Agenda item

To present the report of the Head of Function (Resources)/Section 151 Officer.

The report of the Head of Function (Resources) and Section 151 Officers incorporating the draft pre-audit Statement of the Accounts for the 2018/19 financial year along with the draft Governance Statement for 2018/19 was presented for the Committee’s consideration.

The Head of Function (Resources)/Section 151 Officer thanked the Accounts and Civica teams for their work in helping to ensure that the draft accounts were completed and issued in line with the statutory deadline which for the 2018/19 and 2019/20 financial years has been brought forward to the 15 June. The draft accounts were actually completed by the end of May in preparation for this becoming the statutory deadline for 2020/21 and beyond. The Statement of  the Accounts has been prepared and set out in accordance with accounting regulations and practices and is produced annually to give electors, local taxpayers, Members of the Council, employees and other interested parties information about the Council’s finances and how it spends public money. The Officer referred to the main financial statements and highlighted the key points arising therefrom as follows –

•           Narrative report – tells the story of the Council’s financial performance for the year and provides a guide to the more significant matters reported in the accounts including the key achievements, issues and risks affecting the Council. In 2018/19, the Council reported an overspend of £633k against a planned activity of £130.9m (net budget) and achieved £2.064m of savings. The table at 3.4.1 reflects the final budget for 2018/19 and actual income and expenditure against it. The Capital Budget was underspent in the year with the total spend amounting to £30.678m against a total Capital Budget for 2018/19 of £62.881m.

•           Comprehensive Income and Expenditure Statement – shows the accounting cost in the year of providing services in accordance with accounting practices rather than the amount to be funded from taxation, hence the deficit figure of £20.744m which reflects the inclusion of items of non-cash expenditure required by accounting practice (pension liability, depreciation, revaluation of assets) rather than the Council’s real cash outflow position.

•           Summary of Movements in Council Reserves (page 24 of the accounts) – shows the net overspend of £633k for the year in line with the revenue outturn report presented to the Executive as part of the financial monitoring process and the impact on the General Fund reserve. This figure represents the difference between budgeted and actual expenditure for the year. The Summary of Movements table also shows that the Housing Revenue Account balances had a surplus of £805k for the year and that the Council’s total usable reserves as at 31 March, 2019 stood at £24.844m compared to £24.069m as at 1 April, 2018.

•           The Balance Sheet – shows the value of the assets and liabilities (what the Council owns and what it owes but not including highways and bridges etc.) recognised by the Council on the Balance Sheet date i.e. 31 March, 2019. What the Council is worth has reduced from £183.2m as at 31 March, 2018 to £162.456m as at 31 March, 2019 mainly as a result of the £28.5m increase in the deficit on the Local Government Defined Pension Scheme Fund.

•           The Cash Flow Statements – shows the changes in the Council’s cash and cash equivalents during the financial year divided into operating, investing and financing activities.

•           Notes to the core Financial Statements – provide additional information and context to the figures in the main financial statements. Attention was drawn to specific notes elaborating on the Council’s earmarked reserves and their purpose (N8); school balances position (N9); taxation and non-specific grant income (including £44.606m collected as Council Tax income in 2018/19) (N14); non-current assets – property, plant and equipment providing details of assets acquired and disposed of during the year, revaluation and depreciation (N15); provisions (N27); income from service recipients (N31b); Members’ allowances (N33); Officers’ remuneration (N34); Grants income (N37); Teachers’ Pension Scheme and the Local Government Pension Scheme (N40 and 41).

•           Annual Governance Statement – sets out the process, systems, principles and values by which the Council is directed and controlled including the arrangements it had in place in the year to manage and mitigate risks in carrying out its responsibilities and activities.

In considering the report, the Committee discussed the following –

•           The deterioration in the overall school balances position with 12 out of the 43 primary schools and 3 of the 5 secondary schools as well as the special school in a deficit position as at 31 March, 2019 compared to 3 primaries and 1 secondary as at 31 March, 2018. In light of the above, the Committee was concerned about the Council’s ability to sustain its smallest schools long-term. The Committee further referred to the recent announcement of a 2.75% pay rise for teachers and queried whether the increase would be fully funded by Welsh Government.

The Head of Function (Resources)/Section 151 Officer advised that schools’ financial position is becoming more difficult to manage as budgets continue to reduce with schools  finding it increasingly difficult to balance their budgets without resorting to cutting  teaching staff. Smaller schools tend to be more acutely affected because they have fewer staff meaning that any reduction in staffing leads to increased class sizes. For the Council, sustaining a model of primary education provision made up of 40 primary schools is also becoming more difficult in the current financial climate not least because of the cost of maintaining 40 buildings; money saved through reducing the school buildings portfolio could otherwise be spent on education provision. With regard to teachers’ pay which is now a devolved matter, Welsh Government yesterday announced a 5% increase for newly qualified teachers and a 2.75% increase for all other school teachers but did not specify how the increase would be funded. In making its own announcement about the public sector pay rise last week the Westminster Government indicated that it would have to be funded from Departments’ existing budgets which suggests that no additional funding will be made available to cover the cost of the increase meaning also that no additional allocation will be provided to Welsh Government. Should that be the case, Welsh Government can either fund the cost of the pay increase by cutting elsewhere within its budget or can pass the cost onto the councils leaving them to finds the extra cash through increased Council Tax and/or reducing school budgets which in turn would lead to greater financial pressure on schools.

The Assistant Chief Executive advised that the Council’s Schools Modernisation Strategy formulated in 2012 and revised  and updated in 2018 seeks to address amongst other things, the issues in relation to the quality and cost-effectiveness of the primary education provision on the Island whilst also having specific regard to the requirements  of the Schools Organisation Code 2018 which stipulates that when considering small schools all viable alternatives to closure must be given consideration.

•           Pension Scheme Fund liabilities. The Committee noted that the Council has no input in terms of how and where the Fund’s monies are invested.

The Head of Function (Resources)/Section 151 Officer advised that whilst the Pension Scheme is administered by Gwynedd Council, this Council is represented on the Gwynedd Pensions Committee by the Portfolio Member for Finance. The Portfolio Member for Finance confirmed that the Pensions Committee meets around every two to three months and is due over the course of the next few months to meet with the some of the Investment Managers who manage the Fund’s investments .The Portfolio Member said that part of the Fund’s assets has been pooled with the assets of the other local government pension funds in Wales and that he together with Gwynedd Council’s Section 151 Officer and other members of the Gwynedd Pension Committee would be meeting with Russell Investments, one of managers of the pooled funds before the end of the year. The next actuarial valuation of the Pension Fund is due to take place in March, 2020.

•           Debtors. The Committee queried whether there was a link between the £266k against long term debtors in the Balance Sheet and the £5.639m bad debt provision referred to in Note 24 (Debtors). The Committee further noted that receipts taken in by the Council from the Betsi Cadwalader University Health Board (which through common control by central Government is a related party to the Council) came to £2.077m (£3.768m in 2017/18), with £2.231m due from the related party at year-end. The Committee sought an explanation of the position with regard to the money owing and whether the situation is likely to become more complex as the Council’s collaboration with the Health Board increases.

The Head of Function (Resources)/Section 151 Officer clarified that Note 24 provides a breakdown of the £29.9m short-term debtors (a year or less) which is net of bad debt provisions totalling £5.539m. This is an estimate of monies owing that have been assessed as  unlikely to be collected for which a provision in the accounts is made but does not mean that the debts are disregarded or that the Council ceases to pursue them. The more debt the Council succeeds in recovering then the greater the reduction in bad debt provision and the less the impact on the revenue budget.  With regard to BCUHB, the Officer advised that he had held discussions with the BCUHB’s new Director of Finance recently following which he had confirmed the amount owing by the Health Board which at the time came to approximately £600k. There are also historical debts that need to be addressed; the resolution of these is potentially more difficult as the Health Board requires corroborating evidence of an agreement to pay which when a length of time has passed or where an agreement was based on a verbal understanding, might not be available. Where the Council collaborates with the Health Board for the provision of services then such an arrangement would be supported from the outset by a service agreement setting out the division of costs and the responsibility for payments. A grey area is the differentiation between health and social care costs with a number of debts arising from individual cases where no agreement has been reached as to whether the costs incurred are due to health needs payable by the Health Board or due  to social care needs payable by the local authority (unless the client is self-funding.)

The Officer said that in general the Council’s debt collection rate is good and stands at 99.3% over a three year period with regard to Council Tax and Business Rates. (The income which the Council collects in Council Tax is £44m – Note 14). For other debt the collection rate is approximately 85%. The Council has engaged an officer to help address historical debts which although the project is nearing its end is continuing to deliver monthly on the recovery of debt. The Council is also adopting a more proactive approach with regard to other forms of debt e.g. for the recovery of social care costs.

•           Provisions. The Committee queried the increase of £278k for future potential costs at the Penhesgyn landfill site. The Head of Function (Resources)/Section 151 Officer advised that there are costs associated with the maintenance of the Penhesgyn site specifically in relation to the culvert which runs beneath the site. The provision is made to cover any potential costs that may arise from the failure of the culvert.

Having considered the report, the Committee resolved to note the draft unaudited financial statements for 2018/19.

NO ADDITONAL PROPOSAL WAS MADE