Item 2: Third Quarter Financial Performance and Medium Term Budget Update

Item2: THIRD QUARTER FINANCIAL PERFORMANCE AND MEDIUM TERM BUDGET UPDATE

1.Purpose of Report

  1. This report updates Members on the third quarter financial performance and Medium Term Budget and seeks approval for the revision of two accounting policies.

2.Recommendations

The Authority is recommended to note the contents of the report and approve the revisions to Accounting Policies as described in Section 8 and included at Appendix 1.

3.Implications

  1. Financial: At the end of quarter three a £37,200 surplus outturn is forecast. The report also details the effect of budget changes previously agreed at Authority meetings, the effect of which reduces unallocated reserves over the period to 2019/20 by £169,600. Taken together with the forecast outturn the net impact on unallocated reserves from the report isa reduction of £132,400.
  2. Equalities: None

4.Third Quarter 2016/17: Financial Performance

  1. The third quarter year financial performance shows a surplus table 1 of £309,700, an improvement of £1,598,500 against an estimated deficit of £1,288,800.

Table 1: Third Quarter - Financial Performance

December2016 Year to Date / Actual £000’s / Budget £000’s / Variance £000’s / Full Year Forecast Variance £000’s
National Park Grant / 2,339.6 / 2,339.6 / - / -
Operating Salary and Related Costs / (1,453.3) / (1,502.5) / 49.2 / -
Operating Expenditure / (529.3) / (665.9) / 136.6 / 26.4
Operating Income / 325.7 / 304.9 / 20.8 / 4.7
Operating Net Surplus / (Deficit) / 682.7 / 476.1 / 206.6 / 31.1
Project Expenditure / (242.7) / (357.7) / 115.0 / 6.1
Project Income / 388.7 / 428.1 / (39.4) / -
Net Project Surplus / (Deficit) / 146.0 / 70.4 / 75.6 / 6.1
Sill Project Expenditure / (5,073.2) / (5,866.0) / 792.8 / -
Sill Project Income / 3,380.5 / 2,857.0 / 523.5 / -
Net Sill Surplus / (Deficit) / (1,692.7) / (3,009.0) / 1,316.3 / -
Revenue Loan Repayments / (34.0) / (34.0) / - / -
Surplus/ (Deficit) excluding loan receipts / (898.0) / (2,496.5) / 1,598.5 / 37.2
PWLB Sill loan drawn down / 1,207.7 / 1,207.7 / - / -
Surplus/ (Deficit) / 309.7 / (1,288.8) / 1,598.5 / 37.2

Third Quarter Operating Performance Explanations

  1. The operating expenditure for salary and staff related costs are £49,200 below budget, mainly reflecting the frozen Head of Operations post. The forecast underspend for the year is £33,000, however, this has not been included in the forecast summary outturn because it is envisaged the budget will be allocated to bringing in temporary additional staff resource over the remainder of the financial year or included as a carry forward request for additional capacity in the first 6 months of 2017/18 as the Authority delivers a very heavy work programme associated with The Sill.
  2. Operating expenditure shows a budget surplus of £136,600. The variations over £10,000 are:
  1. £17,000 surplus Local Plan Review, the Sustainability Evaluation Consultants have now been appointed enabling the completion of various evidence based studies over the next 12 to 24 months.
  2. £10,700 surplus on the Fundraising Costs budget. Good progress has been made against the fundraising target without the need to spend all of the budget available. Envisaged activities, events and campaigns have been limited due to capacity, however, as members agreed in December a new post has been recruited to enable the delivery of this area.
  3. £10,600 repair and maintenance for Eastburn and Coquetdale. Staff turnover has delayed spend but a list of priorities has been drawn up and progress is being made on commissioning the work required.
  4. Operating income was £20,800 higherthan budget at £325,700. The following are of note:
  5. Trading sales at the temporary facility at Walltown result in a net budget surplus of £5,500, it is estimated this will be the year end position.
  6. Car park income is £11,000 behind budget as at the end of quarter 3, at the end of January this reduces to a shortfall of £6,300. Housesteads has shown a year on year increase of £3,000 at the end of January. Factoring in the one-off impact of the Easter bank holiday weekend falling outside of 2016/17 financial year at both the beginning and end of the yearthe outturn is currently estimated at a £10,000 deficit. This is a big improvement over the forecast position at the half year mark (£20,000) and demonstrates the creation of additional capacity at Housesteads and the improved signage has had a continuingpositive impact since August 2016.
  7. The Hexham Enterprise Hub trading is forecast to overachieve the net budget target by £4,700
  8. Trading sales, car park income and the Hexham Enterprise Hub are all targets within the Income Generation section of the budget and the impact of the forecasts for each of these is recognised within that target.
  9. As income is ahead of target and expenditure is lower than budgeted members are advised that there are likely to be a number budget carry forward requests if the performance in the final quarter matches the previous three quarters.

Third Quarter Project Performance Explanations

  1. Total net project income (excluding The Sill) is showing a net budget surplus of £75,600 as expenditure is £115,000 behind plan and income is only £39,400 behind plan. The main variances are:

Expenditure:

  1. Housesteads Car Park expansion £15,700 surplus due to the archaeological reporting on the roman find being outstanding and a delay in remedial works to the bay markings resulting in late payment of the contract retention.
  2. Bulby’s Wood £14,100 surplus. The contractor has still not responded to the final valuation submitted by the contracted surveyor but based on the surveyors submission there is likely to be a budget saving of between £5,000 and £7,500. The forecast has been included at the lower end and a saving of £5,000 has been allowed for at this stage.
  3. Small Grants Fund £14,300 surplus. The fund is well committed and is forecast to spend in full.

Income

  1. Hadrian’s Wall National Trail an additional£19,000 of income generated to be used for non routine maintenance along the Trail.

Third Quarter - The Sill Project

  1. Total net project expenditure for The Sill is showing a net budget surplus of £1,316,300. The budget surplus is made up of:
  2. Sill Expenditure £792,800 lower than planned due to the main construction contract being some 4 weeks behind payment profile for reasons discussed in Item 8 on the agenda. Note project management and activity costs are together some £50,000 behind plan and in-kind contributions are about the same level ahead of plan.
  3. Sill Income £523,500 higher than planned mainly a result of HLF enabling the Authority to draw down grant via monthly rather than quarterly claims.

Full Year Forecast Variance

  1. Table 1 sets out the overall net sum of forecast variances against each of the financial reporting areas discussed above, with a total variance forecast of £37,200. This figure is the amount estimated to return to unallocated reserves and as such does not include budgets where carry forward requests are expected. £37,200 is included as a planning assumption in the Medium Term Budget Plan (Item 3 on this Agenda).

5.Medium Term Budget Update

  1. The known Budget changes reported to the March Authority meeting are as follows (note this excludes income generation and New Project Fund budget transfers which have no net impact on the deficit).

Table 2 Summary of Previously Agreed Budget changes

£000’s / 2016/17 / 2017/18 / 2018/19 / 2019/20
Dec Budget Surplus/ (Deficit) / (1,446.0) / (252.5) / 454.1 / (178.4)
Re-profile The Sill Project (Revenue element) / 386.3 / (70.5) / (230.3) / (85.5)
Staff Restructuring– Operations (Authority approved 14/9/16) / (3.1) / (17.3) / (17.4) / (17.5)
Part Release Sill Earmarked Reserve (Authority approved 14/12/16) / - / (140.0) / - / -
Fundraising, Events & Stakeholder Officer (Authority approved 14/12/16) / - / (37.2) / (38.3) / (38.8)
March Budget Surplus / (Deficit) / (1,062.8) / (517.5) / 168.1 / (320.2)
  1. The results of the capital budget re-profiling exercise were presented to the Authority in December. The effect of the revenue element of the exercise shown above completes this piece of work and provides greater accuracy in financial and cashflow monitoring.
  1. The release of the £140,000 from the Sill Earmarked reserve for the fit-out phase means the remaining reserve reduces to £32,000. Table 3 below shows the impact of the budget changes in Table 2 on unallocated reserves.

Table 3 Unallocated Reserves

6.Income Generation

  1. The outstanding income generation target is £34,100. This is adversely affected by the £10,000 forecast deficit in the car park income budget and other areas whilst the Authority focuses on the Sill. In overall terms the underachievement in the current year is estimated to be up to £25,000 less than target.
  2. The strategy of releasing the New Project Fund in balance with the expected achievement of the Income Generation target will be continued to substantially counter balance any negative effect overall on the outturn position. That is, whilst £25,000 of income is not guaranteed, £25,000 or more of new project funding will not be released.

7.Unallocated New Projects Fund

  1. Since the half year financial and budget update report the following allocations have been approved by the Leadership Team :

Opening Balance£51,600

Simonside footpath works (match funding)*£10,000

Contribution to the Redesign of the Website**£10,000

Others£1,500

Remaining Balance£30,100

* Virements totalling £5,600 were also approved from existing budgets/ projects to take the project budget for the Simonside Footpath Works to £65,600 in total.

** a nested site comprising 3 separate sites, the National Park, The Sill and the National Park Foundation)

  1. The remaining balance provides a sum great enough to offset the projected deficit against the income generation target.

8.Revisions to Accounting Policies

  1. A key area of “The Accounts and Audit Regulations 2015” is that from the 2017/18 financial year, the timetable for the preparation and approval of accounts will be brought forward to a draft accounts deadline of 31 May and an audit deadline of 31 July.
  2. To facilitate the reduced time available to complete the accounts, the Finance and Audit Group at their February meeting, were consulted on two changes to accounting policies, with the aim to simplify processes and reduce the amount of year end adjustments and movements required.
  3. The revisions to accounting policies proposed and endorsed by the Finance and Audit Group and the external auditors, Ernst and Young are: to allow a de-minimis for accruals and prepayments which can be applied of £500 and; to increase the level at which expenditure on property, plant and equipment is capitalised from £10,000 to £25,000.
  4. The revised accounting policies are included at Appendix 1 to this report with the changes made shown in bold text. The Authority is asked to approve these changes.

9.Conclusion

  1. The report shows that cashflow is far more positive (£1.6m) than anticipated and the release of funds from reserves has left significant unallocated reserves to be used in the Medium Term Budget Plan.

Contact Officer:For further information contact Hazel Fitzsimmons,Head of Finance on 01434 611504 or e-mail:

Appendix 1 Accounting Policies for Revision

Property, Plant and Equipment

All expenditure on the acquisition, creation or enhancement of Property, Plant and Equipment is capitalised on an accruals basis in the Statement of Accounts. Expenditure on Property, Plant and Equipment is capitalised, provided that the Property, Plant and Equipment yields benefits extending over more than one year to the Authority and is greater in value than £25,000. This excludes expenditure on routine repairs and maintenance of Property, Plant and Equipment which is charged direct to the Comprehensive Income and Expenditure Statement.

Property, Plant and Equipment are classified into the following groups, as required by the Code of Practice on Local Authority Accounting 2016/17 issued by CIPFA:

  • Land and Buildings are valued on the basis of the Code issued by CIPFA and in accordance with the Statement of Asset Valuation Principles and Guidance Notes issued by the Royal Institution of Chartered Surveyors. Land and Buildings are re-valued every 5 years, or earlier if individual items have a significant change that could impact on their valuation.
  • Surplus Land and Buildings are valued on an Existing Use Value as recommended in the Code issued CIPFA and in accordance with the Statement of Asset Valuation Principles and Guidance Notes issued by the Royal Institution of Chartered Surveyors;
  • Plant and Equipment - included in the Balance Sheet at the lower of net current replacement cost and net realisable value in their existing use;
  • Assets Under Construction are measured at historical cost and are transferred to the relevant asset category when they are deemed complete.

Donated assets are measured initially at fair value. The difference between fair value and any consideration paid is credited to the Non-specific Grant Income line of the Comprehensive Income and Expenditure Statement, unless the donation has been made conditionally. Until conditions are satisfied, the gain is held in the Donated Assets Account. Where gains are credited to the Comprehensive Income and Expenditure Statement, they are reversed out of the General Fund Balance to the Capital Adjustment Account in the Movement in Reserves Statement.

Debtors and Creditors

The revenue and capital accounts of the Authority are, in general, maintained on an accruals basis in accordance with International Accounting Standard (IAS) 18, applying a discretionary de-minimis of £500. The accounts reflect sums due to or incurred by the Authority during the year whether or not the amount has actually been received or paid in the year. Appropriate provision has been made, therefore, for creditors and debtors at 31st March 2016.

Northumberland National Park Authority

Meeting 15 March 2017Item 2: Page 1 of 6