Agenda item

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

The report of the Director of Function (Resources)/Section 151 Officer incorporating the draft Statement of the Accounts for 2021/22 was presented for the Committee’s consideration.

The Director of Function (Resources)/Section 151 Officer reported that the draft accounts were signed on 16 June, 2022 and are now being audited. He highlighted that additional work in connection with confirming the valuation of the Council’s assets in the balance sheet might mean the audit process takes longer to complete; the issue arose during audits in England the previous year and has been raised with each council by Audit Wales. The Section 151 Officer clarified that Audit Wales is seeking assurance that the impact of changes to the current value of assets is not such as to amount to a material change in terms of the figure provided for by the accounts. While councils are not being asked to revalue their assets, what it means as regards the requirement on councils has been the subject of discussion between Audit Wales and CIPFA. The Council has asked its Principal Valuation Officer to undertake further work in respect of the valuation of the Council’s assets which may lead to a delay in completing the audit.

The Director of Function (Resources)/Section 151 Officer highlighted the following –

·         The Statement of the Accounts consists of the core financial statements listed in the first page of the accounts. These are preceded by the Narrative Report which is a key section of the accounts and which provides an effective guide to the most significant matters reported in the accounts including the Council’s priorities and strategies and the principal risks it faces. The narrative report provides a commentary on how the Council has used its resources during the year to achieve its stated objectives.

·         The draft Comprehensive Income and Expenditure Statement shows the cost of providing services in the year in accordance with statutory accounting requirements and covers both the Council Fund and the Housing Revenie Account. It includes accounting adjustments such as depreciation and pensions adjustments which are not funded by Council Tax payers so the impact of these are excluded in the note called Adjustments between Accounting Basis and Funding Basis (Note 7 in the Statement of Accounts). This note for 2021/22 shows £11.852m of accounting adjustments which are cancelled out in the Movement of Reserves Statement. This means that the true impact on the Council and HRA reserves from the provision of services is reduced from a surplus of £5.940m to a surplus of £17.792m which is an increase in Council reserves. This is due to an underspend on the Council Fund and Housing Revenue Account and transfers into earmarked reserves.

·         The balance of all usable reserves as at 31 March, 2022 was £57.772m, an increase of £17.792m. The HRA Reserve, School Balances and Capital Receipts Reserves are ring fenced and can only be used for the designated purpose. Table 1 of the report provides a summary of the movement in reserves due to the financial performance of the year and net movements to and from reserves, whilst Table 2 summarises the movement in reserves using information from the Statement of Accounts. Although how the information is presented is different, both result in the same reserve balance.

·         The General Reserve as at 31 March, 2022 was £12.050m equating to 8.2% of the net revenue budget for 2021/22. The Council’s financial performance for 2021/22 showed a net underspend of £4.798m due to the receipt of funding from Welsh Government during the pandemic and the provision  of a limited amount of services to the public during that period.

·         The draft overall net assets of the Council increased from £164.162m as at 31 March, 2021 to £247.577m as at 31 March, 2022. This is due to investment in new assets and the refurbishment of existing assets; revaluation of other Council assets and increased current assets such as cash, cash equivalents and short-term investments. In addition, the Council’s liabilities reduced with the most significant being the reduction of the valuation of the pension liability by £55m due to a better than expected performance by the pension fund’s assets and a change in the actuary’s assumptions as a result of increasing interest rates. The Council participates in the Gwynedd Pension Fund which is administered by Gwynedd Council.

The Committee considered the report and the following matters were discussed –

·         The increase in school balances. The Director of Function (Resources)/Section 151 Officer advised that school balances have been bolstered by Welsh Government grant funding  part of which was to help schools deal with the ongoing impact of the pandemic and part of which was intended to help pupils catch up with missed learning during the pandemic. The funding is monitored by Welsh Government and schools are expected to report back to Welsh Government on their use of the funding.

·         The valuation of the Council’s property assets which does not include the Council’s highway network.  The Director of Function (Resources)/Section 151 Officer advised that the Council’s internal valuer undertakes valuation in accordance with the requirements of the CIPFA Code. Historically, assets with a value of over £500k were valued annually and the remainder including the Council’s housing stock were valued on a cyclical basis. Valuation of the Council’s housing stock which makes up the largest element of the Council’s property portfolio is undertaken on a different basis due to the properties having sitting tenants. They are valued at market value and discounted down to reflect the fact that the Council would not be able to sell them for market value. A valuation of the Council’s housing stock is due to take place next year and will be done by inspecting a sample of properties from different categories of dwelling. The valuation is also informed by the stock condition survey which is conducted to ensure the Council’s housing stock is maintained to Welsh Housing Quality Standards. While there has been discussion previously about including highways in the valuation of assets within the accounts, the challenge around putting a precise value on highway infrastructure has meant that this has not as yet transpired.

·         The liabilities on the Pension fund and its impact on the accounts. The Director of Function (Resources)/Section 151 Officer advised that the total net liability on the Council’s Pension Fund decreased by £55m in 2021/22 from £178.2m in 2020/21 to £121.2 in 2021/22. The pension liability can vary significantly from one year to the next depending on changes in the assumptions used including the discount rates and the performance of the pension fund assets. Although the pension liability as shown in the accounts has an impact on the net worth of the Council as recorded in the Balance Sheet, statutory arrangements exist to fund the deficit to ensure the financial position of the Council remains healthy. The liability is unlikely to be realised whilst the scheme remains open and members continue to make contributions into the scheme. A more significant valuation from the Council’s perspective is the appointed Actuary’s triennial valuation of the pension fund for the purpose of setting the employer’s contribution rates for the following three years which is based on different assumptions. The Council has a strategy with the scheme’s actuary to achieve a funding level of 100% over the next 20 years; funding levels are monitored annually.

·      The underspend on both the Council’s revenue and capital budgets and the implications as regards budget management. The Director of Function (Resources)/Section 151 Officer advised that as well as receiving a better than anticipated settlement for 2021/22, the allocation from Welsh Government changed during the year with additional funding of £1.389m being provided late in the year in March through the Revenue Settlement Grant. Funding was also provided to cover ongoing Covid related costs and income losses and in addition, a significant number of other grants were also received late in the financial year which included waste grants and social services pressures grants. The £4.798m underspend on the revenue budget is not a true reflection of the position of some of the Council’s services since some services did not fully open until midway through the financial year and did not make full use of the grants provided. Demand for support especially in Adults and Children’s social care is now on the rise and is expected to continue to grow; this coupled with the increased cost of placements make it likely that those services will overspend their budgets in the current financial year. The surplus on the Council’s 2021/22 revenue budget has strengthened the Council’s general balances which places it in a strong financial position to be able to deal with the extra demand on services and other challenges in this year and the next.

With regard to the capital budget, the Council’s projections for capital expenditure may be overly optimistic especially with regard to council housing and new housing development and there may be a case for reviewing the Housing Revenue Account Business Plan. However, both 2020/21 and 2021/22 financial years have been exceptional in terms of the impact the pandemic has had on Council services and the progress of capital projects making it challenging to deliver projects to timescales. The rising costs and availability of builders and materials are new challenges with regard to capital expenditure.

·         The challenge which the receipt of late funding as well as the economic situation poses for budget planning and forecasting. The Director of Function (Resources)/Section 151 Officer confirmed that the current increase in pay and prices is creating uncertainty over the Council’s costs in 2022/23 and the level of budget required in 2023/24. However, the increased level of balances will help the Council mitigate those risks in 2022/23 and subsequently, and will enable the Council to buy time to remodel services and reduce costs.

·      Corrections viz. the replacement of the word “reduced” at paragraph 3.3, page 75 of Appendix 1 with the word “increased”, and the replacement of “£8.143m” in the narrative between the two tables at page 84 with £”5.94m.”

The Director of Function (Resources)/Secion 151 Officer confirmed that to date no issues had been raised by the auditors with regard to the quality of the working papers presented. The Statement of the Accounts continues to be reviewed for the removal of any unnecessary clutter in line with recommendations made by the auditors.

Having reviewed the draft Statement of Accounts for 2021/22, the Governance and Audit Committee resolved to note the draft unaudited financial statements for 2021/22.