To consider the attached report.
Contact Officer: Nuala Donnelly (01296) 585164
The Committee received a report on the current position in terms of the Statement of Accounts preparation, which set out the provisional financial outturn for 2018/19.
The Council was required to make available for audit its draft Annual Accounts by 31 May 2019, with a view to producing the final (audited) Annual Accounts for approval by 31 July 2019. The Accounts and Audit Regulations required the accounts to be formally signed off by the Chairman of the Audit Committee and the Director responsible for Finance.
Whilst there was no requirement to do so, the guidance to the Accounts and Audit Regulations suggested that it was good practice to give Members an early notification of the financial outcome of the previous year and to this end, the draft Statement of Accounts had been submitted to this meeting. The timetable for the preparation of the draft accounts (31 May deadline) and final approval (31 July) was earlier than previous years and had presented challenges for both the preparers and the auditors of the financial statements.
The timetable for the preparation of the accounts had been completed to a draft accounts deadline of 31 May 2019. From 1 June 2019 to 15 July 2019, members of the public and local government electors would be able to inspect the accounts of the Council for the year ended 31 March 2019 and certain related documents. A copy of the Council unaudited statement of accounts was also currently available on the Councils website.
The Committee was informed that the Council’s accounts were subject to external audit by Ernst and Young (EY) LLP. In May 2019, the external audit team had informed the Council that they would be unable to carry out the audit to meet the 31 July 2019 target date. The deadline represented a target date for the publication of the accounts and was not a statutory deadline.
As referred to earlier during the meeting, Ernst and Young had cited exceptional levels of staff vacancies leading to staff shortages as the primary reason for the delay, with AVDC being 1 of 19 authorities affected by it. The Public Sector Audit Appointments (PSAA) who contracted with EY had supported the decision to delay, on the understanding that the delay would ensure the required high quality of audit, and outweighed any considerations over timeliness. The NAO, MHCLG and the LGA had also been informed of the decision. AVDC had not been consulted on the delay and had been presented with a “fait accompli”.
The formal audit was now scheduled to commence on 2 September 2019 and continue for 4 weeks. The final accounts would then be presented to the Audit Committee on 25 November 2019 where Members would be asked to consider the approve the statement of accounts. The Audit Committee would also be asked to consider the findings of the annual review of the effectiveness of the system of internal control, approve the Annual Governance Statement and consider the Annual Audit Letter.
The Accounts presented detailed the Accounts for the Authority but also extended to the group financial statements where the Council had material interests in subsidiaries and joint ventures. The accounts includes results for Aylesbury Vale Broadband, Vale Commerce and reflected the material interest in Aylesbury Vale Estates.
Local authority financial statements had to comply with CIPFA’s Local Authority Code of Practice, which was based on International Financial Reporting Standards (IFRS), and also the requirements of accounting and financing regulations of central government. The year end position within the Statutory Accounts contained transactions that were required by the Accounting Regulations. These transactions were intended to provide a complete picture of the Council’s financial affairs during the course of the year.
The report explained the key features of the primary statements and notes that made up the set of financial statements. These included:-
Narrative Report/Explanatory foreword: which provided a commentary on the financial statements, including an explanation of key events and their effect on the financial statements. The explanatory foreword reconciled the year end financial position reported to Members (the outturn) to the statutory financial accounts.
Annual governance statement: The annual governance statement (AGS) set out the arrangements the Council had put in place to manage and mitigate the risks it faced when meeting its responsibilities. The AGS explained the risks facing the authority and the controls in place to manage them. While the AGS was prepared by the authority at the end of the year, it was built up from processes designed, run and tested throughout the year.
Movement in reserves statement (MIRS): Reserves represented the authority’s net worth and showed its spending power. Reserves were analysed into two categories: usable and unusable. The movement in reserves statement (MIRS) analysed the changes in each of the authority’s reserves from year to year. The statement provided detail on what had caused the movement in each reserve.
· Usable reserves: these resulted from the authority’s activities and included the General Fund, earmarked reserves and capital receipts reserve.
· Unusable reserves: These were derived from accounting adjustments and could not be spent. They included pensions reserve, revaluation reserve and the capital adjustment account.
Comprehensive income and expenditure statement: The comprehensive income and expenditure statement (CIES) reported on how the authority had performed during the year and whether its operations had resulted in a surplus or deficit. The CIES included cash payments made to employees and for services, as well as non-cash expenditure such as depreciation and accruals. It also showed all sources of income received and accrued in the year. The CIES showed the accounting position of the authority before statutory overrides were applied. It analysed income and expenditure based on services. This included:-
· Cost of services: Presented in a standardised format as set out by the Service reporting code of practice for local authorities. This included service specific income and expenditure.
· Other operating income and expenditure: This included the surplus or deficit from the sale of property, plant and equipment.
· Financing and investment income and expenditure: This included interest payable and receivable.
· Taxation and general grant income: This included revenue from council tax and the revenue support grant.
· Other comprehensive income and expenditure: Items that were not allowed to be accounted for elsewhere in the CIES, such as increases in the value of land and buildings and changes in the actuarial assessment of pension liabilities.
Balance sheet: The balance sheet was a ‘snapshot’ of the authority’s financial position at a specific point in time, showing what it owned and owed at 31 March 2019. The balance sheet was always divided into two parts including (a) assets less liabilities and (b) reserves.
The main elements of the balance sheet were:-
· Non current assets: including property, plant and equipment, heritage assets, intangible assets, investment property. Non-current assets had a life of more than one year. For AVDC, the biggest balance by far was property, plant and equipment. These were tangible assets that were used to deliver the authority’s objectives.
· Current assets: included cash and other assets that, in the normal course of business, would be turned into cash within a year from the balance sheet date. Other assets included investments, non-current assets held for sale, inventories and debtors.
· Current liabilities: Comprised short-term borrowing, trade creditors, amounts owed to other government bodies and receipts in advance.
· Long-term liabilities: Included borrowings, any amounts owed for leases and private finance initiative (PFI) deals. There would also be an estimate for the cost of meeting the authority's pension obligations earned by past and current members of the pension scheme.
· Reserves: These were usable and unusable reserves.
The Accounts also included a number of other statements:-
· Cash flow statement: Set out the authority's cash receipts and payments during the year, analysing them into operating, investing and financing activities. Cash flows were related to income and expenditure, but were not equivalent to them.
· Collection fund: Showed the transactions in respect of council tax.
· Group accounts: Prepared if the authority had a significant subsidiary, such as a local authority trading company. It Showed the combined income and expenditure and balances of all the constituent bodies
The Accounts also included Additional disclosures, contained within the notes to the financial statements. These included:-
· Accounting policies: setting out the accounting rules the authority had followed in compiling its financial statements. They were largely specified by International Financial Reporting Standards and the Local Authority Code of Practice.
· Estimates: The authority might need to use estimates to value assets, liabilities and transactions. The major sources of estimation uncertainty should be disclosed if there was a significant risk the estimate would need to be materially adjusted next year.
· Property, plant and equipment: Details about assets acquired and disposed of during the year, whether they had been revalued, the impact of any changes in value and the amount of depreciation charged.
· Leases and PFI schemes: Set out how much would be paid annually to leasing companies and how much would be paid in total over the lifetime of the agreement.
· Employee remuneration: Details of the pay of the most senior officers, all officers’ remuneration, disclosed in bands, and the cost of any redundancies. Other notes showed the annual cost and cumulative liabilities of pensions.
· Contingent liabilities: Details of possible costs that the authority might need to meet, but had not charged to the CIES because it was thought that it would probably be able to avoid them.
The Quarterly Financial Digest: 2018/19 Year End Position
The Statutory Accounts only present actual expenditure and income, without reference to budgeted levels. Therefore, whilst the accounts presented the definitive position on the Authority by way of its financial resources, it did not inform on whether this was planned or the expected position.
The Quarterly Financial Digest was the primary reporting tool for in-year financial management and provided management information designed to explain significant financial events which had occurred during the year by comparing them with the expected or budgeted equivalent figures.
The Quarterly Financial Digest for the financial year 2018-19 had been submitted to the Finance and Services Scrutiny meeting on 2 July 2019. Based on the provisional financial results for 2018/10, Members were informed that the provisional financial outturn reported a surplus of £0.432m for the financial year when comparing actual expenditure against that budgeted (before the transfer from general fund balances).
The outturn was better than planned by £192,000 and better than forecast by £535,000. A planned surplus of £240,000 had been assumed in budget plans for 2018-19.
As a consequence of the outturn, the General Fund balances would be marginally higher than predicted as at the end of March 2019. The level of general balances for the financial year was now £2.353m, that was above the minimum assessed level of balances that the Council should hold.
The Committee report included a schedule showing the Council’s 2018/19 revenue outturn position.
Members were informed that the year end financial position was largely being driven by above budgeted levels of staff costs. There had been a need during the year to employ agency staff in a number of key operational areas to support project work and service delivery. This had been incurred for reasons including:-
· To support funded project work e.g. Connected Knowledge programme and GDPR.
· To support service delivery where there were vacancies or activity related pressures.
· To provide flexibility of service provision.
It was explained that the use of agency staff incurred a premium cost and adverse variance to agreed budgets, and had been largely as forecast. It had been largely possible to offset these costs with additional efficiencies and income, which was described in detail in the Committee report.
A number of factors had contributed to changes to the budget forecast for 2018/19 including:-
· An increase of £96,000 on portfolio spend – due to increased levels of staff costs and a revision to income targets and other spend levels.
· Lower than anticipated collection fund levy.
· Realisation of dividend payments not previously forecast.
· Above planned levels of business rates income particularly retained enterprise zone relief.
· Lower than forecast spend against the contingency budget, where it had previously been assumed that this budget would be fully utilised.
· Higher than planned interest payments and lower borrowing costs.
Capital Outturn 2018-19
The Council had spent £9.166m on the delivery of its capital programme in 2018/19. Of this, £3.024m has been incurred in the creation of new assets including the Public Realm Waterside North and the Pembroke Road depot scheme. A further £6.142m had been incurred to support capital development in relation to financing for the Public Realm Waterside North scheme and also the Enterprise Zone at Silverstone.
Capital expenditure was financed by revenue contributions and capital receipts. It was anticipated during the year that a significant element of the programme would be funded from prudential borrowing.
The Council had taken a prudent approach to financing the capital programme by deploying revenue reserves and cash balances instead of using external borrowing where possible as this produced a lower net cost. The change in funding had therefore reduced the on-going financing cost of the capital programme.
Reserves and Balances
General fund balances would be marginally higher than predicted as at the end of March 2019. The level of general balances for the financial year was now £2.353m, which was above the minimum assessed level of balances to be held.
A schedule showing the detail of the general fund was submitted.
A full list of reserves and provisions had been included in the Statement of Accounts. As at 31 March 2019, the Council was holding £30.608m as reserves
(1) That the current position in relation to the statutory accounts preparation and the outturn, and arrangements for their audit be noted.
(2) That the provisional financial outturn position for 2018-19 be noted.