Agenda item

To present the draft Statement of Accounts for 2016/17 and Annual Governance Statement.

The report of the Head of Function (Resources) and Section 151 Officer incorporating the draft pre-audit Statement of Accounts for the 2016/17 financial year along with the draft Annual Governance Statement 2016/17 was presented for the Committee’s consideration.

The Head of Function (Resources) and Section 151 Officer reported that the Council has a statutory duty to approve and publish a Statement of Accounts for each financial year. Before External Audit can commence, the Section 151 Officer is required to sign the Statement of Responsibilities for the Statement of Accounts prior to the statutory deadline of 30th June each year. Whilst the Statement is produced annually to give electors, local taxpayers, Members of the Council, employees and other interested parties information about the Council’s finances, it is a technical document and is set out in a form prescribed by accounting regulations and practices.

The Officer referred to and elaborated on the key statements contained within the accounts as follows:

•           The Narrative report which provides a guide to the most significant matters reported in the accounts including the main influences on the financial statements thereby linking the Council’s activities and challenges to how these impact on its financial resources.

•           The Comprehensive Income and Expenditure Statement (CIES) – this shows the accounting cost in the year of providing services in accordance with generally accepted accounting practices, rather than the amount to be funded from taxation.  There are items within the Statement which are included due to accounting requirements e.g. depreciation which are then removed from Council Tax setting because as accounting items, they do not relate to how services are funded and are not true costs which affect Council usable balances. The CIES shows a deficit on the provision of services of £8.548m.

•           Expenditure and Funding Analysis – this shows the information in the CIES but with the accounting adjustments cancelled out (Note 7); this helps to identify usable Council balances without the accounting adjustments. The first column of the Expenditure and Funding Analysis provides the real impact of the year’s financial performance on the Council and the HRA’s balances and reserves. When the accounting adjustments are cancelled out, the true impact of the Council’s cost of services (including the HRA) is reduced to £2.743m for the year giving an overall balance of usable reserves of £31.638m. This has reduced from 2015/16 as earmarked reserves have been used to fund costs for which the original reserves were earmarked.

•           The Movement in Reserves Statement (MIRS) – this shows movement in the year to and from the reserves held by the Council divided into usable reserves (i.e. those that can be applied to fund expenditure or reduce local taxation) and other reserves. The statement shows the true economic cost of providing the Authority’s services and how those costs are funded from the various reserves. The Statement shows that the General Council Reserve reduced by £0.189m for 2016/17 resulting in a total general reserve of £8. 687m.The Housing Revenue Account (HRA) generated a surplus of £453k with a total HRA balance at 31 March, 2017 of £7.495m. Earmarked reserves were used as noted above. School balances also reduced (mainly in the secondary sector) resulting in an overall reduction in usable reserves despite a positive financial performance against 2016/17 budgets.

•           The Balance Sheet – this shows the value as at the Balance Sheet date of the assets and liabilities recognised by the Authority. The net assets are matched by reserves held by the Authority. The Balance Sheet reflects a good financial position at the end of 2016/17 with a net value of £165.811m, a reduction of £8.249m from the previous year mainly due to changes to the financial assumptions used by the pension actuary when calculating the pension net liability.  The Council’s pension liability has increased from £95.022m to £105.509m.

•           The Cash Flow Statement – this shows the changes in cash and cash equivalents of the Council during the reporting period. Cash and cash equivalents at the financial year stood at £14.9m. Cash surpluses are invested in different ways in various accounts in accordance with the Treasury Management Strategy as approved by the Council.

•           The Notes to the core Financial Statements provide more details about the Council’s accounting policies, items and figures contained within the statements. The Officer highlighted the notes likely to be of main interest to the Council’s stakeholders in reading the statements.

•           The Annual Governance Statement for 2016/17 – this sets out the processes, systems, principles and values according to which the Council conducts its business and activities. The Statement enables the Council to assess whether it has achieved its strategic objectives in 2016/17 as set out in the Corporate Plan.

The Head of Function (Resources) and Section 151 Officer highlighted the key achievements, issues and risks affecting the Council as set out in paragraph 3.3 of the narrative report. In 2016/17, the Council reported an underspend of £326k against planned activity of £124m, and it achieved £3.4m of savings. The impact of an underspend means that the Council added £447k to the General reserves. The Council maintains reserves balances to meet the cost of unforeseen demands and events. Section 3.4.2 of the report refers to the Council’s capital expenditure including how the capital programme is funded and the Council’s borrowing commitments. At 31 March, 2017, the Authority’s Capital Financing Requirement which is a measure of the Council’s underlying borrowing need was £134.014m which is well within the Authorised Borrowing Limit of £169m in the Treasury Management Strategy Statement approved by Council.

The Committee considered the information presented and raised the following points –

•           The Committee noted that one of the significant changes on the Balance Sheet relates to the Council’s pension reserve where the Council’s liability has increased by £10.487m. The Committee sought clarification whether this is matter for concern and whether it is likely to have an impact other than on the financial statements in terms of the Council’s financial position in the future. The Head of Function (Resources) and Section 151 Officer said that the pension deficit figure relates to the Councils liabilities with regard to the payment of pensions and benefits in future years in the event that the pension fund summarily closes which scenario is very unlikely. The increased pension liability is based on actuarial valuations based on a number of assumptions. The Council’s contributions to the Pension Fund are reviewed every three years as part of the triennial valuation of the Pension Fund. An investment strategy is then determined which aims to recover any deficits over the period as determined by the Pension’s Fund’s Actuary. Variations in the Fund’s performance are common as investments go up and down according to market conditions.  The latest actuarial evaluation determined that there should be no increase in the Council’s contribution rate to the Pension Fund as it was considered sufficient to help bring down the deficit over time. The Officer confirmed that the Pension Fund position had improved considerably over the past few years and that professionally he did not consider the deficit to be an issue of immediate concern.

•           The Committee sought clarification of whether the Council benchmarks its contributions rates and payments with those of other local authority pension funds. The Head of Function (Resources) and Section 151 Officer said that such information is obtainable from other local authorities’ statements of their accounts. The contribution rates vary amongst local authorities and are based not only on the Pension Fund performance but also on historical decisions such as the early release of staff as part of local government reorganisation. Decisions to release staff early means there are fewer staff to contribute to the Fund whilst the liabilities of the Fund increase as more staff draw benefits from it over a longer period.

•           The Committee noted that notwithstanding a positive financial performance in 2016/17, there was an overall reduction in the Council’s usable reserves. The Committee sought assurance that the Council has sufficient funds in reserve to be able to guard against financial risks and emergencies. The Head of Function (Resources) and Section 151 Officer said that maintaining a healthy reserves balance allows the Council to invest in service transformation and business process improvements with a view to securing ongoing efficiencies; this is the Council’s strategy for the utilisation of reserves; it is not considered that reserves should be used routinely to balance the budget or to fund lower Council Tax increases. Whilst as a general rule of thumb, 5% of the net revenue budget is considered to be an acceptable level for the general fund reserves balance, the Council is looking to maintain £6m as a minimum level in order to provide leeway to be able to respond to issues arising such as residual Equal Pay claims and additional pressures on service budgets where annual reductions have left little room for manoeuvre.

•           The Committee sought clarification of the role of capital receipts in budget planning and setting. The Head of Function (Resources) and Section 151 Officer said that receipts from the sale of assets are used to reduce the Council’s indebtedness or to contribute towards funding new capital investment. For example, the proceeds from the sale of former school buildings are earmarked as a contribution towards the construction of planned new schools. Capital receipts help reduce the Council’s level of borrowing.

•           The Committee noted that there has been additional investment in Children’s Services in 2016/17 and it sought clarification of where the extra funding was derived from. The Head of Function (Resources) and Section 151 Officer said that a better than expected revenue settlement in 2016/17 and 2017/18 has allowed the Council the scope to fund some additional growth; Children’s Services have been identified as a priority area for the receipt of additional funding.

It was resolved to note the draft Statement of Accounts 2016/17 prior to its review by External Audit.

NO FURTHER ACTION ENSUING