Agenda item

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

The report of the Director of Function (Resources)/Section 151 Officer incorporating the draft Statement of the Accounts for the 2023/24 financial year was presented for the Committee’s consideration. The Statement of the Accounts is a statutory document that is prepared in accordance with proper accounting 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 in the previous financial year.

The report was presented by the Director of Function (Resources)/Section 151 Officer who thanked the Finance team and all those who had had an input into the production of the draft accounts for their work in enabling the draft accounts to be published by the deadline which for 2023/24 has been extended by Welsh Government to 30 June 2024. The Director of Function (Resources)/Section 151 Officer referred to the principal purpose of the accounts as being to provide their readers with the information to allow them to form an opinion about the Council’s financial position and its management and use of public money. He provided an overview of the main sections of the accounts comprising of the core financial statements and the key explanatory notes and what they reflect as regards the Council’s financial standing, and referred to Tables 1, 2 and 3 in the introductory report which summarised the Council’s reserves and balances position including how each type of reserve has changed over the year. The accounts show that at the end of 2023/24 the draft Council reserves stood at £15.604m and the total usable reserves stood at £50.099m. The value of the council’s net assets increased by £37.682m from £404.650m last year to £442.332m as at 31 March 2024.

The following were points of discussion by the Committee –

• School balances and whether schools in a deficit position are an emerging development.
• Electrical Installation Condition Report (EICR) Certificates as a contingent liability. Questions were asked about the reasons why in some instances copies of the certificates confirming the completion of electrical checks were not provided to Council tenants as required as well as the total rent that might have to be repaid to those tenants who did not receive copies of the certificates as compensation and whether it would have a bearing on the accounts.
• The increase of £7.896m in short-term creditors to £42.465m as a result of a backlog of invoices.
• Clarification of the £6.615m of capital grants received in advance for the Council’s share in the North Wales Economic Ambition Board (NWEAB) which it was noted was greater than the £4.618m stated as an increase in grants received in advance.
• The reduction in the Housing Revenue Account balance. Questions were also asked about whether S106 Housing Developer contributions and the affordable housing reserve are transferred to HRA balances.
• Over expenditure in Children and Families’ Services as a risk to the Council’s financial health going forward.
• The use of reserves to fund significant costs. Questions were asked about the amount of reserves used and whether any portion of that amount was REFCUS (Revenue Expenditure Funded from Capital under Statute).
• Expenditure that has been capitalised. It was suggested that the total capitalised amount as per the table at Page 4 of the narrative report should read £30.636m rather than £50.574m as £19.938m was charged to the Comprehensive Income and Expenditure Statement as it was either in support of assets that are not in direct Council ownership (£5.422m) or did not increase the value of the capital assets (14.516m).
• The substance of the expenditure on earmarked reserves.
• The 8.4% increase in Council Tax income against a 5% increase in the Council Tax rate for 2023/24 and whether the increased income was due to an improved collection rate.
• The usefulness of the Statement of Accounts as a document which the public can engage with and from which they can derive a clear picture of the Council’s finances and position given its complexity and the level of technical detail it contains.

The Director of Function (Resources)/Section 151 Officer further advised as follows –

• That some schools have in previous years been in deficit and have been required to formulate a plan to address the deficit. During the pandemic, schools’ finances were boosted by Covid funding grants provided by Welsh Government which eliminated deficits and improved school finances in aggregate nationally. Those grants were subsequently used in line with Welsh Government expectations to help pupils catch up with their education. Schools have since been drawing on their reserves to balance their budgets and although the Council has historically sought to protect the schools’ budget, it was reduced by 1.5% in 2024/25. It is anticipated that school balances will continue to decline and unless the funding position improves, it is likely that more schools will fall into deficit. The five primary schools in deficit at 31 March 2024 have a plan to address the situation. The trend will be monitored notwithstanding that as a percentage of the total schools budget Anglesey’s school balances are the highest by this measure.
• That although electrical checks have been carried out in Council properties and electrical installations confirmed as safe, not all tenants have received copies of the EICR certificates particularly tenants who have access to communal areas within blocks of flats which are subject to the checks. Should the Council have to repay rent to those tenants who did not receive copies of certificates, as compensation then the obligation would be in the region of £1.2m. It has been assessed as an unprovided contingent liability because it is not certain that the obligation will have to be met as the outcome of a court case relating to another local authority on this matter is pending the contention being that this is a technical rather than safety breach. In the event of payment having to be made the obligation would be covered by HRA balances.
• That the increase in short term creditors because of a backlog of invoices was due to a concurrence of factors including technical issues, capacity, and timing with the volume and value of invoices tending to increase towards the end of the financial year when issues were being experienced. Work to clear the backlog took place throughout April and May of the new financial year and the situation has now improved and the creditor balance has reduced.
• That the NWEAB is funded by Welsh and Westminster Government grants with the latter being received in fifteen instalments every year. This funding has not been spent due to a delay in starting projects but is still being received and is in a holding reserve. Welsh Government has taken the view that no further funding will be distributed until what has already been allocated is used.
• That the 30-year HRA Business Plan provides for the use of the HRA reserve to support the development of new housing. The revenue surplus on the HRA account is also used for capital purposes to maintain the current housing stock to WHQS standards as well as investment in new housing. The strategy is to wind down the HRA reserve to a level in the region of £1m with new development to be funded thereafter through borrowing. S106 developer contributions depending on the terms of the agreement, are contributions towards the provision of affordable housing and as such are an additional contribution to the HRA. The Affordable Housing reserve is derived from the Council Tax premium on second homes and long-term empty properties and is used to fund housing grants, loans, and projects to help first time buyers. The annual allocation to the reserve was not made in 2024/25 because it was deemed there were sufficient funds in the reserve to meet these budgets. Income from the Council Tax premium is not allocated to the HRA because it is not used to develop new Council housing.
• That over expenditure on Children and Families’ Services is a financial risk to the Council and is due to an increase in the number of children needing to be looked after by the Council, the complexity of needs, a shortage of suitable placements and rising costs. The Council has invested significantly in children’s social care by increasing inhouse provision and by putting in place preventative measures that support children and families sooner in an effort to manage expenditure.
• That £4.425m of the Council’s general balances was used to balance the budget in 2024/25 and in £3.78m in 2023/24.  The Council has sought to be open and transparent about its use of reserves to balance its budget by specifying the allocation from reserves in its budget proposal; without the contribution from general reserves the Council would have been overspent which would in any case have had to be funded from reserves. REFCUS is where the Council funds capital expenditure on assets that it does not own e.g. Disabled Facilities adaptations to homes and as such this expenditure is ascribed to revenue. It does not affect the Council’s balances as it is mainly grant funding.
• That £50.574m has been spent in capital funding of which £30.636m has resulted in an asset that has been created, is in use and has been included on the Balance Sheet. It includes work in progress and REFCUS. In response to further questions about the appropriateness of applying the term “capitalised” to the total sum of £50.574m, the Section 151 Officer advised that the use of the term in that context would be reviewed.
• That the Council’s earmarked reserves are allocated for specific projects on which the Council plans to spend or risks which are known to the Council. The Director of Function (Resources)/Section 151 Officer said that he would forward to the Chair a copy of the report to the 23 July meeting of the Executive regarding the use of balances and reserves.  
• That the increased Council Tax income includes the Council Tax premium on second homes which was increased from 75% to 100% as well as the Police and town and community council precepts. Changes to the Council Tax base with the addition of new home also increases the income received.
• That the Statement of the Accounts is a financial accounting statement that can be difficult to understand by people with no finance experience. The budget monitoring reports presented to the Executive provide a clearer picture of how the Council is performing financially and show that overall the general state of the Council’s finances is currently healthy although some reserves have reduced as the Council continues to face financial pressures. An unforeseen event, extra pressures in children’s social care resulting in costly placements or rising homelessness demands could test the Council’s financial resilience. These are pressures which the public are not necessarily aware of and are areas where the expenditure is high.

Having scrutinised the draft Statement of the Accounts, the Governance and Audit Committee resolved to note the draft unaudited main financial statements for 2023/24.

Additional action - Director of Function (Resources)/Section 151 Officer to review the use of the term capitalisation in connection with the sum of £50.574m in the table on page 4 of the Narrative Report.