofit association, the responsibility of testing potential practitioners of the medical profession. So in order to practice as a doctor in a particular jurisdiction, you have to pass a test and the test is administered by this occupational association. The test is required but the association remains a nonprofit. Thirdly is practicing the trade or occupation a matter of choice. And here's how the fact that it may be required by law is reconciled with the notion of it's being an occupation that's practiced by choice. So even though the requirement to belong to the association and pass its test is enforced by law, so long as the choice to practice the occupation is truly a matter of choice then this organization can still be part of the TSE sector. And so there's a difference between the requirement to meet a standard that is administered by an association and the right to choose the occupation that one is practicing. So if your choice to be a lawyer is free and you have to pass a law board exam, the board, the association that administers that exam is still itself in scope of the TSE sector. And then finally, can members terminate membership or participation by choice? In other words, can you drop out of the association? Can you choose not to practice law and therefore not pay the dues or belong to the bar association? And as long as that is open to you, then once again the unit is non compulsory and it passes this non compulsory test. The next test is the private test, another very crucial test for entities that are in scope of this TSE sector satellite account. First test, does it have judicial authority over other units in its own right? This is in a sense the definition of what governments are. Governments are entities that have control over other units. And so if this set of units has judicial authority over other units in its own right, it's out of scope. It is thereby a public or governmental unit as opposed to a private unit. So this is the first test. And similarly, if the government appoints the members of its governing body, it is probably out of scope unless the appointees can be overruled. So these first two essentially define units that are governmental in character as opposed to private. The third one is a kind of mixed test. Does the organization receive financial support from government? The answer turns out to be yes, it can and still be included, but only under certain circumstances. And that is the circumstance that's specified in number four. Does the government provision of revenues need to control? And if the answer is yes, then it's out of scope. But the receipt of financial support from government does not itself kick the entity or type of entity out of the TSE sector satellite account. It is still in scope of the satellite account. And this has been an area of some confusion within the SNA because it used to be that the SNA defined government control as government funding or significant government funding. But in the 2008 SNA, this was very significantly revised and the receipt of government funding was no longer a criterion that through a set of entities out of the TSE sector or out of the nonprofit sector and put it into the governmental sector. So if the unit can refuse government funding, or if the government funding does not yield control of the organization's policy, and if the organization can dissolve itself under its own authority, if it meets all of those criteria then it is in scope. And if it misses those criteria, then it is out of scope. So the unit is private when it's not controlled by government, even if it gets funding from government. It is out of the sector if it exercises jurisdiction and authority over other units, or if the government controls the board and controls the organization as a consequence. But financing alone does not render it out of the sector. And there are many points of confusion about this particular test. And so in the manual, we have specified this a little more clearly. There are certain units that are out of scope by convention in the SNA. These may be known to you. They are out of scope of the TSE sector because they are by convention governmental units, even though they have a degree of independence from the central government. This of course involves central government agencies like the various ministries of the government. It also includes the central bank, even when the central bank may have certain degree of autonomy from the central government. It includes all of you in the statistics office. Even when you have a certain degree of independence yourselves, the statistics office is treated by convention in the SNA as part of the government and not a private entity. Similarly with local government agencies, with intergovernmental bodies, and even with government run pension funds that are themselves operating with a degree of independence. These are all by convention in the SNA already identified as governmental units. And then there are some other units that may be hybrid. There may be some public ones and also some private ones. This is certainly true of educational institutions as I indicated. It's also frequently true of healthcare providers like hospitals. In some countries we have both private hospitals and public hospitals. Social assistance providers, political parties, even some foundations can be considered, have the attributes of being governmental institutions. And so what's required is that each of these has to be tested for government control to make sure that they meet the criteria that were spelled out in that previous slide. And the same is true of labor unions, of professional associations like the medical association that I mentioned, business associations, youth organizations, and even in some countries that have their own state religion, religious organizations. So these are not automatically governmental but they have to pass muster and therefore there has to be a careful review of their characteristics to see whether or not they do meet the privatism test. The next test and is the last one is in many respects the most significant. This is the profit distribution test and it comes in two parts. The first part asked a question of whether the unit is a market or a non-market producer. A market producer in SNA as you know is a unit that receives the bulk of it's the majority of its income from the sale of goods and services at market prices. This is the stipulation of what a market producer is. And if the entity or the class of entities is a non-market producer, that is if it does not sell the majority of its output at market prices, then it goes into what in SNA is called the end-pish sector, the non-profit institution serving household sector. These are non-market entities. They do not generate profit obviously and they do not generate income from the market. They are non-profit institution serving households. If you're on the other hand a market producer, if you're set of organizations you're examining are market producers, they still may be part of the TSE sector if they meet the other characteristics and if particularly they meet the limited profit distribution characteristic. So we have to take a look at that criterion. And for this we have stipulated a whole variety of features that have to be tested. First of all, is there evidence in the bylaws or other material of the organization that it has a significant social mission, a mission to serve the public, to do public purpose work. Is this a significant part of its basic mission? And this is sometimes in the law and sometimes in organizational articles of confederation of organization. It will stipulate what the organization's mission is. A second key criteria for determining profit distribution is what's called a capital lock. A capital lock is a stipulation that any assets that the organization accumulates and keeps in its own books. If the organization goes out of existence the organization is obliged to transfer those assets to another in-scope organization that will serve the same purpose. In other words, the assets that are retained a profit that is not distributed has to be dedicated to another similar type organization if the organization itself is transformed into a for-profit or if it goes out of existence. So the capital lock becomes a second test of what happens to any retained profit. The third feature is whether it is totally prohibited from distributing profit. The criterion in general is significantly limited but if it's totally prohibited then it is a non-profit institution because in the SNA an entity that is perhaps a market producer that nevertheless is totally prohibited from distributing its profit to investors or to managers or stakeholders. That is the core definition of a non-profit institution and all these entities that do have a total prohibition on profit distribution that have met all the previous criteria would be considered NPIs and would be in scope of the sector. So the answer is if it's totally prohibited from profit distribution, yes, it is in scope. And then comes the significantly limited profit distribution constraint. If it's prohibited from distributing more than a half of any surplus that it earns then it is also in scope of the TSE sector. But then there are entities that can fail this test but still be included if they are keeping profits at a higher level because they essentially are earning limited profits because they are restraining themselves to producing a social mission. So let's take a social enterprise that is required by law or by its mission to serve only to employ only people who are disadvantaged in some disadvantage. They may be former prison inmates or they may be drug addicts who have recovered. And if the organization is obliged by its mission or its laws to hire those people particularly at a higher level, this would likely reduce their profit because there are certain requirements that they have to perform in order to serve these people well and keep them on the straight and narrow from their addiction or their criminal behavior that reduces their profit because it increases their cost and therefore it may appear that they're distributing more than 50% of profit but they truly are a social organization. And so they are in scope even though it appears that they may distribute more than 50% of their profit to other entities and maybe investors or others but it is an indirect increase in the amount of profit they distributed and it's a product of the fact that they are incurring extra costs which then translate into a higher share of the surplus being distributed because the surplus is so small. So these are the five characteristics, the five tests, the decision tree that one must go through in order to decide whether particular classes of organizations are in fact in scope of the sector. So this gives us a visual picture of what the TSE sector looks like. It is a sector with multiple wiggles and characteristics and it identifies the components that are included and you'll see the dividing lines. There are certain social ventures that are truly corporations. They do not meet this limited profit distribution case at all but there are others that are within the TSE sector. So we have to make divisions between the in scope and the out of scope components that have the same legal status or the same legal structure but that not all of which are included in the TSE sector. The same is true of cooperatives and mutuals. Some of them are clearly inside the TSE sector because they have a capital lock. They have a limit on their distribution of profit but some cooperatives are every bit like for-profit companies. There are huge insurance companies for example that are organized as mutuals but that don't meet these criteria of having a significant public purpose that limit their profit distribution to their stakeholders or that have a capital lock attached to their operations. And the same is even true of the volunteer work which we will be getting to next time. There is some activity without pay that is excluded from the third sector, the TSE sector but there is some that is included and it can be direct volunteer work as well as organization based volunteer work. So these are the complexities of coming together with a clear idea of what is the in scope components of this TSE institutional units. And so this next slide gives you a sense of some of the types of institutions that could be considered to be inside the TSE sector scope. And with many of them, not all of them in a particular country may fit all the criteria. And so the task may be differentiating which are in scope and which are not in scope. Associations probably all of them are included in most countries. Similarly with foundations though there are occasionally governmental foundations. When it comes to hospitals, it's not unlikely that some of the hospitals in a particular country may be in scope of the third sector. They are a non-profit in character or they are otherwise limited in their distribution to profit but there are others that are public institutions and some that may be for-profit hospitals. And so knowing that their hospitals is not sufficient. It's important that you determine that they are truly private in the ways that we've defined and that they are truly non-profit distributing or they are significantly limited in their distribution of profit. And the same is true of schools and universities. You can have public ones, you can have private ones and you can have private for-profit ones and you can have non-profit ones. Labor and professional organizations probably more likely to be all included particularly if the laws that they administer in the way of organizing and testing professional workers are applying to professions that themselves one has a choice about entering or not. Cooperatives and mutual societies inevitably there will be some for-profit and some that are in scope of the TSE sector as cooperatives with a significant mutual or social purpose to them. Similarly with social enterprises and in the case of so-called sheltered workshops these are workshops that are employing people who have had some disadvantage attached to them that has increased the cost of the activity that is done by the workshop, by the organization and they can be included even if they distribute more than half their profit because their profit has been constrained by the necessity of employing people with this disability. So it is a somewhat complicated story all of the NPIs are all of the entities that end up in the end-pish sector are included in the TSE sector. And the TSE sector though can include nonprofits that are in S15 which is end-pish or S11 and S12 which are non-financial and financial corporations. It can include some cooperatives and mutuals that are in these corporate sectors as well if they meet the criteria and it can include some of the social enterprises the ones that also may be allocated in SNA to S11 or S12. And so what that means is that those of you compiling the TSE satellite account have to pick up institutions some of which are allocated already to these other sub-sectors these other institutional sectors within the SNA and the ESA. And it's not sufficient to just pick up end-pish though all of them should be included but it's necessary to go through entities that may have these legal characteristics but not belong in the sectors to which they have been allocated but rather in the TSE sector. So how do we find these entities? How do we go about looking for them? This is the last topic that we'll need to take up in this workshop. There are many different sources to go to and a whole procedure that you have to run through. Probably the easiest way to start is to look at tax records and legal records. Legal records would include the laws on these different kinds of organizations. So there may be laws about nonprofit institutions. There may be laws about cooperatives. Sometimes a country has a single law on cooperatives. Sometimes it's broken down into different types of cooperatives, purchasing cooperatives, consumer cooperatives, agricultural cooperatives, et cetera. And each one of these has a legal character to them and in those laws one should scour to see whether there are legal limits on the distribution of profits. Another place to look is in tax records. Tax records will very frequently identify certain characteristics of organizations that allow them to escape taxation. They can be incentivized through the tax system and guaranteed and rewarded for the fact that they are serving public purposes. And so they may be given certain tax breaks compared to other entities. And these tax breaks may be a trigger that will tell you that they are a public mission purpose. They may have a limitation on their distribution of profit that will also be a clue. And then when all else fails it's appropriate to make contact with various umbrella groups or experts in your country that will have information about who is or is not a cooperative or a nonprofit institution or a social enterprise and which ones meet the criteria that we have specified for in scope characteristic for the satellite account. So these three components are the three places that you can go to look. And I think what you're looking for are various flags. They will identify these things as TSE units. So the major ones are listed on the left side of this slide in green. The legal form or the legal status of the organization the tax status of it. The ownership type, is it owned by members? Is it owned by some political entity? Is it a for-profit entity that is in control of it? And then finally the industry, is it in the health field? Is it in the education field? What field is it in? And that can sometimes be a clue. The fallback flags are the things to look at if you cannot find any other basis for making these judgments about the characteristics and features of the organizations. First of all, you can look at their financial statements and see if they have significant transfer income. Transverse typically are charitable contributions, for example. If an organization has significant charitable contributions that's a clue that it probably is in scope of the TSE sector. Similarly with member dues. Member dues are a clue to the existence of cooperatives. The absence of dividends. Dividends are payments that are made to investors. So they essentially are a clue that the organization is distributing profits because it's paying dividends. And then various employee compensation programs may only be available to certain kinds of organizations with certain kinds of features that are the type that would qualify it for being in scope of the TSE sector. So these are the types of things to look at and they will differ of course from country to country. And so finding and deciding whether they are sufficient requires a certain amount of understanding. And as you'll hear at the end of this session, we have developed a certain amount of information about these characteristics at our center at Johns Hopkins. We have a team that can be of assistance to you as you work through your own statistical system to figure it out whether the units you're looking at truly do meet the standards of this new United Nations handbook which we were very deeply involved in putting together. So to compile the picture of the in scope units, you start with the organizational universe in the economy that is your business register and you identify subsets within it that are likely to contain potential TSE sector units. They may be defined by various laws. They may be certain kinds of co-ops, certain kinds of nonprofit entities, certain kinds of social enterprises if there is a law on social enterprises. And then you test whether units in each of these subsets meets the five definitional criteria. If all the units meet the test, then you can conclude that the entire subset can be included in the TSE register. But if some but not all the units meet the test, then you have to subdivide the test, the subset and test whether each one of these subdivisions meets the five definitional criteria. And you have to continue to do that until you have only in scope units left. So you repeat this whole process on the different subdivisions. So for example, let's assume that you have many different laws on different kinds of cooperatives instead of one general generic law on cooperatives. You would have to break each of them apart that is take each subset of them, the agricultural co-ops, the producer co-ops, the consumer co-ops, the housing co-ops and for each of those individually run them through the five tests and determine whether all of them in that particular unit meet the test or just some of them in that subunit meet the test and do that for each one of the subdivisions and keep subdividing as you go until you have the pure gold of in scope units that have passed all the tests and deleted the ones that have not passed the test. And then you can attach a flag in your computer files for all the units that meet the five criteria for inclusion in the TSE register. And so this is a bit of an elaborate process and it will take many months or several months to run through depending on the character of your data in your business register and other information. But there is a pretty sophisticated understanding of the way in which this proceeds and some good experience with other countries that have made these choices as they've run along. It tends to be the case that the cooperatives, mutuals and social enterprises are the most complicated because they are the ones that have both in scope and not in scope components. And so you can't just throw all the cooperatives and all the mutuals and all the things that claim that they're social enterprise into the mix. It's essential that you go through the arduous task of evaluating these different subunits, subsets to be sure that you are not including things that are inappropriate to include. So let me close now and then just remind you again of what I just mentioned that our center is available to provide direct training and technical assistance to your statistical agency as it works through the implementation process. We've got a lot of experience working with other countries already in doing this. We would have to charge some modest fee to cover our time for this kind of technical assistance work. And we invite you to contact us at the website that is listed here or at the email address that's listed here to begin a conversation about how we can be of help to you if you want to have our assistance. And again, we have a whole set of working documents that we have devised in order to help countries go through this process, a set of field guides and our process is to invite the country to fill out the field guides, to submit them to us. We then review them very carefully and see whether they have applied the criteria appropriately. On the basis of that, we would write back a memo that would point out some things that we think need to be further explored or we basically approve the things that you have already done. And through this kind of exchange, we can assure ourselves and assure you that what you're producing truly is comparable to what other countries are producing. And it does not make any sense to go through this SNA process and violate the central goal of the SNA which is to produce comparable data across multiple countries. And so we invite you to be in touch with us and see whether we can work out an arrangement that is suitable for you and works for us as well. So thank you, we go on the next workshop to look at the definition of volunteering that is built into this handbook and I'll look forward to talking with you then.