STATEMENT OF ACCOUNTS 2005/06
Contents Page
Explanatory Foreword by Head of Finance 2
Financial Statements: -
1.Statement of Responsibilities for the Accounts 5
2.Statement on the System of Internal Financial Control 6
3.Statement of Accounting Policies 7
4.Consolidated Revenue Account10
5.Housing Revenue Account15
6.Council Tax Income Account17
7.Non-Domestic Rate Income Account19
8.Consolidated Balance Sheet21
9.Statement of Total Movements in Reserves33
10. Cash Flow Statement37
11.Common Good and Charitable Trusts39
12Group Income and Expenditure Account40
13Group Balance Sheet41
14Statement of Total Movements in Group Reserves42
15Group Cash Flow Statement43
16Independent Auditors Opinion47
EXPLANATORY FOREWORD
BY THE HEAD OF FINANCE
Introduction
The financial statements represent the financial position of Clackmannanshire Council as at 31st March 2006. These have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom.
The purpose of these Accounts is to provide clear information about the Council’s financial position and this explanatory foreword is intended to give the reader an easily understandable guide to the most significant matters reported in the financial statements.
Financial Statements
The statement of accounts comprise of the following:
A Statement of Responsibilities for the Accounts (Statement 1), which sets out the respective responsibilities of the Authority and the Head of Finance for the accounts.
A Statement on the System of Internal Financial Control (Statement 2) which sets out the framework within which financial control is managed and reviewed and the main components of the system, including the arrangements for internal audit.
A Statement of Accounting Policies (Statement 3) that explains the basis of the figures in the accounts and outlines the accounting policies adopted.
Statements 4 to 7 cover the revenue expenditure activities of the Council. Revenue expenditure represents costs incurred every year providing services in that year. There are two main categories of Revenue expenditure, the Housing Revenue Account and the General Fund. The Housing Revenue Account (Statement 5) reflects the statutory requirement to account separately for local authority housing provision. It summarises the income and expenditure associated with the provision of council housing. The Consolidated Revenue Account (Statement 4) brings together expenditure and income relating to all the Council’s activities. It compares the cost of service provision with the income received from fees, charges, council tax and specific grants. The Council Tax Income Account (Statement 6) and the Non Domestic Rate Income Account (Statement 7) provide further details behind the relevant financing figures in the Consolidated Revenue Account.
The assets of the Council at 31st March 2006 are shown in the Consolidated Balance Sheet (Statement 8). The Statement of Total Movement in Reserves (Statement 9) provides further analysis of the funding of the assets contained within the Consolidated Balance Sheet.
The Cash Flow Statement (Statement 10) summarises the inflows and outflows of cash arising from transactions with third parties for revenue and capital purposes. For the purpose of this statement cash is defined as cash-in-hand and deposits repayable on demand less overdrafts repayable on demand.
The Statement of Common Good and Trust Funds (Statement 11) summarises the financial performance and activity of a number of charitable trusts and common good funds administered by the Council.
The Group Accounts (Statements 12 to 15) combine the revenue and balance sheet figures for the Council as a whole with those of separate companies and bodies in which the Council has a controlling interest.
Revenue Budget Performance - General Fund
The General Fund finances council services funded by government grants and local taxpayers. There was a small underspend on departmental budgets of some £246k,which represents a variance of only 0.32% on spending plans. Improvements in cash flow together with lower interest rates resulted in £367k additional interest on revenue balances received beyond budget estimate. Expenditure of £414k was incurred on advisors fees and other associated costs in connection with the planned new Secondary Schools under the Private Finance Initiative. These costs were unbudgeted but may well be recovered in future government grant payments
Council Tax performance again showed an improvement over previous years, with in-year collection now standing at 92.1% compared to 91.3% in 2004/05. Council tax yield for the year was £18.630m, which was £51k greater than budget, mainly due to an increase in the tax base as a result of new housing developments in the County.
A review of the general fund bad debt provision indicated the need for a further contribution of £202k to maintain adequate cover. This was £102k greater than the sum budgeted.
Claims for equal pay were received from groups of employees in catering, cleaning and homecare. The Council has made offers of compensatory payments, a number of which have been accepted. A provision has been made in the accounts of £1.435m to cover the estimated cost to the Council identified so far. This sum was not budgeted, but has been met from accumulated reserves which had partly been retained for this purpose.
In summary, excluding a sum of £154k added to Devolved School Management, and £121k earmarked under the Service Improvement Contract (SIMCO), a deficit of £1.484m was incurred in the year. This is almost entirely due to the provision for equal pay claims.
General Fund Account - Revenue Balance
The General Fund balance at the end of the year totalled £3.881m. Within this year-end General Fund balance, £1.016m is earmarked for schools under the Scheme of Devolved Management within Education. This represents the unspent devolved budget carried forward. A further £0.242m is earmarked under the Service Improvement Contract (SIMCO) agreement between Housing and Property Contracts for future investment in that area. After allowance for these earmarked sums the available revenue balance for general use is £2.623m.
The Council has recommended that the minimum revenue balance that is required to be held for unanticipated expenditure is £3m. As a result of the provision for equal pay claims, the actual revenue balance has fallen a little below this level.
Revenue Budget Performance - Housing Revenue Account
The Housing Revenue Account deals with council house management transactions. It ended the year with a surplus of £0.831m, which was a variance of £94k from the budgeted net income of £0.767m.
Taking into account the balance brought forward from the previous financial year the accumulated balance on the Housing Revenue Account at 31 March 2006 is £6.070m.
The Council has recommended a minimum working revenue balance of £750k. The accumulated sum in excess of this is earmarked as a Capital Improvement Fund to meet the needs of the capital programme in future years.
Revenue Support Grant and Non Domestic Rates Distribution
These items collectively make up the funding received from the Scottish Executive towards the costs of local government services.
The original Revenue Support Grant funding settlement for 2005/06 was £48.646m. A number of redeterminations during the year in respect of specific initiatives, together with funding carried forward from 2004/05 resulted in a final funding figure of £49.557m, which is an increase of 7.1% on the previous year.
On the other hand, our distribution of funding of £17.824m from the National Non Domestic Rates pooling arrangement shows a small reduction of £119k from the previous year.
Capital Expenditure
A total of £14.1m was spent on the capital account during the year. Capital receipts and grants totalled £5.8m, and this was supplemented by a small sum of £80k in direct revenue financing. The net sum required to be financed from borrowing was £8.2m.
Capital receipts continue to represent the largest source of finance, mainly from the sale of Council houses. The Council continues to be proactive in accessing additional external funding to supplement its expenditure programme.
Pensions Accounting
Financial Reporting Standard 17(FRS 17) ‘Retirement benefits’ was fully adopted in the accounts in 2003/04 after a phased introduction. Although there is no impact on the council tax or rent payer, the net pension liability has increased to £52.6m from £47.3m last year. Details are explained in Note 21 to the Consolidated Balance Sheet.
Significant Trading Operations
The Councils trading operations are disclosed in Note 4 to the Consolidated Revenue Account. The net surplus achieved on these trading units in the year was £355k, and both operations comfortably met the statutory requirement to break-even over a three-year period.
Group Accounts
The 2004 Statement of Recommended Practice introduced modified group accounting requirements, in accordance with which Local Authorities were required to consider all their interests and to prepare a full set of group financial statements where they have material interests in subsidiaries, associates and joint ventures. The Council took advantage of Transitional Arrangements which allowed implementation to be delayed until 2005/06, but with previous year comparatives included.
The Council has a controlling interest in a number of companies, joint ventures and other entities. The summarised group financial statements, which incorporate the most significant of these entities, are shown on pages 39 to 46. These have been prepared for the first time under a full UK GAAP compliant methodology. After consolidation, the accounts show a decrease in the reserves and net assets of £65.589m. This is mainly attributable to the incorporation of the Council’s share of the net pension liabilities of the Police and Firefighters pension schemes. Full details of the Council’s share of the various entities Turnover, Assets and Liabilities etc are contained within the Notes to the Group Statements.
Current Developments
Secondary School Development PPP
The Council is currently at an advanced stage of negotiation with the preferred bidder on the c£70m redevelopment of the Secondary School Estate under a Public Private Partnership agreement (PPP). The project involves the construction of three new secondary schools to replace the existing Alloa Academy, Alva Academy and Lornshill Academy. The schools at Alloa and Alva will be constructed on new sites, while Lornshill will be built on its existing site.
It is anticipated that financial close will be reached in October for the project with the schools being ready for occupation at the end of October 2008.
Ceteris
The Council currently rents its offices at Lime Tree from Ceteris (Scotland) Limited, and Ceteris currently leases several properties from the Council which they use to provide lettings to small businesses.
Both parties are at the final stages of concluding a Title Swap of these properties at current market values. The Council will thereby secure title to Lime Tree, and Ceteris, in turn, will gain title to a number of business premises which it presently manages. This will also release the Council from ongoing landlord responsibilities and in addition the proposed deal secures payment of outstanding debts and interest thereon due to the Council.
Acknowledgements
I wish to record my thanks to staff of the Finance Service and colleagues in other departments, all of whose efforts have contributed to the completion of these accounts.
Further Information
Further information on the Accounts or on the Council’s general finances can be obtained at Corporate Development Services - Finance, Greenfield, Alloa.
Muir S. Wilson
Head of Finance
29th September 2006
STATEMENT 1
STATEMENT OF RESPONSIBILITIES FOR THE ACCOUNTS
The Authority’s responsibilities
The Authority is required:
to make arrangements for the proper administration of its financial affairs and to secure that one of its officers has the responsibility for the administration of those affairs. In this authority, that officer is the Head of Finance.
to manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets.
The responsibilities of the Head of Finance
The Head of Finance is responsible for the preparation of the Authority’s statement of accounts in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom (the Code of Practice).
In preparing the statement of accounts, the Head of Finance has:
selected suitable accounting policies and then applied them consistently;
made judgements and estimates that were reasonable and prudent; and
complied with the Code of Practice.
The Head of Finance has also:
kept proper accounting records which were up to date; and
taken reasonable steps for the prevention and detection of fraud and other irregularities.
Statement by the Head of Finance
I confirm that the Statement of Accounts presents fairly the financial position of the authority as at 31st March 2006 and its income and expenditure for the year ended 31st March 2006.
Muir S Wilson
Head of Finance
29th September 2006
STATEMENT 2
STATEMENT ON THE SYSTEM OF INTERNAL FINANCIAL CONTROL
This statement is given in respect of the statement of accounts for Clackmannanshire Council. I acknowledge my responsibility for ensuring that an effective system of internal financial control is maintained and operated in connection with the resources at the Council’s disposal.
The system of internal financial control can provide only reasonable and not absolute assurance that assets are safeguarded, that transactions are authorised and properly recorded, and that material errors or irregularities are either prevented or would be detected within a timely period.
The Council’s system of internal financial control is based on a framework of regular management information, financial regulations, administrative procedures (including segregation of duties), management supervision, and a system of delegation and accountability. Development and maintenance of the system is undertaken by managers within the Council. In particular, the system includes:
- detailed budgeting systems;
- regular reviews of periodic and annual financial reports which indicate financial performance against the forecasts;
- setting targets to measure financial and other performance;
- the preparation of regular financial reports which indicate financial and other performance against forecasts and targets; and
- clearly defined capital expenditure guidelines.
The Internal Audit function is provided by the Internal Audit section as part of Finance Services. The section reports directly to myself, although also has free access to the Chief Executive, Monitoring Officer and Elected Members of the Council as and when required. The Chief Internal Auditor reports in his own name to the Performance and Audit Committee. These reports include an Annual Plan (which is informed by an assessment of risk that the Council is exposed to), an Annual Report measuring performance against the Plan for the year, as well as audit findings throughout the year. The Internal Audit section operates in accordance with CiPFAs Code of Practice for Internal Audit in Local Government. This is enshrined within the Financial Regulations. The Chief Internal Auditor provides the Council with an annual assurance statement that contains his independent opinion on the adequacy and effectiveness of the systems of internal financial control.
My review of the effectiveness of the system of internal financial control is informed by:
- the work of managers within the Council who have responsibility for the development and maintenance of the financial control framework;
- the work of the internal auditors as described above; and
- the external auditors in their annual audit letter and other reports.
The Council was the subject of a report from the Benefit Fraud Inspectorate during 2005/06 – the report being published on 28th March, 2006. All the issues formally raised by that inspection have either been addressed, or are in the process of being met, and the Department for Work and Pensions has confirmed that they will not be proposing further action on the strength of improvements being made.
Having reviewed the above, it is my opinion that reasonable assurance can be placed upon the adequacy and effectiveness of the Council’s internal control system. However, I note that work in the ongoing development associated with the Council’s main financial ledger system, to improve the extraction and availability of management information, would enhance control mechanisms.
Muir S Wilson, B.A., FCCA
Head of Finance
29th September 2006
STATEMENT 3
STATEMENT OF ACCOUNTING POLICIES
GENERAL
The accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom – A Statement of Recommended Practice (SORP) issued jointly by the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LA(S)AAC).
REVENUE TRANSACTIONS
Revenue transactions have been recorded on an income and expenditure basis. Provision has been made on an actual or estimated basis for all debtors and creditors as at 31st March 2006.
INTANGIBLE ASSETS
Expenditure on the acquisition of software licences has been capitalised and treated as intangible assets. These assets are depreciated over the expected life of the relevant software (5 to 10 years).
FIXED ASSETS
Capital Transactions
All expenditure on the acquisition, creation or enhancement of fixed assets has been capitalised on an accrual basis.
General Fund services are charged for the use of assets no matter how financed and this charge includes a provision for depreciation where appropriate and a notional interest charge. A 3.5% interest rate has been applied to all current asset values and 4.95% to all assets valued at historic cost. There is no charge in the year of acquisition but a full charge is made in the year of disposal. Asset rentals are designed to give a fairer cost of providing services. Any difference between asset rental and debt charges is adjusted in the asset management revenue account and appropriations to reserves so that the Council’s overall surplus/deficit is unaffected by the asset rentals.
The charge made to the Housing Revenue Account is an amount equivalent to the statutory capital financing charges.
Basis of Valuation
Council Dwellings are included in the balance sheet at existing use value for social housing.
Other Land and Buildings are included in the balance sheet at the lower of replacement cost or net realisable value
Vehicles, Plant, Furniture and Equipment are valued at historic cost and are depreciated over their useful economic life.