Agenda item

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

The report of the Director of Function (Resources) and Section 151 Officers incorporating the draft pre-audit Statement of the Accounts for the 2019/20 financial year along with the draft Governance Statement for 2019/20 was presented for the Committee’s consideration.

The Director of Function (Resources)/Section 151 Officer prefaced his presentation of the draft Statement of Accounts by thanking the Finance Service’s Accounts team for their work in successfully completing the draft accounts in line with the statutory deadline which since last year has been brought forward to the 15 June. The task this year has been made especially difficult by circumstances with the majority of staff working remotely from their homes because of the pandemic as well as contributing to the Covid-19 crisis response. The Statement of 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 Statement in setting out  information about the financial performance of the Council in a way prescribed by accounting regulations is a long and a complex document and despite the need for simplification being highlighted with CIPFA the format remains unchanged from last year.

The Officer referred to the Explanatory Narrative Report which provides background information about the Isle of Anglesey County Council and sets its financial performance in the context of the year’s key achievements, issues, challenges and risks. In 2019/20, the Council reported an underspend of £0.308k against a planned activity of £135.210m (net budget) and achieved £2.205m of savings. The table at 3.4.1 reflects the final budget for 2019/20 and actual income and expenditure against it. The impact of the underspend means that the Council increased its general reserves by £0.308k to £7.060m which is 4.9% of its net revenue budget for 2020/21. The Capital Budget was underspent in the year with the total spend amounting to £30.015m against a total Capital Budget for 2019/20 of £43.907m. The subsequent main financial statements comprise the following –

•           Comprehensive Income and Expenditure Statement (page 21 of the accounts) – shows the cost of providing the Authority’s services during the year in accordance with accounting practices rather than the amount to be funded from taxation hence the figure of  £28.161m surplus. The amount that is chargeable to council tax requires a number of adjustments which are explained in Note 1a (Note to the Expenditure and Funding Analysis 2019/20) and Note 7 (Adjustments between accounting basis and funding basis under regulations).The CIES also shows gains or losses with regard to the authority’s assets and liabilities including pension liability and changes as a result of the revaluation of assets.

•           Summary of Movements in Council Reserves (page 23 of the accounts) – shows the movement in the year on the different reserves held by the Council analysed between usable and unusable reserves. The Council’s General Fund Balance stood at £7.06m at the end of the year; the Earmarked Reserve Fund Balance was £8.76m; the HRA Balance was £8.697m; the Capital Receipts Fund was £1.33m and School Balances amounted to £197k. The Council’s total usable reserves as at 31 March, 2020 were up on the previous year’s total by £1.1m standing at £25.944m.

•           The Balance Sheet (Page 24 of the accounts) – shows the value of the assets and liabilities (what the Council owns and what it owes excepting highways and bridges) recognised by the Council on the Balance Sheet date of 31 March, 2020. The Balance Sheet reflects a good financial position at year end giving the Council a net value of £190.618m which is an increase of £28.162m on the previous year. The Balance Sheet also includes the figure for pension liability which although it does not come out of that year’s budget is a liability that the Authority has incurred which will have to be funded in the long-term.

•           The Cash Flow Statement – 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 clarify the figures in the main financial statements. Of most interest to the taxpayer are Note 8 - earmarked reserves and their purpose; Note 9 - school balances position; Note 15 - non-current assets – property, plant and equipment; Note 16 – significant capital commitments; Note 17 – heritage assets; Note 24 – Debtors; Note 26 – Creditors; Note 27 – Provisions; Note 33 - Members’ allowances; Note 34 - Officers’ remuneration; Note 41- Local Government Pension Scheme; Note 48 –Council Tax and Note 49 – Non-Domestic Rates.

•           Annual Governance Statement – provides an overview of the governance framework that has been in place at the Council for the year ended 31 March, 2020 along with a summary of reports and reviews which comment on governance and performance issues relating to the Council.

The Programme, Business Planning and Performance Manager referred to the draft Annual Governance Statement positioned at the end of the financial statements and explained that the Statement is a statutory document whose purpose is to show that the Council’s governance arrangements comply with the core and supporting principles contained within CIPFA/ SOLACE’s Framework for Delivering Good Governance in Local Government. The Council aims to achieve good standards of governance by adhering to the seven core principles in the CIPFA/SOLACE Framework. That the Council has succeeded in adhering to those principles is supported by evidence which in turn provides assurance about the effectiveness of the Council’s governance arrangements. Notwithstanding, the Statement identifies areas where improvements can be made in line with the Council’s commitment to continuous improvement and these include formulating a climate change action plan and re-scoping the Council’s strategic direction for the next 18 months; it also updates the progress made on governance matters identified in 2018/19. It should be noted that the Internal Audit Annual Report for 2019/20 concludes that there are no issues of significantly high risk or impact that warrant inclusion in the Annual Governance Statement. 

In discussing the financial statements and the AGS, the Committee raised the following points –

•           The extent of the impact on the Council of the review of the Local Government Pension Scheme benefit structure in light of the McCloud judgement which ruled that protections applied to the Firefighters Pension Scheme as part of public sector reforms were unlawful because they discriminated on the grounds of age.

The Director of Function (Resources)/Section 151 Officer explained the background to the ruling on a case brought by a member of the Firefighters Service on the basis that protections afforded by that Service’s Pension Scheme to members over a specific age who took early retirement were unlawful on the grounds of age discrimination. Similar protection is provided by the Local Government Pension Scheme to eligible scheme members under the 85 year rule where early retirees dependent on when they began their service, have some or all of their benefits protected from reductions. The impact of the McCloud judgement will be felt in increased pension liabilities as the Pension Fund may have to extend the protection to a greater number of members. Hymans Robertson LLP as the Gwynedd Pension Fund Actuarial Consultants took the judgement into account in their 2019 revaluation of the Fund on which the contribution rates of each Gwynedd Pension Fund employer from 1 April, 2020 was based. The Actuary’s opinion is that the impact of the judgement on the LGPS fund deficit will not be as great as that anticipated as it has been factored into their assessment and that further it will not require increased contributions by the employers. A review will take place at the next triennial re-valuation of the Fund in 2022 and whilst there will be some impact on the Pension Fund deficit, those employers within the Fund with a younger staff profile are likely to be affected to a greater extent.

•           Whether the enforced closure of schools because of the pandemic will affect the school balances situation and whether it results in reducing the Council’s contribution to WJEC given that no examinations have taken place.

The Director of Function (Resources)/Section 151 Officer advised that school balances have fallen over recent years as of a result of the Council’s financial position and the tightening of budgets although an element of protection from budget cuts has been afforded to schools. Overall the primary sector is in a better financial position than the secondary sector where two schools are in deficit - as is required those schools have formulated plans to reverse the deficit. The fact that schools have been closed has probably helped their finances as the Authority has not held back any of the delegated funding to schools because of the closure. Neither have schools incurred examination related costs as they would have had they been open as normal during the summer term. The Officer said that he was not aware of any discussions regarding the WJEC nor the expectations regarding local authorities in relation to it.

•           Whether the recurring underspend on the capital budget should be reviewed in terms of its impact on treasury management.

The Director of Function (Resources)/Section 151 Officer advised that most councils underspend on their capital programmes because with large capital projects issues can  arise either prior to the commencement of, or during the implementation of schemes which can affect the schedule for their completion. In the case of the Council the underspend on the 2019/20 capital programme is due in large part to the decision made by the Executive to reconsider the schools’ modernisation programme in the Llangefni area thereby delaying the planned schemes for the area. For those projects whose timetable has slipped the funding for them has been secured and will carry over with them into 2020/21.The impact of the underspend on the capital programme on treasury management can be seen in reduced borrowing which in turn means the cost to the revenue budget of servicing the debt through the Minimum Revenue Provision is also reduced.

•           The level of expenditure incurred by the Council in entering into partnership on the Parc Adfer new waste recycling plant and  the North Wales Growth Bid and whether the Council’s participation in these schemes represents value for money.

The Director of Function (Resources)/Section 151 Officer advised that the Parc Adfer facility was constructed under a partnership between five North Wales local authorities including Anglesey with the support of Welsh Government funding. It is run by a private company. The five partner local authorities pay a gate fee for the tonnage that is disposed of by the facility and for Anglesey the fee is initially higher than the fee paid under the previous waste disposal contract. Once the operation is established and is operating to the satisfaction of the Welsh Government, the latter will pay a grant to the company running the site and the gate fee will reduce to a level below the Council’s previous costs thereby generating revenue savings for the Council. The North Wales Growth Bid is still ongoing in terms of the set-up work with the partners involved. The UK Government is providing funding of £120m over the next 15 years which will be match funded by Welsh Government with contributions from the private sector also. As the funding will be paid in instalments over the course of the 15 years and the project spend is likely to occur in the first few years then the partner local authorities may have to meet the initial cost of borrowing to fund the start-up costs although this remains the subject of continuing discussions. The running cost of the North Wales Economic Ambition Board is currently being funded by the partners including the local authorities, the University and colleges on the basis of a £50k contribution by each partner. The long-term funding arrangements and how they are apportioned will form part of the final agreement between the partners.

•           Whether the Annual Governance Statement could be made more readable and whether the measures used by the Council to evaluate the effectiveness of its governance arrangements and the sources that inform the assurance conclusion for each principle in the 2019/20 AGS could be clarified it being noted that the Statement is not dissimilar in content to the previous year’s Statement.

The Programme, Business Planning and Performance Manager explained that the work on the 2019/20 AGS was undertaken at a time when members of the team responsible for the task  were also engaged on the Covid-19 response meaning that drafting the AGS was lighter than usual. The Council in 2012 adopted a Local Code of Governance which is used as a basis for the annual review of governance in terms of ensuring that the CIPFA requirements are met, and also as basis for the resulting Annual Governance Statement. In response to a comment about improving the AGS, the Officer provided assurance that the Council is always looking to improve its Annual Governance Statement as regards presentation and accessibility.

The Vice Chair raised the issue of the all-member monthly briefing sessions referred to in the AGS which are held to inform elected members about major developments, strategies and budget proposals and he requested that the Committee’s Lay Members be invited to these sessions to help them keep up to date with major developments at the Council. The Programme, Business Planning and Performance Manager said that he would refer the matter for consideration by the Chief Executive/Senior Leadership Team.

Having considered the report, it was resolved to note the draft unaudited main financial statements for 2019/20.

ADDITIONAL ACTIONS PROPOSED :

•           The Local Code of Governance to be presented to the Committee in due course prior to its being reviewed and updated.

•           The Programme, Business Planning and Performance Manager to ask the Chief Executive/SLT to consider the propriety of inviting the Committee’s 2 Lay Members to the monthly all-member briefing sessions on major developments.