Public Document Pack
AUDIT COMMITTEE Contact: Pauline Bagley Committee Secretary Thursday, 29 June 2006 at 7.30 pm Direct : 020-8379- 5119 Conference Room, Civic Centre, Silver Street, Enfield Tel: 020-8379-1000 EN1 3XA Ext: 5119 Fax: 020-8379-3177 (DST) E-mail: [email protected] Council website: www.enfield.gov.uk
Councillors : Andreas Constantinides, Don Delman, Jonas Hall (Chairman), Dino Lemonides, Henry Pipe, Jeff Rodin and Edward Smith (Vice-Chairman)
LEAD OFFICER : Bill Somerville/Assistant Director, Finance and Corporate Resources
COMMITTEE SECRETARY: Pauline Bagley/Democratic Services Team
AGENDA – PART 1
1. WELCOME AND APOLOGIES FOR ABSENCE (IF ANY)
2. DECLARATIONS OF INTEREST (Pages 1 - 2)
3. MINUTES OF THE LAST MEETING (Pages 3 - 8)
To receive the Minutes of the meeting that took place on 5 April 06.
4. MATTERS ARISING FROM THE MINUTES
To consider any matters arising from the Minutes.
5. 2005/06 ANNUAL STATEMENT OF ACCOUNTS (REPORT NO. 27) (Pages 9 - 104)
To receive the report of the Director of Finance and Corporate Resources presenting the unaudited Annual Statement of Accounts for the 2005/06 financial year for the consideration and approval of the Committee.
(NOTE: A copy of the full Statement of Accounts has been provided only for members of the Committee. In addition, a copy has been placed in the Members’ Library and in both Group Offices (for reference). Further copies are available on request from the Committee Administrator, details as above).
6. STATEMENT OF INTERNAL CONTROL (REPORT NO. 28) (Pages 105 - 124)
To receive the report of the Director of Finance and Corporate Resources.
In accordance with the Accounts and Audit Regulations 2003 the Council is required to produce a Statement of Internal Control each year as a part of its Accounting Statements.
7. INTERNAL AUDIT OUT TURN 05/06 AND ASSURANCE STATEMENT (REPORT NO. 29) (Pages 125 - 138)
This report deals with two main issues, it summarises the performance and effectiveness of the Internal Audit Division for the year 2005/6. It also contains an opinion on the internal control environment, which is based on the internal audit work which has been carried out during that year.
8. TERMS OF REFERENCE (REPORT NO. 30) (Pages 139 - 144)
To consider revisions to the terms of reference for Audit Committee.
TO FOLLOW
9. AUDIT COMMISSION - AUDIT AND INSPECTION PLAN 2006/07 (Pages 145 - 168)
This plan sets out the audit and inspection work that will be undertaken in 06/07. The plan has been drawn up from the Audit Commission’s risk-based approach to audit planning and the requirements of the Comprehensive Performance Assessment.
10. ACCOUNTS AND AUDIT (AMENDMENT)(ENGLAND) REGULATIONS 2006 (REPORT NO. 31) (Pages 169 - 172)
To note the changes introduced by these revised regulations.
11. INVESTIGATION OUTTURN REPORT (REPORT NO. 32) (Pages 173 - 176)
To note the outcomes from investigations during 2005/06.
TO FOLLOW
12. FORWARD PLAN (Pages 177 - 178)
To receive the forward plan for the coming year.
13. DATES OF FUTURE MEETINGS
To note the proposed dates for the rest of the municipal year:
Thursday 14 th September 2006 Tuesday 28 th November Tuesday 9 th January 2007 Tuesday 13 th March*
*Please note that this date is likely to change.
14. EXCLUSION OF THE PRESS AND PUBLIC
To consider, if necessary, passing a resolution under Section 100A(4) of the Local Government Act 1972 excluding the press and public from the meeting for the items of business as listed in Part 2 of the agenda on the grounds that they involve the likely disclosure of exempt information as defined in those paragraphs of Part 1 of Schedule 12A to the Act, (as amended by the Local Government (Access to Information) [Variation] Order 2006) as are listed on the agenda.
(There are no items currently identified as containing exempt information)
This page is intentionally left blank Page 1 Agenda Item 2 DECLARING INTERESTS FLOWCHART - QUESTIONS TO ASK YOURSELF
What matters are being discussed at the meeting?
You can NO Do any relate to my participate in interests? the meeting and vote YES
Is a particular matter close to me?
Does it affect: me; my partner; NO my relatives; my friends; NO my job or my employer; companies where I am a director or where I have a shareholding of more than £25,000 (face value) or Personal interest interest Personal 1/100th of the capital; my partnerships; or my entries in the register of interests more than other people in the area?
YES
You may Declare your have a interest in personal the matter interest NO
You may Would a member of the public - if he or have a she knew all the facts - reasonably think prejudicial that the personal interest was so interest YES important that my decision on the matter would be affected by it? Prejudicial interest Prejudicial YES
Withdraw from the meeting by leaving the room. Do not try to improperly influence the decision.
1374.PD/HL Page 2
This page is intentionally left blank Page 3 Agenda Item 3
AUDIT COMMITTEE - 5.4.2006
MINUTES OF THE MEETING OF THE AUDIT COMMITTEE HELD ON WEDNESDAY, 5 APRIL 2006
COUNCILLORS
PRESENT Don Delman (Chairman), Andreas Constantinides, David Schofield and Ann Zinkin
ABSENT Edward Smith (Vice Chairman), Jonas Hall, Alex Mattingly and Jeff Rodin
OFFICERS: Bill Somerville, Derryck McCready, Mark McLaughlin (Director of Finance and Corporate Resources), Ian Sadler, John Austin (Borough Secretary), David Hulme and Pauline Bagley (Secretary)
1462 APOLOGIES
Apologies for absence were received from Councillors E Smith, Hall, Mattingly and Rodin.
Apologies for lateness were received from Councillor Zinkin.
1463 DECLARATIONS
There were no declarations of interest made.
1464 RELATIONSHIP MANAGER AND DISTRICT AUDITOR'S ANNUAL AUDIT AND INSPECTION LETTER
RECEIVED the report of the Chief Executive (No. 290) summarising issues arising from the inspection programme for 2004/05 and comments on current issues and the verbal update by Carol Mounfield.
NOTED
1. The recommendations set out in the report had been endorsed by Cabinet at the meeting held on 8 February 06 and at the Council meeting on 22 February 06.
2. The key messages were: • The improvements in service delivery;
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• The Council’s increasing emphasis on value for money; • Audit Commission’s unqualified opinion of the Council’s 2004/05 accounts on 31 October 05 was that the General Fund balance had been maintained in line with the target level. However, weaknesses in the award of the SEN transport contract indicated that internal financial controls were not consistently exercised;
3. The actions needed to be taken by the Council as set out in paragraph 4 of the report.
4. The Chairman said that he had been impressed with the Council’s performance and referred to the CPA outcome under the new arrangements. It was confirmed that Enfield was one of the first authorities to undergo the harder test.
RESOLVED that
(1) The contents of the report be noted; and (2) A report be submitted to Audit Committee in six month’s time outlining the actions taken to address the findings set out in the Key Messages.
1465 ANNUAL INTERNAL AUDIT WORKPLAN
RECEIVED the report of the Director of Finance and Corporate Resources (No. 337) and the verbal update by Ian Sadler.
NOTED
1. The requirement within the CIPFA Code of Practice for the production of a plan.
2. The background on the planning cycle and the types of audits undertaken (as set out in paragraph 3.3).
3. An analysis of the types of audit undertaken and the time spent on each activity.
4. The breakdown of the Audit Plan for 06/07.
5. The main challenge this year would be the proper and correct transfer of the Housing Benefit HBIS system to the new Pericles system and the upgrade of other Housing computer systems. The Council would be working closely with the Audit Commission to ensure that the planning process was appropriate.
6. Councillor Constantinides asked for clarification in respect of the planned days. Ian Sadler explained this and how vacancies affected this total. Should the vacancies figures prove to be an over estimate,
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work would be undertaken on the next audits identified on the plan. (Based on a risk assessment)
7. That there was a requirement to audit core areas and thereafter work was carried out on a risk approach basis.
8. Investigation of fraud and irregularities was a specialist task and work was usually carried out by staff who were expert in this field.
9. Councillor Zinkin referred to the new Housing Benefits system and what happened in the event of more time being required to carry out work set down in the audit plan. It was confirmed that there was no option but to continue with the work until its completion. Derryck McCready explained the additional controls that would come from the new Pericles system. Ian Sadler said that this was a superior system that would be used for Council Tax and NNDR and would eventually be developed for other auditing processes.
10. Councillor Schofield asked what areas of Housing would be audited. Ian Sadler said that this was outlined within the report but added that this could change with the advent of ALMO. Internal Audit Services could be bought-in or not by the ALMO Management.
RESOLVED that the contents of the report be noted.
1466 ANNUAL REPORT ON CORPORATE GOVERNANCE FOR 05/06 AND PLANS FOR 06/07
RECEIVED the report of the Director of Finance and Corporate Resources (No. 338) marked To follow on the agenda and the verbal update by Bill Somerville.
NOTED
1. The background as to why the Council had a Code of Corporate Governance and that a report would be submitted to a future meeting of the Standards Committee demonstrating how that body fitted into these arrangements.
2. That this Committee had approved and adopted a framework and local Code of Corporate Governance.
3. The explanation of how weaknesses were addressed.
4. The action plan for 2006/07 was derived from a number of sources that included: • CPA Corporate Assessment; • Statement of Internal Control; • Audit commission ‘Key Lines of Enquiry’; and
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• The Council’s own targets
5. That Councillor Constantinides held the view that ‘Job Descriptions’ as referred to in paragraph 3.18 of the report was the wrong term to use. John Austin confirmed that consultation was being carried out with a number of Members. He undertook to seek an alternative title to ‘Job Description’.
RESOLVED that the contents of the report be noted.
1467 HOUSING BENEFIT FRAUD
RECEIVED the report of the Director of Finance and Corporate Resources (No. 339) setting out the key areas of activity in 2005/06 for Housing Benefit Investigations and a verbal update by Derryck McCready.
NOTED that
1. There had been a total of 140 successful cases in the year to 31 March 06.
2. Enfield was currently placed second in the cumulative results to 31 December 05.
3. The Chairman asked whether the results were rated as it could mean that Enfield would be the top performer under that type of system. Derryck McCready confirmed that these scores were not rated. He added that those authorities that fell below the average were not depicted on the graph.
4. There were proposals for a new partnership agreement with the Police and an officer would be seconded to the Audit and Risk Management Team for 12 months. This would prove mutually advantageous both to the Council and the Police.
5. There were also new arrangements in force under the Proceeds of Crime Act. Derryck McCready explained the confiscation and compensation measures that could be taken against offenders. There was an estimated £2 million of assets currently going through the court process.
6. Councillor Schofield referred to those councils who were underperforming. Derryck McCready explained the requirements of the Department of Works and Pensions and plans next year to focus on weaker performing local authorities.
7. The congratulations of the Committee were extended to the whole of the team.
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RESOLVED that the contents of the report be noted.
1468 ANNUAL REPORT ON RISK MANAGEMENT 05/06 AND PLANS FOR 06/07
RECEIVED the report of the Director of Finance and Corporate Resources (No. 340) outlining the significant improvements to risk reduction and the emerging risks together with the proposed management action to mitigate these risks.
NOTED
1. The initiatives designed to fully embed risk management within the Council as set out in paragraph 3.2.
2. The proposed initiatives for 2006/07 as set out in paragraph 3.3.
3. The Chairman’s positive view about the previous risk management training and the Audit Commission suggestion that this training should be extended to all Members. John Austin confirmed that Member training would be phased throughout the second half of this year, and as much as possible incorporated into Members’ Induction.
4. The explanations with respect to the highest rated identified risks including the uncertainty about funding to achieve the Decent Homes Standard by 2010.
RESOLVED that the contents of the report be noted.
1469 MINUTES OF THE LAST MEETING
RECEIVED the Minutes of the meeting that took place on 17 January 06.
RESOLVED that these minutes be confirmed as a correct record.
1470 MATTERS ARISING FROM THE MINUTES
NOTED that in respect of Minute No. 1047, Councillor Constantinides confirmed that a first draft of the telephone contact book had been produced. Revisions had to be made before it could be distributed to Members.
1471 WORK PROGRAMME
NOTED the draft work programme for the coming Municipal Year and that the next meeting of the Committee would take place on 29 June 06 to consider the Annual Statement of Accounts.
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1472 EXCLUSION OF THE PRESS AND PUBLIC
RESOLVED to exclude the press and public under Section 100A(4) of the Local Government Act 1972 for the item of business as listed in Part 2 of the agenda on grounds that they contain exempt information as defined in Paragraph 3 (information relating to financial or business affairs) of Schedule 12A to the Local Government Act 1972 as amended by the Local Government (Access to Information) (Variation) Order 2006.
1473 WAIVERS OF CONTRACT PROCEDURE RULES
RECEIVED the report of the Director of Finance and Corporate Resources (No. 341) summarising the waivers that have been approved by the Director.
NOTED
1. The general reasons for waivers and that agreement if appropriate was given by the Director of Finance and Corporate Resources in consultation with the Assistant Director of Finance and Corporate Resources (Audit and Risk Management). There was a requirement to ensure value for money.
2. That the author of the waiver could be required to attend Audit Committee to explain the reasons.
RESOLVED that the contents of the report be noted.
The Chairman concluded the meeting by thanking Members and officers for their support over the past year. He said that he had enjoyed Chairing the Committee and that it had proved informative and challenging.
- 1369 - Page 9 Agenda Item 5 ENFIELD STATEMENT OF ACCOUNTS 2005/06
LONDON BOROUGH OF ENFIELD STATEMENT OF ACCOUNTS 2005/06
TABLE OF CONTENTS
PAGES
Statement of Responsibilities 2
Statement on Internal Control 3-12
Explanatory Foreword to Accounts 13-20
Statement of Accounting Policies 21-32
Consolidated Revenue Account 33-44
Housing Revenue Account 45-49
Consolidated Balance Sheet 50-67
Statement of Total Movement in Reserves 68-72
Consolidated Cash Flow Statement 73-76
Collection Fund Account 77-79
Pension Fund Accounts 80-91
Auditor’s Report to the London Borough of Enfield 92-93
Glossary of Terms 94-96
1 Page 10 ENFIELD STATEMENT OF ACCOUNTS 2005/06
STATEMENT OF RESPONSIBILITIES
THE AUTHORITY’S RESPONSIBILITIES
The authority is required:
• to manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets;
• to make arrangements for the proper administration of its affairs and to secure that one of its officers has the responsibility for the administration of those affairs. In this authority, the officer is the Director of Finance and Corporate Resources;
• to approve the statement of accounts.
THE DIRECTOR OF FINANCE AND CORPORATE RESOURCES’ RESPONSIBILITIES
The Director of Finance and Corporate Resources is responsible for preparing the authority’s statement of accounts in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom (‘the Code of Practice’).
In preparing this statement of accounts, the Director of Finance and Corporate Resources has:
• selected suitable accounting policies and then applied them consistently; • made judgements and estimates that were reasonable and prudent; • complied with the Code.
The Director of Finance and Corporate Resources has also:
• kept proper accounting records which were up to date; and • taken reasonable steps to prevent and detect fraud and other irregularities.
CERTIFICATION BY THE DIRECTOR OF FINANCE AND CORPORATE RESOURCES AND CHAIRMAN OF THE AUDIT COMMITTEE
I certify that the Statements of Accounts presents fairly the financial position of the Authority as at 31 March 2006 and the income and expenditure for the 2005/06 financial year.
Signed ………………………. Mark McLaughlin Director of Finance and Corporate Resources June 2006
Signed ………………………………………..Jonas Hall Chairman of the Audit Committee June 2006
2 Page 11 ENFIELD STATEMENT OF ACCOUNTS 2005/06
STATEMENT ON INTERNAL CONTROL FOR THE PERIOD 1 ST APRIL 2005 TO 31 ST MARCH 2006
1. SCOPE OF RESPONSIBILITY
The London Borough of Enfield is responsible for ensuring that its business is conducted in accordance with the law and proper standards, and that public money is safeguarded, properly accounted for, and used economically, efficiently, and effectively. The Council also has a duty under the Local Government Act 1999 to make arrangements to secure continuous improvement in the way its functions are exercised having regard to economy, efficiency, and effectiveness.
The framework within which the Council operates and through which authority is delegated is the Constitution. This document forms the basis of the control environment that includes, among other things, the process for decision making, the Scrutiny Function and the Financial Regulations and Procedure Rules relating to Contracts and Property. This document is widely available to staff and citizens as a whole in so far as it may be accessed via the Council web site, it is on the Council intranet and is also available in hard copy. In this way the Council seeks to make its procedures open and transparent.
In discharging its overall responsibility the Council is also responsible for ensuring that there is a sound system of internal control that facilitates the effective exercise of its functions and which includes arrangements for the management of risk.
To this end, Enfield Council has approved and adopted a Local Code of Corporate Governance, which is consistent with the principles and reflects the requirements of the CIPFA/SOLACE Framework “ Corporate Governance in Local Government: A Keystone for Community Governance”.
The local code relates to the appropriate management and reporting arrangements, which the Council has in place, to enable it to satisfy itself that its approach to Corporate Governance is both adequate and effective.
These arrangements give the Chief Finance Officer (the Director of Finance and Corporate Resources) and the Monitoring Officer (Borough Secretary) responsibility for:
• Overseeing the implementation and monitoring the operation of the Local Code.
• Reviewing the operation of the Local Code in practice.
The Monitoring Officer holds monthly meetings with the S151 officer, the Chief Executive, Assistant Director (Audit and Risk Management) and the Borough Solicitor to review matters relating to corporate governance including the local code.
In addition, the Assistant Director (Audit and Risk Management) has been given the responsibility to review the arrangements independently and report annually to the Audit Committee, to provide assurance on the adequacy and effectiveness of the Local Code and the extent of compliance with it.
The Audit Committee terms of reference require that these reports are submitted to them for their consideration. The Audit Committee has determined a workplan and meet on a regular basis throughout the year.
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2. PURPOSE OF THE SYSTEM OF INTERNAL CONTROL
The system of internal control is designed to manage risk to a reasonable level rather than to eliminate all risk of failure to achieve policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness. As a part of embedding risk management throughout the Council all service centre plans contain an assessment the risks facing them. The system of internal control is based on an ongoing process designed to identify and prioritise risks to the achievement of the Council’s policies, aims and objectives, to evaluate the likelihood of those risks being realised (and impact should they be realised), and to manage them efficiently, effectively, and economically.
The system of internal control has been in place at the London Borough of Enfield for the year ended 31st March 2006 and up to the date of approval of the annual report and accounts.
3. THE INTERNAL CONTROL ENVIRONMENT
The key elements of the internal control environment are summarised below:
Establishing & monitoring of the Authority’s objectives
The Council’s aims and objectives are set out in documentation including “Putting Enfield First”, the Community Strategy and the Improvement Plan. The Budget and the Medium Term Financial Plan underpin these aims by ensuring that there are sufficient resources are available to deliver them. All of these documents are widely available through the Internet, the Intranet and in hard copy.
Regular monitoring of the progress towards achieving the aims and objectives is undertaken and reported to the Corporate Management Board and Cabinet.
The Council is committed to consulting residents and customers so that their views directly inform the priorities for action and the planning processes. The consultation strategy (Engaging Enfield) and good practice guide set the overall framework and guidance within which staff operate when undertaking consultation and engagement activities. We have developed an online register of planned consultation activities and are improving the range of consultations available on the Web.
Our main methods of consultation include: • Presentations to stakeholders at area forums and scrutiny panels; • An annual residents’ survey conducted by Ipsos MORI; • A regular programme of Citizen Panel consultation; • On-line consultation via the Enfield Council web-site; • Triennial BVPI surveys (General, Tenants, Planning, Libraries and Revenues and Benefits); • Service specific customer feedback mechanisms, as well as conferences, surveys and focus groups.
The policies consulted include all major policies, which includes the budget.
Policy and decision making
Enfield Council has an agreed Constitution which details how the Council operates, how decisions are made and the procedures that are to be followed to ensure that these are efficient, transparent and accountable to local people. The Executive is responsible for most decisions.
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The Executive is made up of the Leader and a Cabinet appointed by the Council. Major decisions are published in advance in the Executive’s Forward Plan, and will generally be discussed in a meeting open to the public. All decisions must be in line with the Council’s overall policies and budget and to this end comments must be received from Finance and Legal staff before any decision is taken. Any decisions the Executive wishes to take outside the budget or policy framework must be referred to Council as a whole to decide. Scrutiny panels and the Overview and Scrutiny Committee monitor and challenge the work of the Executive. A “call-in” procedure allows Scrutiny to review Executive decisions before they are implemented, thus presenting challenge and the opportunity for a decision to be reconsidered.
The Constitution itself is subject to ongoing review by the Constitution Review Group, consisting of leading members of both political parties.
Compliance
Enfield Council has a duty to ensure that it acts in accordance with the law and various regulations in the performance of its functions. It has developed policies and procedures for its officers to ensure that, as far as is possible, all officers understand their responsibilities both to the Council and to the public. The Constitution contains two key documents, Financial Regulations and the Contract Procedure Rules, which are available to all officers via the Council’s Intranet. The Constitution is available to the public on the Council’s website. These documents outline the procedures that must be complied with when dealing with financial matters and when engaging in procurement of any kind. They also need to be considered in light of the decision making processes which are also contained in the Constitution, in particular the process for Key decisions. In addition to review functions such as internal audit it is the responsibility of all officers to ensure compliance with this framework of control.
The Audit Committee receives reports on compliance from Internal Audit through its normal business and is charged with considering these matters Risk Management.
In 2005, the Council adopted an updated Risk Management Strategy. This document shows the role both Members and Officers have in the identification and minimisation of risk. Significant corporate risks are recorded in a Risk Register and are then subject to a quarterly review. Departmental / Service Centre registers hold details of all other risks .
Risk Management
The Risk Management Working Group, chaired by the Chief Executive, leads risk management. The Group produces an annual statement of key risks and opportunities facing the Council. Risk assessments are undertaken with service managers on a rolling programme basis. These risk assessments and action plans are an integral part of service planning to ensure that they are fully embedded in assessing the risks to service delivery. The assessments are framed in such a way as to consider controls, shortcomings, and action plans for improvement. The Action Plans are monitored at service centre level by managers and the Risk Manager and corporately by the Working Group and the Audit Committee. A leading consultant in risk management has provided risk management training to Members.
All service plans have been drawn up in a way that ensures that risks to service delivery are considered as a part of the planning process, this supports the overall risk management control.
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Economic, effective and efficient use of resources.
Significant improvements have been embedded in the Council’s budgetary control process, as noted by the Audit Commission and the IDEA inspection, these will ensure that financial resources are used to their best advantage and decisions can be based on sound information.
The Council’s medium term financial planning and budget priorities are driven by the aims and objectives set out in the Improvement Plan. In this way the Council can ensure that resources are allocated to deliver the corporate priorities.
The priorities stated in the improvement plan are reflected in the Departmental Plans and the Service Centre Plans all of which are underpinned by financial plans.
The Council has adopted the Best Value Accounting Code of Practice (BVCOP). This facilitates the comparison of costs with those of other Councils.
The Council uses financial information published by CIPFA together with performance data to produce comparisons of:
• Budgeted expenditure; • Unit costs; and • Performance information.
The costs and performance information for Enfield is compared with those of other Outer London Boroughs and with the CIPFA family and plays a key part in the Council’s overall programme to deliver Value for Money services
The data links costs with performance and is used to identify services that appear to compare less well in Value for Money terms and prioritise a list of services requiring more detailed reviews.
In addition many services use other benchmarking and comparative techniques. Best value reviews and inspections as well as internal/external audit reports are used to identify and highlight value for money opportunities.
Financial Management
Responsibility for ensuring that an effective system of internal financial control is maintained and operated rests with the Section 151 Officer (the Director of Finance and Corporate Resources). The systems of internal financial control provide reasonable though not absolute assurance that assets are safeguarded, that transactions are authorised and properly recorded, and that material errors or irregularities are either prevented or would be detected within a timely period.
Internal financial control is based on a framework of management information, financial regulations and administrative procedures, which include the segregation of duties, management supervision and a documented system of delegation and accountability. Ongoing development and maintenance of the various processes may be the responsibility of other managers within the Council, but subject to overall management and approval by the Director of Finance and Corporate Resources. In particular, the process in 2005/06 included:
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• The setting of an annual revenue budget, a 3 year revenue plan and a 4 year capital programme within the context of a medium term financial plan. Towards the end of 2005/6 a revised medium term financial plan was approved that included 5 year revenue and capital programmes, commencing 2006/7.
• Monthly monitoring and reporting to cabinet of actual income and expenditure and projections to year end against the annual revenue budget.
• Monthly monitoring of the progress and cost of projects in the capital programme and quarterly reporting to Cabinet. Capital monitors are also regularly reported to Lead Members.
• Setting of financial and performance targets, including the prudential indicators which are monitored monthly and reported to the Director of Finance and Corporate Resources. They also form a part of the quarterly capital report to Cabinet.
• Identification of key budget risks in service areas, and the allocation of finance staff resources to the areas of highest risk.
• Concentration of effort on management of sundry debtors has borne fruit with a substantial reduction in year end debtor balances.
• Monthly meetings at Director level to review budgets have continued to further strengthen the monitoring process.
The production of a finance manual during the year and publication on the intranet has also strengthened the finance function throughout the authority.
Internal Audit
The Internal Audit function reports directly to the Director of Finance and Corporate Resources and the Council has a well established Audit Committee, which receives reports on the work of Internal Audit.
To ensure that the Head of Internal Audit enjoys full independence there are monthly Monitoring Officer meetings where he can raise his concerns and he has access to the Audit Committee.
It is the responsibility of internal audit to provide assurance and advice on the internal control system of the Council to the Corporate Management Board and Members. Internal Audit reviews and appraises the adequacy, reliability and effectiveness of internal control within systems and recommends improvement. It also supports management in developing systems, providing advice on matters pertaining to risk and control. The controls created by management are evaluated to ensure:
• Council objectives are being achieved; • Economic and efficient use of resources; • Compliance with policies, procedures, laws and regulations; • The safeguarding of Council assets; and • The integrity and reliability of information and data.
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Internal Audit also has responsibility for investigating all reported financial irregularities and these are reported to the Monitoring Officer and to the Audit Committee at the appropriate time. In all cases action is taken which can include the reference to the police and or disciplinary action.
In 2005/6 the internal audit division participated in the rewriting and of the Councils Contract Procedure Rules that were approved by Council at it’s February meeting. Internal Audit have also been involved in the subsequent training relating to those rules for all Council officers involved in procurement.
Furthermore it will also be a key contributor to the on going review of these rules that will take place on an annual basis.
The Housing benefit fraud investigation team has also made significant progress during the year and is now achieving results which are comparable with the best performing teams in London.
Performance Management
The Council has a well defined performance management framework and clear targets that are published in the Best Value Performance Plan. The Council measures its performance against a range of national and local performance indicators and monitors all indicators on a quarterly basis at Cabinet, the Corporate Management Board and Best Value Cabinet Sub Committee.
The monthly and quarterly monitoring and reporting on performance has been reviewed to deliver a more focussed approach to dealing with lower performing indicators.
Monthly monitoring of high risk and key priority indicators is carried out by departmental management teams and submitted to the Corporate Management Board for discussion and challenge. Improvements have been made to the Council’s target setting processes, by developing a formal protocol for the setting and challenging of targets.
Reports are also submitted regularly to Star Chamber on the position with respect to key performance indicators and proposals for improvement.
The Council’s service centre planning process is an effective management tool that integrates risk management. It links service centre objectives to the departmental and corporate objectives within the Improvement Plan. A new appraisal scheme is now in place that links individuals’ performance and objectives into the service planning process.
The Council now provides performance guidance cards for Cabinet Members and publishes benchmarking data for national comparisons. Inter Authority benchmarking information is also used for service performance and cost comparison.
The Council carries out at least one cross cutting best value review each year; however smaller scale internal reviews take place throughout the Council as part of the Council’s Value for Money initiatives.
As stated elsewhere in this statement revenue budget performance is reported on a monthly basis to Cabinet.
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4. REVIEW OF EFFECTIVENESS
The Council has responsibility for conducting, at least annually, a review of the effectiveness of the system of internal control. This review is informed by the work of the internal auditors.
The Audit Committee receive periodic updates from internal audit on the assurance which can be placed against various systems and processes during the year, along with an annual assessment at the year end
Based on the work undertaken by them during the year, internal audit considers whether positive steps are being taken in all those areas where a Risk category 1 finding has been identified during an audit review. A risk category 1 finding is deemed to be the highest level of risk identified.
Furthermore the Audit Committee also consider reports on any Risk Category 1 finding as a part of its work for the year.
• The work of managers within the Council. This work is completed as a part of the service centre management. It supports the work of the departmental management teams in so far as they review all risks within the department.
• The external auditors in their annual audit letter and other reports. The annual audit letter is considered by the Audit Committee as a part of its normal work. and presented to Cabinet by the District Auditor.
• Comments by other review agencies and Inspectors, all inspection reports are reviewed by members.
5. SIGNIFICANT INTERNAL CONTROL ISSUES
Attached in a schedule to this document is a summary of the Internal Control Issues raised in last year’s statement and the action taken with respect to them.
Furthermore the Internal Control Issues identified this year have been included along with proposed action to be taken to remedy them.
The control issues identified have arisen from the various reviews that have taken place throughout the year and these will include the following:
• Internal Audit Risk category 1 findings; • Corporate Risk Register; and • External Audit reviews.
An interim report on progress relating to these issues will be submitted to the Audit Committee at its meeting in January 2007.
We are satisfied that the action plans prepared for each of the above matters will address the need for improvements that have been identified during the year and we will review their implementation and operation as a part of the process for the next statement.
9 Page 18 ENFIELD STATEMENT OF ACCOUNTS 2005/06
Signatures:
………………………………………………. Leader
………………………………………………..Chief Executive
10 Page 19 ENFIELD STATEMENT OF ACCOUNTS 2005/06
Significant Internal Control issues
2004/5 Internal Control Issues Action taken Key financial systems are being identified Work progressing on these documents. and documented jointly with the Audit Commission. This will further improve the position concerning key reconciliations that are critical to the Council’s control environment. The development of schemes of New Contract Procedure Rules introduced delegation for specific functions at the and new schemes of delegation drawn up operational level will improve the control accordingly of activities undertaken pursuant to our statutory obligations. Consideration of the establishment of a The matter has been kept under review as a central debt collection team will be part of the overall debt review policy. undertaken during the year to further Officers are working towards merging the improve the position. operations when it is most beneficial to the Council The development of a central New procurement function now established procurement function within the Council and new Contract Procedure Rules will promote the use of central contracts introduced. in order to generate savings and improve compliance with Contract Procedure Rules. Action plans for areas where, following Action plans agreed for all Risk category 1 an Internal Audit review, assurance could audit findings and action has been taken to not be given. These areas are: remedy the findings. Council Tax computer and systems, First Housing, review of server failure Matters reported to Audit Committee Client Monies September 2005. Leaving care grants Moorefield Family centre On/Off street parking Catering, Cleaning and Transport Civic building cleaning contract Novell network infrastructure SAP financials Telecommunications Systems
11 Page 20 ENFIELD STATEMENT OF ACCOUNTS 2005/06
2005/6 Internal Control issues Proposed Action Internal Audit reviews Housing Benefits Overpayments Action plans agreed with managers Housing Voids responsible and being progressed. Final Millfield Arts Centre position will be reported to Audit Committee City learning centre in September 2006 Social Services Invoicing and Collection SAP HR Payroll system.
Corporate risk register
Decent homes standard. The Council has agreed to establish an
ALMO and work is underway to submit a bid
for funding to the Government.
Position with respect to CRB checks is being Vulnerability of clients in care, failure to dealt with by the Head of HR and procedures carry out CRB checks. are being put in place to safeguard the
Council.
Business Continuity. Project manager appointed to create coherent Business Continuity plan for the Council. Structure to be in place by late 2006. External Audit reviews
Develop and embed initiatives to Value for money Board set up to steer demonstrate further value for money in initiatives through to implementation. services.
Enhance focus on housing, regeneration The Council has developed action plans in and social care for adults. response to these inspections and reviews.
Implement the action plan that was Action plan has now been agreed and is being produced by the Audit Commission implemented. following its review of the SEN transport contract award.
Establish and implement plans to deliver See above actions. the Arms Length Management Organisation and the Decent Homes standard.
Capital asset disposals. Audit Commission review currently taking place.
12 Page 21 ENFIELD STATEMENT OF ACCOUNTS 2005/06
EXPLANATORY FOREWORD
1. INTRODUCTION
The accounts set out details of the Council’s income and expenditure for the 2005/06 financial year and its financial position at 31 st March 2006.
The accounts have been compiled in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2005 – A Statement of Recommended Practice (SORP), jointly developed by CIPFA and the Accounting Standards Board. The Code constitutes ‘proper accounting practice’ with which, by law, local authorities must comply. The 2005 Code incorporates the Accounts and Audit Regulations 2003.
The accounts are a public document but the main intended audience is those with an interest in local government finance. A glossary of technical terms is included at the back.
2. THE COUNCIL’S ACCOUNTS
The accounts are divided into 8 sections as detailed below:
Section 1 - Statement of Accounting Policies
This explains the basis on which the figures in the accounts have been prepared.
Section 2 - Consolidated Revenue Account
This account brings together the expenditure and income relating to all of the Council’s functions and shows how these are funded. It excludes the Council’s Pension Fund and Trust Funds. The presentation and format of the account conforms to the requirements set out in the Code. The service expenditure analysis follows the requirements of the CIPFA Best Value Accounting Code of Practice. This is a separate Code of Practice concerned with the detailed financial reporting of the costs of local authority services.
Section 3 - Housing Revenue Account (HRA)
Housing income and expenditure is included in the Consolidated Revenue Account. However, the authority has a statutory obligation to account separately for its landlord role. The HRA records the major elements of housing revenue expenditure – maintenance, administration and capital financing costs - and how these are met by rents, subsidy and other income.
Section 4 - Consolidated Balance Sheet
The balance sheet is fundamental to an understanding of the Council’s year-end financial position. It shows the balances and reserves at the Council’s disposal, its long term indebtedness and details of the Council’s assets and liabilities. It excludes Trust Funds and the Pension Fund but includes the Collection Fund and housing related balances.
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EXPLANATORY FOREWORD
Section 5 - Statement of Total Movement in Reserves
This statement brings together all movements in the year in both capital and revenue reserves.
Section 6 - Consolidated Cash Flow Statement
The cash flow statement summarises the inflows and outflows of cash arising from transactions with third parties for revenue and capital purposes.
Section 7 - Collection Fund Account
This account reflects the statutory requirement for the Council as a billing authority to maintain a separate Collection Fund, which shows the Council’s transactions for council tax and non-domestic rates. The account shows the way in which these funds have been distributed to preceptors and to the Council’s General Fund.
Section 8 - Pension Fund Accounts
These accounts show the annual income and expenditure of the Pension Fund and state the market value of the investments held by the Fund at the year-end.
3. GENERAL FUND REVENUE EXPENDITURE
General Fund revenue expenditure is expenditure on the main Council Departments – Education, Children’s Services and Leisure, Community, Housing and Adult Social Services (except those provided as part of the Council’s landlord functions, which are included in the Housing Revenue Account), Environment, Street Scene and Parks, Finance and Corporate Resources and the Chief Executive’s Department. It consists of expenditure on items which are consumed within a year (such as salaries and running expenses) and is financed from government grants, council tax, non-domestic rates and other income.
The Council set its 2005/06 budget at the Council meeting on the 23rd February 2005. Total budgeted spending was set at £371.5m. This included a provision to meet the estimated cost of the Council’s share of the projected deficit on the Collection Fund at 31 st March 2005. This contribution (£0.598m) was to be met from a reduction the Council’s General Balance.
The Band D Council Tax for 2005/06 was set at £1,228.87 (£974.25 for services provided by the London Borough of Enfield and £254.62 for the Greater London Authority). This represented an increase of 3.0% compared to 2004/05. Enfield’s Band D Council Tax was £22.08 below the Outer London average.
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EXPLANATORY FOREWORD
The table below analyses General Fund service expenditure compared to budget for 2005/06. The table is based on an extract from the Council’s management accounts and does not therefore match the prescribed structure of the Consolidated Revenue Account:
Approved Outturn Variation Council Service Department Budget £000s £000s £000s Finance and Corporate Resources 8,507 8,037 -470 Community, Housing and Adult Social Services 81,906 81,456 -450 Environment, Street Scene and Parks 43,191 43,069 -122 Education, Children’s Services and Leisure 277,684 277,616 -68 Chief Executive 1,542 1,461 -81
Total Service Department Net Expenditure 412,830 411,639 -1,191
Payments to Levying Bodies 8,483 8,447 -36 Corporate Contribution to Bad Debt Provisions 312 398 +86 Capital Charges (60,946) (60,946) - Capital Financing Costs 19,064 18,207 -857 Interest Receivable (6,394) (8,012) -1,618 Unallocated Contingencies 658 - -658 Net Movement in Corporate Earmarked Reserves (2,506) 2,163 +4,669
Net General Fund Expenditure 371,501 371,896 +395
Contribution from General Balances (598) (993) -395
Net Budget Requirement 370,903 370,903 -
The Accounts for 2005/06 demonstrate a continuing commitment to maintaining and, where appropriate, improving the Council’s financial position.
The Council was faced with a number of budget pressures during the year, particularly in relation to homecare and mental health services for adults and the cost of services that prevent children from being taken into care.
Budgets were monitored closely throughout the year as part of the routine monitoring arrangements, and action plans were developed to contain budget pressures as they became apparent or to find compensating savings. Overall the pressures were more than offset by reduced expenditure in other areas. The main areas of savings included the homelessness service, a reduction in the cost of supporting children and adults in residential care and additional interest receipts and lower interest costs achieved as a result of the Council’s proactive approach to treasury management.
During the year the Council did not need to draw down in full the contingency provision set aside to deal with unforeseen events; at the end of the financial year, the unallocated contingency amounted to approximately £0.7m.
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EXPLANATORY FOREWORD The Council’s medium term aim is to maintain its general balances at or around £10m; as a result of tight financial management during this period, this has been achieved. In 2004/05, the General Fund balance (excluding the amount attributable to schools delegated budgets) was increased to £11.5m in recognition of the need to provide for the Council’s share of the final reported deficit on the Collection Fund at 31 st March 2005 (£1.416m). After funding the budgeted contribution to the deficit in 2005/06 (£0.598m), the Collection Fund deficit at 31 st March 2006 is £0.096m. As a consequence of the improved position on the Collection Fund, the General Fund balance has been reduced to £10.5m.
At the same time the Council has reviewed its bad debt provisions in the light of the collection rates achieved over the last two years. In addition, the Council has also been able to set aside funding within earmarked reserves to provide resources for future expenditure in connection with:
• The approved medium term plan for IT and capital investment;
• the implementation, by April 2007, of single status pay and conditions across the Council’s non-teaching workforce;
• the expected costs, including the relocation of services, associated with a major review of the Council’s property holdings. This review seeks to rationalise the existing portfolio including the disposal of surplus assets, provide accommodation that is fit for purpose and enhance customer access to Council services.
On 21 st April 2006, the Council entered into a 25 year PFI contract for the provision of street lighting services. Under this contract, the operator will replace the majority of the borough’s street lighting columns over the first five years of the contract and will maintain the entire street lighting and illuminated street furniture inventory over the full 25 year period. The overall net impact on the Council’s revenue budget will be to increase annual expenditure by approx. £0.820m for which provision has been made in the Council’s Medium Term Financial Plan.
4. HOUSING REVENUE ACCOUNT
The Housing Revenue Account (HRA) consists of expenditure on council-owned housing, which is offset by rental income and government subsidy. The 1989 Local Government and Housing Act requires the Housing Revenue Account to be kept separately from other accounts; in particular, funding of HRA expenditure must be met from within the HRA and not as a call on General Fund resources.
Gross expenditure on the HRA was £69.9m in 2005/06. This includes the charges for capital and depreciation as required by resource accounting. £1.10m relates to a contribution to the General Fund in respect of the subsidy limitation on rent rebates following the transfer of these transactions to the General Fund and £32.46m to meet capital financing charges. The remainder (£36.31m) relates mainly to repairs and maintenance costs and management of the stock and includes £0.286m for the additional cost resulting from the application of FRS17 (see HRA note 9).
16 Page 25 ENFIELD STATEMENT OF ACCOUNTS 2005/06
EXPLANATORY FOREWORD Income to the HRA was £49.67m in 2005/06. This was made up of income from dwelling rents and service charges from tenants of £44.13m and non-dwelling income of £5.54m.
After adjustments, interest on balances and appropriations the HRA surplus was £0.879m. This was transferred to the HRA balance to give a total HRA retained balance of £8.959m at 31 st March 2006.
The number of council-owned homes fell from 12,032 at 31st March 2005 to 11,951 at 31 st March 2006, because of right-to-buy sales.
5. THE PRUDENTIAL CODE
The Local Government Act 2003 introduced the current framework for local authority capital finance. Under this framework, it is for each local authority to determine and keep under review how much it can afford to borrow.
The legislation requires each authority to have regard to the CIPFA Prudential Code for Capital Finance in reaching decisions on capital expenditure. This means that authorities are responsible for determining whether decisions on capital investment are affordable, prudent and sustainable.
The Council decided that it would keep its use of borrowing to fund new capital expenditure within its existing plans. These were consistent with government supported borrowing allocations and amounted to £8.6m in 2005/06.
The financing of capital expenditure has been carried out on a full accruals basis in line with best practice.
6. CAPITAL EXPENDITURE & INCOME
Total capital expenditure during 2005/06 was £73m. The table below summarises capital expenditure by programme area and source of funding.
The main focus of the capital programme in 2005/06 was providing increased investment in school buildings. This included major schemes at Brimsdown School (replacement canteen and kitchen); a new sports hall at Edmonton School; Salisbury School 6 th form additional accommodation and the purchase of the site for a new City Academy. Other major areas of works were improvements to the housing stock and a major programme of reconstruction and safety works to roads.
During 2005/06, the Council commenced a comprehensive review of its property holdings. The first phase seeks to rationalise the existing office portfolio, provide accommodation that is fit for purpose and enhance customer access to Council services. In particular, the refurbished Charles Babbage House will provide a new children’s centre, John Wilkes House will accommodate a new housing access centre and refurbished premises at Claverings Industrial Estate will form a new housing repairs centre.
The Council is also in the process of replacing its Revenues and Benefits IT system and other major IT upgrades which will continue into 2006/07. In addition, the Council, in
17 Page 26 ENFIELD STATEMENT OF ACCOUNTS 2005/06
EXPLANATORY FOREWORD conjunction with a developer, is carrying out a major redevelopment of Enfield Town Centre. This has involved the acquisition of various sites under compulsory purchase powers the cost of which have been reimbursed by the developer.
The Council generated capital receipts in excess of £9m from the disposal of surplus property in addition to the receipts of £1.8m from the sale of Council Housing Stock under the Right to Buy provisions.
The Council entered into new long term borrowing arrangements in 2005/06, amounting to £29m, with the Public Works Loans Board at an average interest rate of 3.9% over periods of 25 and 50 years in support of the Council’s activities. This included £10.0m to replace an existing loan due to mature in December 2006 to take advantage of low interest rates. Total borrowing outstanding at 31st March 2006 was £227m.
£000s Capital expenditure : Improvements to council dwellings 10,737 Advances to Registered Social Landlords 3,445 Improvement and other housing grants 4,325 Schools 24,105 Regeneration projects 498 Adult social services 838 Transport and environmental schemes 11,518 Libraries and leisure facilities 544 Children’s Services 261 Parks 1,520 IT infrastructure & programmes 3,989 Relocation of office accommodation 3,554 Other building improvements, adaptations and loans 1,986 Major repairs and disabled access to office buildings 1,383 Vehicles 1,450 Site acquisition for Enfield Town project 2,839
Total capital expenditure in 2005/06 72,992
Sources of finance : Borrowing supported by Government subsidy 8,604 Unsupported borrowing 0 Capital Receipts 17,008 Major Repairs Reserve 9,172 Government grants/reimbursements 15,997 Revenue 8,574 Other contributions 13,637
Total capital resources applied 72,992
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EXPLANATORY FOREWORD
7. PENSION LIABILITY
The Statement of Accounts incorporates in full the accounting requirements of FRS17 – Retirement Benefits as contained in the SORP. Further details are provided in the statement of accounting policies and in the relevant notes to the Consolidated Revenue Account and Consolidated Balance Sheet.
In particular, there has been an increase in net pension liabilities (£156.0m 2005/06; £144.0m 2004/05). These reflect the underlying commitments the Council has in the long run to pay retirement benefits. The increase is due to:
• Additional costs arising from benefits earned by current employees and discretionary benefits awarded to former employees through early retirement and redundancy (£5m);
• Interest on pension liabilities less the expected return on pensions assets (£2m);
• Net actuarial losses arising from the reduction in the net discount rate used in assessing scheme liabilities less the additional return on pensions assets currently being achieved (£5m). The net discount rate is based on the yield available on long dated, high quality bonds; the rate at 31 st March 2006 reflected a reduction from 2.4% at 31 st March 2005 to 1.7%.
The adjustments to the accounts to comply with FRS17 have had the following effects on the 2005/06 figures:
• the costs disclosed for individual services are 1.1 % (2004/05 1.7%) higher after the replacement of employers’ contributions by current services costs and Net Operating Expenditure is 1.1 % (2004/05 2.0%) higher that it would otherwise have been.
• the requirement to recognise the net pensions liability in the balance sheet has reduced the reported net worth of the authority by 8.7% (10.4% at 31 March 2005).
However, there is no effect on the Council’s overall capital or revenue resources arising from these adjustments.
8. ANALYSIS OF SPENDING BY SERVICE
The following charts provide a pictorial view of the Council’s spending. The charts show:
• revenue expenditure and income by service in 2005/06;
• sources of funding for revenue expenditure.
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EXPLANATORY FOREWORD
Net Revenue Spending by Service 2005/2006
Total Net Expenditure £485.9m
Highways, Roads and Transport Services £27.7m (5.7%) Housing £18.0m (3.7%)
Education Services £242.9m (50.0%) Social Services £87.6m (18.0%)
Other Net Expenditure inc. Levying Bodies £51.1m (10.5%)
Cultural Environmental and Planning Services Central Services Court Services £36.9m (7.6%) £21.5m (4.4%) £0.2m (0.1%)
Sources of Finance 2005/2006
Sources of Finance £485.9m
Other Income and Contributions to/from Reserves Asset Management £16.2m (3.3%) Revenue Support Revenue Account Grant £98.2m (20.2%) £173.8m (35.8%)
Council Tax Payers £104.3m (21.5%) National Non- Domestic Rate £93.4m (19.2%)
20 Page 29 ENFIELD STATEMENT OF ACCOUNTS 2005/06
SECTION 1 STATEMENT OF ACCOUNTING POLICIES
1. GENERAL PRINCIPLES
The general principles adopted in compiling the accounts are consistent with the Code of Practice on Local Authority Accounting in the United Kingdom - A Statement of Recommended Practice 2005 (SORP) issued by the Chartered Institute of Public Finance and Accountancy (CIPFA).
All relevant Standard Statements of Accounting Practice (SSAP) and Financial Reporting Standards (FRS), so far as they apply to local authorities, have been observed. Any departures from these standards are disclosed, where relevant, in the policies detailed below.
The Accounts have been prepared under the historic cost convention, modified by the revaluation of certain categories of tangible fixed assets in accordance with the SORP.
The Accounts are prepared on an accruals and going concern basis.
2. INTANGIBLE FIXED ASSETS
Intangible fixed assets refer to items of expenditure from which the Council expects to obtain future economic benefits but which do not have physical substance. Generally, they refer to the acquisition and implementation costs of major new IT systems.
Intangible assets are capitalised at cost and are amortised to revenue over five years.
3. TANGIBLE FIXED ASSETS
Tangible fixed assets are assets that have physical substance and are held for use in the provision of services on a continuing basis. All expenditure on the acquisition, creation or enhancement of tangible fixed assets is capitalised on an accruals basis.
Expenditure on tangible fixed assets includes:
• the acquisition, reclamation, enhancement or laying out of land; • the acquisition, construction, preparation, enhancement or replacement of roads, buildings and other structures; • the acquisition, installation or replacement of movable or immovable plant, machinery, apparatus, vehicles and vessels.
In this context enhancement means carrying out works which are intended to: • lengthen substantially the useful life of the asset; or • increase substantially the open market value; or • increase substantially the extent to which the asset can or will be used for the purposes of the authority.
Expenditure on routine repairs and maintenance is charged to revenue.
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STATEMENT OF ACCOUNTING POLICIES
Tangible fixed assets are measured initially at cost comprising all expenditure that is directly attributable to bringing the asset into working condition for its intended use. Tangible fixed assets are then valued and included in the balance sheet on the basis recommended in the CIPFA Code of Practice and in accordance with the statements of Asset Valuation Principles and Guidance Notes issued by The Royal Institution of Chartered Surveyors (RICS) :
• operational land and buildings – are included in the balance sheet at existing use value or, if specialised properties, at depreciated replacement cost;
• non-operational land and buildings - on the basis of open market value;
• infrastructure and community assets - are included at depreciated historic cost (except for a small number of community assets which are included at a nominal value of £1);
• Council dwellings are valued at existing use for social housing purposes on the basis laid down by the ODPM;
• Vehicles, Plant and Equipment are valued at historical cost less depreciation as an approximation to market value.
The freehold and leasehold properties that comprise the Authority’s property portfolio are subject to a 5 year rolling programme of revaluation. This ensures that where market conditions or rebuilding costs alter, all affected assets are considered over a reasonable period of time. Some parts of the portfolio (schools and council dwellings) have been the subject of a complete review in 2005/06 whilst, in other sections, valuations have been indexed, where appropriate, to reflect changes in market conditions or increases in building costs over the period to 1 st April 2005. Increases in valuations are matched by credits to the Fixed Asset Restatement Account to recognise unrealised gains.
Infrastructure and community assets are recognised in the Balances Sheet as the expenditure is incurred. Other operational assets are recognised from the date they become operational. Until that time, they are included as work in progress under the non- operational heading and valued at cost.
In accordance with Financial Reporting Standard 11 (FRS11) – Impairment of Fixed Assets – the balance sheet valuation of all tangible fixed assets is reviewed annually where there is evidence that impairment has occurred. This is accounted for by:
• Charging the loss as additional depreciation or amortisation to the relevant service revenue account where the loss is due to the consumption of economic benefits e.g. physical damage or obsolescence.
• Writing off the loss to the Fixed Asset Restatement Reserve where the loss is due to a general decline in prices.
A de-minimis level of £10,000 has been adopted for the inclusion of fixed assets in all categories. Furniture and equipment acquired as fitting out costs as part of larger capital schemes are charged to revenue in the year of acquisition and are not capitalised in the
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STATEMENT OF ACCOUNTING POLICIES accounts unless there are individual items, which exceed the de-minimis level. In addition, capital expenditure incurred by schools under devolved management arrangements is included in the Council’s asset register.
Further details are contained in Note 7 to the Consolidated Balance Sheet (page 56).
4. DEPRECIATION
In accordance with FRS15 (Tangible Fixed Assets), all tangible fixed assets other than land and non-operational buildings are depreciated over their estimated useful lives. The Housing Revenue Account is charged an amount equivalent to the depreciation on Council Dwellings by way of a Major Repairs Allowance. Other Housing properties are depreciated in the normal manner. The revenue account, therefore, fully reflects the use of assets and the consumption of their economic benefits in the provision of services.
Charges for depreciation are included as part of the capital charges to services. Estimated useful lives are reviewed as part of the asset revaluation exercises or where, in the interim, there has been an enhancement to an asset that has extended its useful operational life. In addition, where a loss in operational use has occurred as a result of physical damage, obsolescence or similar impairment, an increased depreciation charge is made to the service revenue account.
The Council’s general policy is to provide for the depreciation of assets over the following periods unless in the opinion of the Council’s Valuation Officer a lesser period should be used having regard to the nature of the expenditure incurred.
Council Dwellings* and Operational Buildings 45-50 years Infrastructure 40 years Vehicles 3-10 years Plant and machinery 5-7 years
*in accordance with CIPFA guidelines Council Dwellings are depreciated by an amount equal to the Major Repairs Allowance as being a proxy for depreciation calculated on the above basis.
5. GRANTS AND CONTRIBUTIONS (CAPITAL)
Grants and contributions to capital expenditure are accounted for on an accruals basis and are credited to a Grants Deferred Account to match the relevant expenditure. Amounts are released from the Grants Deferred Account to offset any provision for depreciation or amortisation charged to the Asset Management Revenue Account in respect of the asset to which the grant relates.
6. CAPITAL CHARGES
The capital charges made to General Fund services equate to the sum of:
• depreciation on tangible fixed assets plus a notional interest charge based on the amount at which the fixed asset is included in the Balance Sheet. Full charges for repairs and maintenance are made to service revenue accounts. The rates of notional interest are prescribed annually by the CIPFA/LASAAC Joint Committee.
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STATEMENT OF ACCOUNTING POLICIES For 2005/06 the interest rate applicable to assets carried at current value is 3.5% and for assets carried at historical cost 4.95%.
• impairment losses attributable to the consumption of economic benefits on tangible fixed assets used by services
• amortisation of intangible fixed assets attributable to services.
The charges made to service revenue accounts are reversed out of the Consolidated Revenue Account after the Net Cost of Services through a credit entry to the Asset Management Revenue Account (AMRA). The following entries are then made to the AMRA to represent the cost of the Council’s fixed assets:
• The total depreciation charge for all tangible fixed assets for the year;
• Credits for the writing down of the Grants Deferred Account;
• Impairment losses attributable to the consumption of economic benefits;
• The total amortisation of intangible fixed assets;
• External interest charges borne by the Council.
Depreciation, amortisations and impairment losses are not charges that affect the overall level of expenditure to be met from the council tax. However, the Council is required to set aside an annual provision from revenue to reduce its overall borrowing requirement. This is known as the minimum revenue provision and must represent at least 4% of the Council’s Capital Financing Requirement as adjusted to take account of the opening credit ceiling for the General Fund. An adjustment is made to reconcile depreciation, amortisations and impairments to the minimum revenue provision through a contribution from the Capital Financing Account.
Capital charges to the HRA are based on the HRA credit ceiling (the amount deemed to have been borrowed to fund capital expenditure in the HRA) multiplied by the Consolidated Rate of Interest (the rate calculated in accordance with a direction on the HRA by the Office of the Deputy Prime Minister). A Major Repairs Allowance is charged to the HRA in lieu of the charge for depreciation.
7. LEASING
Finance Leases
Assets acquired under finance leases are recorded in the Council’s balance sheet as fixed assets and are valued and depreciated in the same way as other assets of the same classification. The acquisition of the interest is recorded as a liability at the commencement of the lease and written down as the leasing charges become payable. The finance element of the leasing charge is debited to the Asset Management Revenue Account.
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STATEMENT OF ACCOUNTING POLICIES Operating Leases
Lease rentals payable or receivable under operating leases are debited or credited to service revenue accounts on a straight line basis over the term of the lease. Assets used under operating leases are not recorded as fixed assets in the financial statements.
8. DEFERRED CHARGES
Deferred charges refer to capital expenditure that does not lead to the acquisition, creation or enhancement of a Council fixed asset. For example, the Council pays Housing Assistance Grants to owner occupiers. These are recorded as expenditure for capital purposes, but such expenditure does not result in the Council acquiring an asset. Similarly, the Council may make contributions from its own resources or act as the accountable body for government or European funding in connection with regeneration projects involving private sector assets. In accordance with proper accounting practices, however, these items are written off to the Consolidated Revenue Account in the year of expenditure and met from a contribution from the Capital Financing Account net of specific grants. This recognises that the Council does not receive benefit from the expenditure in future years.
9. EXTERNAL INTEREST AND REPAYMENT OF DEBT
Gains and losses on the repurchase of General Fund debt are charged to the Consolidated Revenue Account in the year that the repurchase or early settlement is made. However, where the repurchase is connected with a refinancing or restructuring of the Council’s loan portfolio with substantially the same overall economic effect when viewed as a whole, gains and losses are recognised on the balance sheet and written down to revenue on a straight line basis over the life of the replacement borrowing.
Gains or losses on the repurchase of HRA debt is amortised to the HRA over the remaining life of the debt repaid or ten years, whichever is the lower.
10. CAPITAL RECEIPTS
Capital receipts arising from the disposal of assets held in the General Fund are used to finance new capital expenditure and are shown as the Usable Capital Receipts Reserve.
In accordance with regulations issued under the Local Government Act 2003, 75% of the proceeds arising from the sale of Council dwellings under right to buy legislation and 50% of the proceeds arising from the sale of land held in the HRA for housing purposes must be paid over to central government for redistribution. The total amount payable is disclosed in the Consolidated Revenue Account after Net Cost of Services and offset against a contribution from the Usable Capital Receipts Reserve after Net Operating Expenditure.
11. STOCKS AND WORK IN PROGRESS
Stocks, where material, are included in the balance sheet at the lower of cost or net realisable value. Work in progress is shown at cost and incorporates a charge for overheads. Specific items are disclosed in Note 9 to the Consolidated Balance Sheet (page 58).
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STATEMENT OF ACCOUNTING POLICIES 12. COST OF SUPPORT SERVICES
The cost of central overheads and support services is fully allocated to departments in proportion to the benefits received and in accordance with the CIPFA Best Value Accounting Code of Practice. The basis of these allocations is as follows:
COST BASIS OF ALLOCATION Administrative buildings Areas occupied Computer services Actual usage Central offices services Actual usage Central/professional services Staff time
Certain costs are held centrally and not allocated to services. These are:
• Corporate and Democratic Core - costs relating to the Council’s status as a multi- functional, democratic organisation;
• Non Distributed Costs – largely the cost of discretionary benefits awarded to employees retiring early.
13. PROVISIONS AND RESERVES
The Council sets aside provisions and reserves from its revenue budget.
Provisions are amounts set aside in the appropriate service revenue account to cover expenditure where there is an obligation but the actual cost and timing of the expenditure are not yet known. When expenditure to which the provision relates is incurred, it is charged against the provision. When it is considered very unlikely the provision is no longer needed, the provision is reversed and credited back to the relevant revenue account.
Provisions may also be created where there is some uncertainty over the Council’s entitlement to receive income. This may arise in connection with changes in the eligibility criteria of central government grant programmes or as a result of the interpretation of new legislation.
Reserves are amounts set aside from Council funds at the discretion of the Council for either general or earmarked purposes to meet future expenditure. Reserves are created by appropriating amounts from the Consolidated Revenue Account after Net Operating Expenditure. When expenditure is incurred in connection with a reserve, the expenditure is charged to the revenue account included in the Net Cost of Services and met by an appropriation from the reserve so there is no charge against council tax for the expenditure.
Capital reserves are not available for revenue purposes and can only be used for specific statutory purposes. The Fixed Asset Restatement Account represents the balance of surpluses or deficits arising from the periodic revaluation of fixed assets. The Capital Financing Account represents the amounts set aside from revenue or usable capital receipts to finance new capital expenditure or for the repayment of external loans.
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STATEMENT OF ACCOUNTING POLICIES A full summary of the Council’s reserves is included in a separate section in these accounts on pages 68-72.
14. DEBTORS AND CREDITORS
The accounts are prepared on the basis of income and expenditure and thus include all sums due to the Council and all sums payable for work done, or goods received, etc. in the year except for:
• Payments of under £250 due to creditors (£6,000 in the case of capital projects), which are excluded unless a large number of such invoices would distort a particular budget heading or where the expenditure is grant funded.
• Specific items, which, in view of previous practices, are dealt with on a cash basis. As an example, fuel bills are treated in this way because a full year’s charge is made to the revenue account on a cash basis rather than continually apportioning accounts at the end of each year. It is considered that this does not have a material effect on the year’s accounts.
No significant estimation techniques have therefore been used for debtors and creditors.
Provisions for bad or doubtful debts are deducted from debtors balances. If there is evidence that debts are irrecoverable, they are written off against the appropriate provision. Bad debt provisions are maintained at levels that reflect the age profile of the outstanding arrears and the likelihood of recovery based on currently achieved collection rates.
15. PENSIONS
The Council participates in three separate schemes.
The three schemes provide members with defined benefits related to pay and service. They are as follows:
• Teachers – Teachers employed by the authority are members of the Teachers’ Pensions Scheme, administered by the Teachers Pensions Agency (TPA). It provides teachers with defined benefits upon their retirement. The authority contributes towards the costs by making contributions based on a percentage of members’ pensionable salaries. The pension cost charged to the accounts is the contribution rate set by the TPA on the basis of a notional fund. The arrangements for the Teachers’ scheme mean that the liabilities for the benefits payable cannot be identified to the Council. The scheme is, therefore, accounted for as if it were a defined contributions scheme – no liability for future payments of benefits is recognised in the balance sheet .
• London Pension Fund Authority (LPFA) Scheme - Certain staff employed by the Council have retained their membership of the above fund, which is a funded scheme. The LPFA is designated an ‘administering authority’ within the Local Government Superannuation Regulations 1995. The LPFA maintains the Fund and administers the terms of the scheme in respect of those who participate in it. The pension costs that are charged to the Council’s accounts in respect of these relevant employees are equal to the contributions paid to the funded scheme. Further costs that arise to the fund due to early retirements are met by an increase in the employer’s contribution.
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STATEMENT OF ACCOUNTING POLICIES
• Other employees - Subject to certain qualifying criteria, all other employees are eligible to join the Council’s Local Government Superannuation Scheme.
The Council’s Local Government Pension Scheme is accounted for as a defined benefit scheme. The financial statements reflect the Council’s liabilities, calculated on an actuarial basis, to increase contributions to the pension fund to make up any shortfall in attributable net assets, rather than the employer’s contributions actually payable to the pension fund in the year.
Liabilities are assessed using assumptions about mortality rates, employee turnover rates and projected earnings for current employees, discounted to their value at current prices. The discount rate used is based on the yield available on long dated high quality corporate bonds of equivalent currency and term to scheme liabilities. The actuary has advised that a rate of 1.7% real (4.9% actual) is appropriate for 2005/06. The equivalent rates for 2004/05 were 2.4% real (5.4% actual).
The change in the net pensions liability is analysed as follows:
• Current service costs – the increase in liabilities as a result of the years of service earned in the year allocated to service revenue accounts within the Net Cost of Services;
• Past service cost – the increase in liabilities arising from decisions made in the year where the effect relates to years of service earned in earlier years included as part of Non Distributed Costs within the Net Cost of Services;
• Interest cost – the expected increase in the present value of liabilities during the year as they move one year closer to being paid charged to Net Operating Expenditure;
• Expected return on assets – the annual investment return on fund assets based on an average of the expected long term return credited to Net Operating Expenditure;
• Gains/losses on settlements and curtailments – the outcome of actions that relieve the Council of liabilities or events that reduce the expected future service or accrual of benefits of employees (e.g. the transfer of operations to other bodies) included as part of Non Distributed Costs within the Net Cost of Services;
• Actuarial gains and losses – changes in the net pensions liability that arise because events have not coincided with assumptions made at the last actuarial valuation or because the actuaries have updated their assumptions - not charged to revenue;
• Contributions paid to the Council’s pension fund by way of employer’s contributions.
Statutory provisions limit the Council to raising council tax to cover the amounts payable by the Council to the pension fund in the year. Consequently, there is an appropriation to the Pensions Reserve after Net Operating Expenditure to adjust the notional debits and credits for retirement benefits to match the actual amount payable to the pension fund.
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STATEMENT OF ACCOUNTING POLICIES These accounting policies have not been applied to the Council’s share of the LPFA scheme on the basis that this is not material to an understanding of the Council’s financial position. The financial statements reflect the actual amounts payable in the year by the Council to this scheme.
The accounts of the Pension Fund of the Council, which are shown on pages 80-91, do not form part of the Consolidated Balance Sheet.
16. GRANTS AND CONTRIBUTIONS (REVENUE)
Specific revenue grants and contributions are accounted for on an accruals basis and are credited to appropriate revenue accounts to match the expenditure to which they relate once the Council has satisfied the conditions of the grant/contribution and there is reasonable certainty that the funding is receivable. General grant (Revenue Support Grant) is credited to the Consolidated Revenue Account as a source of funding after Net Operating Expenditure and appropriations to and from reserves.
17. TRUST FUNDS
Certain sums of money are administered by the Council on behalf of others. Where the Council is acting as the trustee of a Charitable Trust, such sums are not included in the Consolidated Balance Sheet but are detailed in Note 20 to that statement (page 63). These figures have been compiled under these accounting policies and the investments of the Funds are shown both at cost and market value as at 31 March 2006.
Funds administered by the Council arising from receivership appointments made by the Court of Protection and other funds administered by the Council such as residents property accounts and other miscellaneous funds held on behalf of social services establishments are consolidated in the Council’s Balance Sheet.
18. INTEREST ON BALANCES
Interest is accrued on balances held on Trust Funds and the Housing Revenue Account as well as some other specific accounts to preserve the purchasing power of money received by the Council for specific purposes.
19. LONG TERM CONTRACTS
The Council has two PFI contracts.
The first refers to Highlands secondary school which opened in September 2000. Following an analysis of the risks associated with the contract, the Council has concluded that the school is an asset of the Authority and that the contract is the equivalent of a finance lease with a nil initial cost under the credit arrangement regulations. The provisions of SSAP 21 Accounting for leases and hire purchase contracts have been applied. The accounting treatment is further described in Note 13 (page 40) to the Consolidated Revenue Account.
The second contract is for the provision of Starksfield Primary School, and the refurbishment and extension to Tottenhall Primary School and Lea Valley Secondary School. In these cases, the risks reside with the operator. The contract is the equivalent of
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STATEMENT OF ACCOUNTING POLICIES a service contract so the assets concerned are not included in the Authority’s balance sheet. See section 25 below – Prior Period Adjustments.
20. SCHOOLS
The Authority’s schools operate their own bank accounts and maintain their own financial records independently of the Council’s corporate financial systems. Schools submit annual returns for consolidation into the Council’s Statement of Accounts. These returns include details of schools’ income and expenditure, debtors and creditors, and income and payments in advance.
Reserves held by schools under the Council’s scheme of delegation are disclosed in the Consolidated Revenue Account as the amount included in the Council’s General Fund Balance attributable to schools.
21. INVESTMENTS
Investments generally refer to short term deposits and are recorded at cost in the balance sheet. They are managed in line with the Council’s treasury management strategy and are arranged with major financial institutions that have a good credit rating.
Investment decisions are taken in the context of the Council’s cash flow position and the timing of its capital and revenue resourcing requirements.
22. VAT
The financial statements exclude the effect of VAT other than any amount that is irrecoverable from HM Revenue and Customs.
23. FINANCIAL RELATONSHIP WITH COMPANIES AND OTHER ORGANISATIONS
The 2005 SORP requires local authorities to prepare a full set of group financial statements where they have material interests in subsidiaries, associates and joint ventures. This also includes consideration of interests in other statutory bodies. The Council has undertaken a review of its interests in other bodies in accordance with the accounting tests contained in the SORP and has concluded that it does not have a group relationship with the organisations concerned. However, the Council does have a financial relationship with a number of bodies and this is explained in Note 16 to the Consolidated Revenue Account (page 41). These relationships do not give rise to material obligations or a significant degree of influence or control.
24. CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Contingent liabilities refer to possible material obligations at 31 st March that cannot be readily quantified properly at the balance sheet date and there is a high level of uncertainty over the extent of the Council’s liability. No entries in the accounts are required to be made for contingent liabilities but they are reported in Note 23 to the Consolidated Balance Sheet (page 64). In particular, they refer to contractual disputes that are subject to legal proceedings.
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STATEMENT OF ACCOUNTING POLICIES
Contingent assets refer to transactions that may give rise to economic benefits to the Council but cannot be estimated with reasonable certainty at the balance sheet date. A contingent asset may be a sum owed to the Council but which at the balance sheet date is subject to the resolution of legal proceedings.
25. PRIOR PERIOD ADJUSTMENTS
Education PFI Contract
In the light of current developments in the accounting arrangements for PFI contracts, the authority has considered it appropriate to review its accounting treatment of the second Education PFI contract referred to in section 19 above which commenced in September 2003. The revised accounting policy is consistent with FRS5 – Reporting the substance of transactions.
At the start of this contract, the land and existing buildings associated with the development were transferred to the operator at nil consideration. The substance of the transaction is that the operator did not need to finance this initial capital investment and, consequently, this has resulted in a lower unitary charge payable by the Council over the period of the contract. This needs to be recognised in the accounts as a deferred consideration written down over the period of the reduced payments. In addition, not all the assets transferring to the operator were written out of the accounts at the time in accordance with the effect of the contract.
At the end of the contract, in 2029, the land and buildings will transfer back to the Council also at nil consideration. At that time, they will become Council assets. The Council, therefore, needs to build up an asset (a long term debtor) on its balance sheet from the payments made to the operator that represents the expected fair value of the residual interest in the assets by the end of the contract term.
There is no overall impact on the Council’s capital or revenue expenditure as a result of these accounting entries since the net effect of the entries are cancelled out as an appropriation from the capital financing account. The purpose of the change in accounting policy is to ensure that the accounts fully reflect the economic impact of the contractual arrangements and are consistent with reporting standards.
In order to implement the revised accounting arrangements and to correct the reporting of the fixed assets in the balance sheet, it has been necessary to restate comparative figures for 2004/05 and adjust the opening balance of reserves. The effect is reported in note 1 to the Consolidated Revenue Account on page 34, in note 2 to the Consolidated Balance Sheet on page 52 and in the Statement of Total Movement in Reserves on page 68.
Legal Services Trading Account
In previous years, the authority has reported Legal Services as a trading undertaking under net operating expenditure in the Consolidated Revenue Account and in note 11 to the Consolidated Revenue Account. Under the SORP, the separate reporting of trading accounts is at the discretion of the authority where this adds to a better understanding of the authority’s activities. The authority has reviewed its approach to the reporting of Legal Services in the Statement of Accounts and has concluded that the costs of the service
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STATEMENT OF ACCOUNTING POLICIES should be fully reported within the net cost of services in the same way as all other centrally provided services in the authority. Legal Services do not act in a contractual capacity on behalf of the authority and its service departments. In view of this change in approach, comparative figures in the Consolidated Revenue Account for 2004/05 have been restated.
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SECTION 2 THE CONSOLIDATED REVENUE ACCOUNT
The statement shows the gross expenditure and income as well as the net expenditure on the main services of the Council and how it is met from the various taxpayers’ resources. The recharged cost of support services and other inter-group transfers is reflected only in the figures of the receiving service.
CONSOLIDATED REVENUE ACCOUNT FOR YEAR ENDING 31 MARCH 2006
2005/2006 2004/2005 GROSS GROSS NET NET EXPEND INCOME EXPEND EXPEND £000s £000s £000s £000s Central services to the public 20,760 (11,578) 9,182 10,392 Court services 194 (4) 190 720 Cultural, environmental and planning services 52,801 (15,945) 36,856 35,663 Education services 277,007 (34,071) 242,936 212,309 Highways, roads and transport services 39,986 (12,309) 27,677 25,091 Housing services 263,000 (245,036) 17,964 19,652 Social services 131,498 (43,874) 87,624 80,568 Corporate and democratic core 6,090 (125) 5,965 5,437 Non Distributable Costs 6,764 (395) 6,369 4,053 NET COST OF SERVICES 798,100 (363,337) 434,763 393,885
(Surplus)/Deficit from trading 18,089 (18,608) (519) (728) operations (NOTE 11) Asset Management Revenue Account (NOTE 3) 44,128 (98,198) (54,070) (39,717) Contribution of Housing Capital receipts to the Government Pool (NOTE 18) 5,074 5,074 12,592 Interest and investment income (7,936) (7,936) (7,822) Amounts due to levying authorities 9,451 9,451 8,823 FRS 17 Interest Costs 28,937 28,937 23,844 Return on Pension Assets (27,011) (27,011) (23,768) NET OPERATING EXPENDITURE 903,779 (515,090) 388,689 367,109 Surplus/(Deficit) transferred to HRA 879 2,479 Contribution to earmarked reserves - Schools - Contribution to earmarked reserves – Other 12,367 15,840 Transfer from usable capital receipts (5,074) (12,592) Movement on Pension Reserve (7,002) (7,024) Capital Expenditure financed from revenue 8,853 4,273 Reconciling amount for provisions for loan (NOTE 1) (10,625) (9,817) repayment Other contributions from capital financing reserve (NOTE 3) (9,980) (4,561) AMOUNT TO BE MET FROM GOVERNMENT GRANTS AND LOCAL TAX PAYERS 378,107 355,707 Sources of finance Demand on the Collection Fund (104,272) (101,443) Collection Fund transfer for estimated surplus at 31 March 2005 598 0 Revenue Support Grant (173,805) (174,074) Special Grant – PFI Revenue Support (6,355) (6,093) National non-domestic rates (93,424) (78,713) TOTAL NET GENERAL FUND (SURPLUS)/ DEFICIT 849 (4,616) Balance on General Fund brought forward (24,822) (20,206) BALANCE AS AT 31 MARCH 2006 (23,973) (24,822) General Fund Balance attributable to schools budgets (13,466) (13,322)
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NOTES TO THE CONSOLIDATED REVENUE ACCOUNT
1. PRIOR PERIOD ADJUSTMENT
In recognition of current developments in the accounting arrangements for PFI contracts and as result of the Council’s review of the accounting presentation for the Legal Services Trading Account, the comparative figures for 2004/05 have been restated as follows:
Extract from the Consolidated Revenue Account
Net Expend Education Legal Net Expend 2004/05 PFI Services 2004/05 Before Contract After Adjustment Adjustment £000s £000s £000s £000s Central services to the public 10,389 - 3 10,392 Cultural, environmental and planning services 35,632 - 31 35,663 Education services 212,993 (696) 12 212,309 Highways, roads and transport services 25,090 - 1 25,091 Housing services 19,580 - 72 19,652 Social services 80,505 - 63 80,568 Net cost of services 394,399 (696) 182 393,885 (Surplus)/Deficit from trading operations (546) - (182) (728) Asset Management Revenue Account (40,265) 548 - (39,717) Net Operating Expenditure 367,257 (148) - 367,109 Reconciling amount for provisions of loan repayment (9,965) 148 - (9,817) Amount to be met from government grants and local taxpayers 355,707 - - 355,707
2. CAPITAL FINANCING
The Local Government Act 2003 requires revenue accounts to be charged with a minimum sum for the repayment of debt. This is reflected within services as a depreciation charge and as an appropriation from/to the Capital Financing Reserve below net operating costs. The is also required to make entries in the revenue accounts to reflect the true costs of its PFI arrangements, a compensating contribution from the Capital Financing Account is needed in order to neutralise the effect on the amount to be met by the Council Tax Payer. The overall effect of these requirements can be summarised as follows:
2005/2006 2004/2005 £000s £000s Minimum revenue provision 5,871 5,160 Amount charged to services for depreciation (16,636) (14,604) Reconciling amount for the provision for loan repayment (10,765) (9,444) Reconciling amount of PFI transactions 140 (152) Local Authority Social Housing Transitional Grant (66) Capital financing charge receivable from Middlesex University in respect of transferred debt (155) Contribution to/(from) capital financing account (10,625) (9,817)
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NOTES TO THE CONSOLIDATED REVENUE ACCOUNT
The sum receivable from the Middlesex University represents the repayment of debt retained by the Council in respect of related capital expenditure incurred prior to the incorporation of the university. This was fully repaid in 2005/06.
3. ASSET MANAGEMENT REVENUE ACCOUNT This account summarises the asset transactions within the revenue account. Capital Grants Deferred are written down to offset the depreciation charges associated with the assets originally funded by the grants.
2005/2006 2004/2005 £000s £000s £000s £000s INCOME Capital charges to services: Housing services (34,332) (33,315) Non-housing services (60,831) (45,473) (95,163) (78,788) Capital grants deferred account (2,780) (1,934) Unwinding discount on PFI (255) (113) payments EXPENDITURE Provision for depreciation 29,447 26,135 External interest charges 14,681 14,983 44,128 41,118 Balance to Consolidated Revenue (54,070) (39,717) Account
Note: capital charges are based on a charge for depreciation and a notional interest element, which is prescribed annually, see accounting policies for details.
4. OTHER CONTRIBUTIONS FROM CAPITAL FINANCING ACCOUNT
This adjustment generally reflects the effect of the write down of capital expenditure in respect of deferred charges where there is no benefit in a future year. See also Note 8 of the Consolidated Balance Sheet (page 57).
2005/2006 2004/2005 £000s £000s Capital expenditure in respect of deferred charges and 14,695 7,842 other expenditure not allocated to fixed assets written off in the year Less grants receivable (4,715) (3,281) Contribution from capital financing account 9,980 4,561
5. SECTION 137 LOCAL GOVERNMENT ACT 1972
This section of the Act gives local authorities the power to incur expenditure, which in their opinion, is in the interest of their area or any of its inhabitants for purposes not otherwise authorised by statute.
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NOTES TO THE CONSOLIDATED REVENUE ACCOUNT
Expenditure details are as follows:
2005/2006 2004/2005 £000s £000s Citizens advice bureau assistance 203 228 Education community organisation grants 55 84 Estimated administrative costs 10 10 268 322
6. LOCAL AUTHORITIES (GOODS & SERVICES) ACT 1970
The following work was undertaken for other local authorities or public bodies:
2005/2006 2004/2005 % of % of £000s Turnover £000s Turnover School/Welfare Catering – provision of 61 1.0 60 1.0 Meals The work was undertaken within existing overheads
7. MEMORANDUM PUBLICITY ACCOUNT
Under Section 5 of the Local Government Act 1986, the Council must keep a separate account of expenditure on publicity.
2005/2006 2004/2005 £000s £000s Recruitment advertising 986 1,058 Other advertising/publicity 697 647 Marketing, press and public relations 407 359 2,090 2,064
8. HEALTH ACT 1999 POOLED BUDGETS AND SIMILAR ARRANGEMENTS
The Council has established and maintains a joint arrangement with the Enfield Primary Care Trust under Section 31 of the Health Act 1999 for the administration of a Learning Difficulties Fund.
Learning Difficulties Development Fund 2005/2006 2004/2005 £000s £000s Gross Expenditure 72 94 Gross Income (330) (207) Net Underspend (258) (113)
For the financial year 2005/06, the Enfield Primary Care Trust contributed £217,000 to the fund. This is incorporated in the gross income figure shown in the table above.
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NOTES TO THE CONSOLIDATED REVENUE ACCOUNT
The Council has also established a further joint arrangement with the Enfield Primary Care Trust for the administration of the Integrated Community Equipment Service (ICES).
Integrated Communities Equipment Service 2005/2006 2004/2005 £000s £000s Gross Expenditure 1,152 955 Gross Income (1,100) (857) Net Overspend 52 98
For the financial year 2005/06, the Enfield Primary Care Trust contributed £278,000 to the fund. This is incorporated in the gross income figure shown in the table above.
9. BUILDING CONTROL TRADING ACCOUNT
The Building (Local Authority Charges) Regulations 1998 require the disclosure of information regarding the setting of charges for the administration of the building control function. Certain activities performed by the Building Control Unit cannot be charged for, such as providing general advice and liaising with other statutory authorities. The statement below shows the total cost of operating the building control unit, divided between its chargeable and non-chargeable activities.
Total Total Building Regulations Non- Building Building Charging Account Chargeable chargeable Control Control 2005/2006 2005/2006 2005/2006 2005/2006 2004/2005 £000s £000s £000s £000s Expenditure Employee expenses 615 279 894 796 Transport 13 12 25 24 Supplies and services 63 72 135 92 Central and support service 124 135 259 225 charges
Total expenditure 815 498 1,313 1,137 Income Building regulation charges (777) (2) (779) (803) Miscellaneous income (17) (33) (50) (57) Total income (794) (35) (829) (860) (Surplus)/deficit 21 463 484 277
10. PENSIONS
Teachers
In 2005/06 the Council paid £18.8m (2004/05 £17.8m) to the Teachers’ Pension Agency in respect of teachers’ pension costs. This represented 13.5% (2004/05 13.5%) (the determined rate) of teachers’ pensionable pay in the year. In addition the Council is responsible for all pension payments relating to added years it has awarded, together with the related increases. In 2005/06 these amounted to £1.331m (2004/05 £1.265m).
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NOTES TO THE CONSOLIDATED REVENUE ACCOUNT London Pension Fund Authority Scheme
Certain staff have retained rights under the above scheme when transferring to this Council’s employment. In 2005/06 the Council paid £7,931 to the scheme in respect of normal employer’s contributions (2004/05 £7,342). The determined rate for that year was 18.7% (2004/05 18.7%). In addition, the Council is responsible for all pension payments relating to added years benefits it has awarded, together with related increases.
Further details are available from the London Pension Fund Authority, Dexter House, 2 Royal Mint Court, EC3N 4LP.
Pensions to other employees
The Local Government Pension Scheme administered by the Council is a funded scheme meaning that the authority and employees pay contributions into a fund calculated at a level intended to balance the pensions liabilities with investment assets.
In 2005/06 the Council paid an employer’s contribution of £13.178m (2004/05 £11.507m) into the Pension Fund, representing 13.6% of pensionable pay (2004/05 12.6%). The contribution rate is determined by the Fund’s external advisor, based on triennial actuarial valuations, the last review being at 31 March 2004. The next valuation will be undertaken during 2007/08. Under Pension Fund Regulations contribution rates are set to meet all the overall liabilities of the Fund.
In addition the Council is responsible for all pension payments relating to added years benefits it has awarded, together with the related increases. In 2005/06 these amounted to £1.477m (2004/05 £1.398m), representing approx. 1.52% of pensionable pay (2004/05 1.53%).
Although the benefits earned by employees will not actually be payable until employees retire, the Council has a commitment to make such payments at the time the employees earn their future entitlement. The financial statements therefore recognise the cost of retirement benefits in the Net Cost of Services when they are earned by employees rather than when the benefits are eventually paid as pensions. However, the charge the Council is required to make against council tax is based on the cash payable in the year so the real cost of retirement benefits is reversed out of the Consolidated Revenue Account (CRA) after Net Operating Expenditure.
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NOTES TO THE CONSOLIDATED REVENUE ACCOUNT
The following transactions have been made in the CRA during the year.
31 March 31 March 2006 2005 £000s £000s Net Cost of Services Current Service Cost (16,981) (16,393) Past Service Cost (443) (980) Settlements and Curtailments (816) (1,115) Net Operating Expenditure Interest Cost (28,937) (23,844) Expected Return on Assets in the Scheme 27,011 23,768 Amounts to be met from Government Grants and Local Taxation Movement on Pensions Reserve 7,002 7,024 Actual amount charged against council tax for pensions in the Year Employers’ Contributions payable to the Scheme (13,164) (11,540)
Note 24 to the Consolidated Balance Sheet (page 65) contains details of the assumptions made in estimating the figures in this note. The Note to the Statement of Total Movement in Reserves (page 68) provides details of the effect of actuarial gains and losses on the pensions reserve.
11. TRADING OPERATIONS
The Council has established a number of trading units where service managers are required to operate in a commercial environment and balance their budget by generating income from other parts of the Council or other organisations. Some of these were direct service organisations, which operated under the compulsory competitive tendering legislation repealed by the Local Government Act 1999 with effect from 2 January 2000.
Details of these services are as follows:
Surplus Surplus Turnover Expenditure (Deficit) (Deficit) 2005/2006 2004/2005 £000s £000s £000s £000s
Catering (Schools & 7,397 7,547 (150) (5) Civic) Building Cleaning 4,444 4,469 (25) (12) Property Services 4,148 4,407 (259) (26) Industrial Estates 2,619 1,666 953 771
SUMMARY 18,608 18,089 519 728
39 Page 48 ENFIELD STATEMENT OF ACCOUNTS 2005/06
NOTES TO THE CONSOLIDATED REVENUE ACCOUNT
12. FINANCE AND OPERATING LEASES
Vehicles, Plant, Furniture and Equipment - The Council uses a number of vehicles as well as some general equipment under the terms of operating leases. The amount paid under these arrangements in respect of these vehicles and equipment in 2005/06 was £178k (2004/05 £454k).
Land and Buildings - the Council leases various properties principally for office and depot accommodation that have been accounted for as operating leases. The rentals payable in 2005/06 were £1.027m (2004/05 £0.981m). In addition, the Council provides accommodation services to residents through leasing properties from Transport for London and from private sector sources at a cost of £9.317m (2004/05 £9.065m).
Council as Lessor – the Council generated lease rental income from its commercial portfolio of £4.392m (2004/05 £3.848m). This principally comprises industrial properties and agricultural tenancies.
13. OBLIGATIONS ARISING FROM LONG TERM CONTRACTS
In 2006/07, the Council is committed to making payments estimated at £2.7m under a PFI contract with Equion for the provision of Highlands School, subject to satisfactory performance by the contractor in providing services. The contract is for a period of 25 years and expires in 2025/26. The gross asset value of Highlands School is £21.6 million. The accumulated depreciation at 31 st March 2005 is £2.2m. The obligations under this arrangement (net of financing charges) are:
Repayable within 1 year £329k Repayable in 2-5 years £1,620k Repayable thereafter £13,031k
In 2005/06 the Council also made payments of £3.8m under a further PFI contract with Equion for the provision of a new primary school and extensions to two other schools. The Council is committed to making payments of £4.6m in 2006/07. The contract is also for 25 years with the final payment due in 2029/30. As the benefits and risks of this contract lie with the operator the assets do not form part of the authority’s balance sheet.
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NOTES TO THE CONSOLIDATED REVENUE ACCOUNT
14. EMPLOYEES’ EARNINGS
The number of employees whose remuneration, excluding pension contributions, was £50,000 or more in bands of £10,000, and those affected by termination payments, are as follows:
Remuneration band Number of employees 2005/2006 2004/2005 Left during Left during Total Total the year the year £50,000 - £59,999 49 3 63 4 £60,000 - £69,999 22 0 30 2 £70,000 - £79,999 6 0 11 2 £80,000 - £89,999 5 1 1 0 £90,000 - £99,999 0 0 4 1 £100,000 - £109,999 0 0 2 2 £110,000 - £119,999 0 0 1 1 £120,000 - £129,999 0 0 1 1 £130,000 - £139,999 1 0 1 0 £140,000 - £149,999 0 0 0 0 83 4 114 13
15. MEMBERS’ ALLOWANCES
Regulations require the annual publication of members’ allowances. Detailed information is available at the Civic Centre and at all public libraries. A summary of the information concerned is shown below.
2005/2006 2004/2005 £000s £000s Basic allowances 420 410 Special responsibility allowances 113 109 533 519
16. RELATED PARTY TRANSACTIONS
The Council is required to include in its accounts details of related party transactions. This is to ensure that financial statements contain disclosures necessary to draw attention to the possibility that the reported financial position of the Council and results may have been affected by the existence of related parties and material transactions with them.
A note on related party transactions is also included in the Pension Fund accounts (page 91).
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NOTES TO THE CONSOLIDATED REVENUE ACCOUNT
The principal related parties, and material transactions with them, are set out below:
Central Government The Council received Revenue Support Grant of £173.8m (2004/05 £174.1m), Department of Works and Pensions benefit grants of £163.4m (2004/05 £144.5m), other revenue grants totalling £85.6m (2004/05 £85.0m), and capital grants and contributions of £16.0m (2004/05 £13.3m) in 2005/06 .
Precepting Authorities The Council made precept payments of £27.1m (2004/05 £25.7m) to the Greater London Authority.
Levying Bodies The Council paid levies of £7.7m (2004/05 £7.1m) to the North London Waste Authority, £0.2m (2004/05 £0.2m) to the Environment Agency, £1.0m (2004/05 £1.0m) to the London Borough Grants Committee, £0.3m (2004/05 £0.3m) to the London Pension Fund Authority, and £0.3m (2004/05 £0.3m) to the Lea Valley Regional Park Authority. Nominated representatives were Councillors Boast and Price (North London Waste Authority); Councillors Jackson, McCannah (deputy) and Prescott (deputy) (London Boroughs Grants Committee); and Councillors Jackson and Taylor (deputy) (Lea Valley Regional Park Authority)
Membership of other organisations
Council Members, and senior staff are required to make declarations of interest concerning third party transactions both in the form of an annual statement and by disclosing interests at Cabinet and other Council Meetings.
Enfield Arts Partnership Ltd During 2005/06, Cllr. Goddard was a director of the Enfield Arts Partnership Ltd. This organisation received financial support from the Council of £20,000 in 2005/06 (£30,000 in 2004/05) to match fund European Social Fund (ESF) grants. The company also leases premises from the Council paying rent of £31,000 in 2005/06 (£4,000 in 2004/05).
Enfield Turkish Cypriot Association
During 2005/06, Cllr. Hasan was chair of the Enfield Turkish Cypriot Association. The association received grants from the Council amounting to £52,000 in the year (£48,000 in 2004/05).
Enfield Leisure Centres Ltd The Council has transferred the management of its leisure centres to a Trust. While the Council continues to own the freehold of these facilities, the Trust is responsible for their day to day operation and management. Cllrs Laban and Charalambous are co-opted members of the board.
The Council paid the Trust a management fee of £418,000 in 2005/06 (£417,300 in 2004/05). Other payments made to the Trust include compensation for loss of income
42 Page 51 ENFIELD STATEMENT OF ACCOUNTS 2005/06
NOTES TO THE CONSOLIDATED REVENUE ACCOUNT during the temporary closure of facilities, the landlord’s contribution to repairs and improvements to leisure centre facilities, free swimming concessions and pool hire for school swimming (£132,700 in 2005/06; £141,900 in 2004/05).
Urban Futures The company was established in 2001 as a merger of the Haringey Regeneration Agency and the Upper Lee Valley Partnership. The company also took over responsibility for projects and programmes that had been run by the North London Training and Enterprise Council; NLTEC ceased to exist at the end of March 2001. The Council agreed to participate in the establishment of the company and to contribute £100,000 to the agency during each of the financial years 2001/02 to 2003/04. This reduced to £50,000 in 2004/05 and to £25,000 in 2005/06. Councillor Jackson was appointed as the Board’s chair in 2005/06; the role, however, was delegated to Cllr Goddard.
The Council has acted as the accountable body for certain programmes for which the company took over management responsibilities from NLTEC. This included securing ESF funding of £71,900 in 2005/06 (£187,800 2004/05). These programmes have now been completed.
In recent years, the agency managed the delivery of the SRB6 programme – Made in London - for which the Council is the accountable body. This programme completed in 2005/06. The agency was paid £2,900 in 2005/06 (£91,000 in 2004/05) to carry out these responsibilities funded from the SRB grant.
The Agency is developing a wider strategic role at the North London sub regional level.
Enfield Business Retailers Association Ltd EBRA is a private sector led organisation that provides a representational structure for local businesses to communicate with the Council. The Council provides funding to EBRA to enable it to undertake town centre management services (including the provision of Christmas decorations). Cllr Prescott is a Director. EBRA received funding of £163,300 in 2005/06 (£189,600 in 2004/05).
Enfield Education Business Partnership The Council formed the company in 1992 in response to a central government initiative to establish a partnership vehicle that would enable local education authorities to work collaboratively with the private sector particularly to provide work experience opportunities for school pupils. Cllr Goddard is the Chair and Cllr Nicholas is a director. Two Enfield headteachers and a Council education adviser are also directors. The management, administration and accommodation costs of the company are funded by the Council (£157,600 in 2005/06; £161,5000 in 2004/05).
Connexions North London Partnership Limited The company provides a youth support service (Connexions) for all young people aged 13 to 19 plus young people aged 20 to 24 with learning difficulties. The company was established in 2001 as part of the Connexions service initiative funded by the Department for Education and Skills. The Director of Education, Children’s Services and Leisure is a director of the company. There were no material related transactions in 2005/06.
43 Page 52 ENFIELD STATEMENT OF ACCOUNTS 2005/06
NOTES TO THE CONSOLIDATED REVENUE ACCOUNT
Enfield Enterprise Agency The Enfield Enterprise Agency provides advice and guidance to entrepreneurs wishing to start up in business and to small businesses across the Borough. It provides a range of training courses in specialist areas and is funded from contracts awarded by a range of bodies such as the Business Link for London, the London Development agency and the Government Office for London. In 1989, the Council made a loan advance of £750,000 to support the provision of managed workspaces at 26/28 Queensway. The loan agreement is subject to periodic review. Cllrs Jackson, Prescott and Goddard are members of the Board. Further details of the loan agreement are disclosed in Note 9 to the Consolidated Balance Sheet.
Enfield Primary Care Trust The Council received payments from Enfield Primary Care Trust of £12.529m (£10.594m in 2004/05) in respect of Joint Financing arrangements. Councillor Brett is Non-Executive Director of the EPCT.
Barnet, Enfield & Haringey Mental Health Trust The Council received payments from Barnet, Enfield & Haringey Mental Health Trust of £1.427m (£0.601m in 2004/05) in respect of Joint Financing arrangements.
Pension Fund The Council made contributions to the Council’s Pension Fund amounting to £13.178m in 2005/06 (£11.507m in 2004/05).
17. DISCLOSURE OF AUDIT COSTS.
In 2005/06 The London Borough of Enfield incurred the following fees relating to external audit and inspection.
2005/2006 2004/2005 £000s £000s Fees payable to the Audit Commission with regard to external audit services carried out by the appointed auditor 393 434 Fees payable to the Audit Commission in respect of statutory inspection 116 101 Fees payable to the Audit Commission for the certification of grant claims and returns 177 201 Fees payable in respect of other services provided by the appointed auditor 16 2 702 738
18. HOUSING POOLED CAPITAL RECEIPTS
Local housing authorities are required to pay a proportion of the capital receipts arising from Housing Right to Buy sales into a central government pool for redistribution. The Consolidated Revenue Account discloses the amount paid to the pool after Net Cost of Services. The amount paid is met from a transfer from Usable Capital Receipts after Net Operating Expenditure.
44 Page 53 ENFIELD STATEMENT OF ACCOUNTS 2005/06
SECTION 3 HOUSING REVENUE ACCOUNT
The Housing Revenue Account deals with the provision, maintenance and sales of council houses and flats. There is a statutory requirement to keep this account separate from those for other housing activities in accordance with Part VI and Schedule 4 of the Local Government and Housing Act 1989. Schedule 4 of the 1989 Act prescribes all the income and expenditure items that are to be included in the Housing Revenue Account. In addition, there is a requirement not to allow cross-subsidy to, or from, the General Fund.
HOUSING REVENUE ACCOUNT
NOTES 2005/2006 2004/2005 INCOME £000s £000s Rent Income Dwellings (44,130) (43,453) Garages (893) (903) Shops/commercial (2,097) (2,046) Service Charges (3,304) (2,794) Contribution from earmarked reserves (742) (876) TOTAL INCOME (51,166) (50,072)
EXPENDITURE Supervision and Management 16,517 16,176 Rents, Rates and other charges 1,115 935 Items directed by the Secretary of State 1,096 1,979 Negative Subsidy – payment to Secretary of State 5 2,441 402 Capital Charges (interest) 6 22,433 23,318 Depreciation 6 10,031 10,311 Contribution to Revenue Repairs Account 7 14,528 13,675 Increase in provision for Bad Debts 71 218 Contribution to earmarked reserves 8 1,639 742 TOTAL EXPENDITURE 69,871 67,756
NET COST OF SERVICES 21,721 17,684
Adjusting transfer from AMRA 6 (20,447) (21,381) Amortised Premiums and Discounts 360 441 Pensions interest costs and expected return on pensions assets 144 6 Interest Receivable Interest on balances (986) (762) Right To Buy Mortgage Inter est (23) (24)
NET OPERATING INCOME (2,247) (4,036)
APPROPRIATIONS Revenue contribution to capital 2,656 2,656 Relevant to depreciation on other assets 6 (858) (714) Contribution from pension reserve (430) (385) (SURPLUS)/ DEFICIT FOR THE YEAR (879) (2,479)
45 Page 54 ENFIELD STATEMENT OF ACCOUNTS 2005/06
NOTES TO THE HOUSING REVENUE ACCOUNT
HOUSING REVENUE ACCOUNT BALANCE
31 March 31 March 2006 2005 £000s £000s Surplus at the beginning of the year (8,080) (5,601) (Surplus)/Deficit for the year (879) (2,479) Surplus at the end of the year (8,959) (8,080)
1. HOUSING STOCK
The Council was responsible for managing a Housing Revenue Account stock of 11,951 properties at 31 March 2006 compared with a total of 12,032 properties at 31 March 2005. An analysis of the types of homes is shown below. The Council is also a freeholder of 4,498 leased homes that were previously sold to tenants under the right-to-buy legislation.
31 March 2006 31 March 2005 Low-rise flats (up to 2 storeys) 1,605 1,614 Medium-rise flats (3 to 5 storeys) 3,917 3,951 High-rise flats 2,799 2,813 Houses and bungalows 3,541 3,561 Multi-occupied and shared ownership 89 93 Total housing stock 11,951 12,032
HRA Assets
Disposal/ Depn/ C/F B/F Expend. Revalue Transfers WriteOff 31.3.06 Operational £000s £000s £000s £000s £000s £000s Assets Council 608,029 11,184 (4,279) (9,172) 25,703 631,465 Dwellings Other land 32,031 46 (826) 9,148 40,399 & buildings Equipment 183 (87) (32) 64 TOTAL 640,243 11,184 (4,320) (10,030) 34,851 671,928
46 Page 55 ENFIELD STATEMENT OF ACCOUNTS 2005/06
NOTES TO THE HOUSING REVENUE ACCOUNT
2. RENT ARREARS
Council tenants' rent arrears as at the 31st March 2006 were £6.545m compared to £7.282m at the 31 st March 2005. (This includes arrears of rent and housing benefit overpayments. Prepayments are excluded). The provision for bad and doubtful debts was £2.487m (2004/05 £3.997m) and £1.582m (2004/05 £0.439m) was written off during the year.
3. STOCK VALUATION
The open market value of the council’s dwellings was £1,738m at 1 st April 2005. The difference between this value and the existing use value £643m at 1 st April 2005 represents the economic cost to Government of providing council housing at less than market rents.
4. MAJOR REPAIRS RESERVE
2005/06 2004/05 £000s £000s Balance at 1 April 0 0 MRA 2005/06 (9,172) (9,597) Transfer from HRA applied to Council dwellings during 2005/06 9,172 9,597 Balance at 31 March 2006 0 0
5. HOUSING SUBSIDY
SUMMARY 2005/06 2004/055 £000s £000s Management & maintenance allowance 21,499 21,871 Capital Charges 5,988 7,781 Guideline Rent (39,195) (39,651) Major Repairs Allowance 9,172 9,597 TOTAL (2,536) (402)
The Local Government Act 2003 removed from the HRA the requirement to account for rent rebate and rent rebate subsidy. From April 1 st 2004 these are now accounted for in the General Fund. The housing subsidy figure of £2.441m disclosed in the HRA statement includes an adjustment to prior years subsidy claims of £95k.
47 Page 56 ENFIELD STATEMENT OF ACCOUNTS 2005/06
NOTES TO THE HOUSING REVENUE ACCOUNT
6. CAPITAL CHARGES
2005/2006 2004/2005 £000s £000s Cost of capital (interest) 22,433 22,718 Deferred Charges GTV 1,508 600 Adjusting transfer from AMRA (21,956) (21,381) 1,985 1,937 Depreciation on council dwellings 9,172 9,597 Depreciation on other assets 858 714 10,030 10,311 Appropriation relevant to depreciation on other assets (858) (714) 9,172 9,597
Charges are made to the HRA in the first instance based on existing use social housing values (3.5% of value of Housing Stock). However, to reflect the true cost to the HRA of its borrowing, these charges are then reversed out of the account and a figure calculated by reference to the Council's overall borrowing is charged to the HRA. This is known as Item 8 charge. Deferred charges represent expenditure on grants to vacate which are capital expenditure but do not create a tangible asset. They are therefore charged to the service as they occur. The Major Repairs Allowance is used as the basis for calculating depreciation with an additional charge for other assets.
In accordance with Financial Reporting Standard 11 (FRS11), which is concerned with the reporting of any impairment to the value of fixed assets, the Council has reviewed the balance sheet valuations and has not identified any assets that have suffered a significant fall in value.
Capital expenditure of £13.035m was funded as follows Funded by £000s Loans (Basic Credit Approvals) 2,955 Major Repairs Reserve 9,172 Revenue contribution 908 13,035
Capital Receipts of £8,228k were received in the year of which £6,878k related to the disposal of Council Dwellings and £1,350k to other land and buildings. Under the Pooling Regulations £5,074k of these receipts were paid over to the Government.
48 Page 57 ENFIELD STATEMENT OF ACCOUNTS 2005/06
NOTES TO THE HOUSING REVENUE ACCOUNT
7. HOUSING REPAIRS ACCOUNT
£000s £000s 2005/06 2004/05 Balance brought forward (4,322) (3,504) Expenditure for the year 13,701 12,357 Contribution to the Capital Reserves Fund - 500 Income for the year (937) (843) Contribution to the Repairs Fund (14,479) (12,832) Balance carried forward (6,037) (4,322)
The balance forms part of the Council’s earmarked reserves - see note 19 to the balance sheet (page 63).
8. CONTRIBUTION TO EARMARKED RESERVES
Contributions to earmarked reserves in 2005/06 totalled £1.639m (2004/05 £0.742m) to fund on going revenue projects and the development of a new housing repairs centre at Claverings Industrial estate.
9. CONTRIBUTION FROM PENSIONS RESERVE
The HRA net operating expenditure has been charged as with other services the additional pension contribution as required under FRS17. So as not to impact on the HRA position and resources, under FRS17, the entries are reversed out as a ‘contribution from the pension reserve’. See notes to the balance sheet for further details of FRS17.
10. ADDITIONAL INFORMATION
Further details on Housing activities are available in the annual report to tenants and leaseholders by Enfield Housing Services. This can be obtained from: Director of Community, Housing & Adult Social Services, Civic Centre, Silver Street, Enfield EN1 3XF.
49 Page 58 ENFIELD STATEMENT OF ACCOUNTS 2005/06
SECTION 4 CONSOLIDATED BALANCE SHEET
This is a summary of the Borough’s financial position as a whole, showing its assets and liabilities as at 31 March 2006. The Pension Fund and Trust Funds are excluded.
NOTES 31 March 2006 31 March 2005
FIXED ASSETS 1 to 7 £000s £000s £000s £000s Operational assets Council homes 631,465 608,029 Other land and buildings 1,028,451 694,440 Vehicles, plant, furniture and equipment 9,529 8,002 Infrastructure – roads, etc. 118,371 109,110 Community assets 9,284 8,463 Non-operational assets 69,175 53,416 Intangible assets 2,621 1,868,896 1,009 1,482,469
Long term investments 12 15,000 5,000 Long term debtors 10 4,333 19,333 4,428 9,428 Total long term assets 1,888,229 1,491,897 CURRENT ASSETS Stocks and work in progress 9 460 569 Debtors and payments in advance 11 93,247 73,749 Short Term Investments 12 137,400 132,150 231,107 206,468 TOTAL ASSETS 2,119,336 1,698,365 CURRENT LIABILITIES Creditors, deposits and receipts in advance 13 (74,207) (82,410) Cash overdrawn (10,204) (6,715) Short term borrowing 14 (10,000) 0 (94,411) (89,125) TOTAL ASSETS LESS CURRENT 2,024,925 1,609,240 LIABILITIES Long-term borrowing 14 (217,043) (198,043) Other long term liabilities 15 (14,988) (15,284) Pension liability 24 (156,000) (144,000) Provisions 18 (6,996) (7,121) Other balances (1,011) (396,038) (359) (364,807) TOTAL ASSETS LESS LIABILITIES 1,628,887 1,244,433
FINANCED BY: Fixed Asset Restatement Account (1,292,812) (931,608) Capital Financing Account (278,011) (271,851) Capital grants deferred (91,801) (74,870) Deferred premiums 5,733 5,977 Deferred credits 16 (915) (979) Usable capital receipts reserve (27,643) (33,819) Unapplied capital grants and contributions (7,527) (3,089) Pension reserve 24 156,000 144,000 Earmarked reserves 19 (59,075) (46,708) Balances: Consolidated Revenue Account (23,973) (24,822) Housing Revenue Account (8,959) (8,080) Collection Fund 96 1,416 TOTAL EQUITY (1,628,887) (1,244,433)
50 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
NOTES TO THE CONSOLIDATED BALANCE SHEET
1. FIXED ASSETS
Movement of fixed assets during the year was as follows: Intangible Tangible Assets Assets Operational Assets Non-Operational Assets Council Other Land Vehicles, Infrastructure Community Commercial Assets under Surplus Total Dwellings & Buildings Plant & Assets Properties construction awaiting Equipment disposal £000s £000s £000s £000s £000s £000s £000s £000s £000s £000s Gross Valuation at 01.04.2005 1,237 656,979 745,298 15,812 129,839 8,463 40,784 8,996 3,636 1,611,044 Accumulated Depreciation and Impairment at 01.04.2005 (228) (48,950) (50,858) (7,810) (20,729) 0 0 0 0 (128,575) Carrying Value at 01.04.2005 1,009 608,029 694,440 8,002 109,110 8,463 40,784 8,996 3,636 1,482,469 Page 59 Capital Expenditure in year 1,322 11,184 16,886 3,672 11,671 754 15 9,789 0 55,293 Revaluation 0 25,703 326,502 0 281 401 17,479 0 15 370,381 Disposals 0 (4,233) (1,145) 0 0 (334) (3,060) 0 (587) (9,359) Asset transfers in year 744 (46) 6,569 192 (8) 0 108 (8,222) 222 (441) Depreciation for the year (454) (9,172) (14,801) (2,337) (2,683) 0 0 0 0 (29,447) Gross Value at 31.03.2006 3,303 689,586 1,092,954 19,253 141,782 9,284 55,335 10,563 3,318 2,025,378 Accumulated Depreciation and impairment at 31.03.2005 (682) (58,121) (64,503) (9,724) (23,411) 0 (9) 0 (32) (156,482) Carrying Value at 31.03.2006 2,621 631,465 1,028,451 9,529 118,371 9,284 55,326 10,563 3,286 1,868,896
Analysis between Housing Revenue Account & General Fund Assets at 31/03/2006 Housing Revenue Account 631,465 40,399 64 671,928 General Fund 2,621 0 988,052 9,465 118,371 9,284 55,326 10,563 3,286 1,196,968
Other Land and Buildings includes a total gross value of £21,605k and accumulated depreciation of £2,159k relating to assets recognised under PFI arrangements. The total amount of transfers outstanding, £441k, represents the amount of work in progress transferred to deferred charges. Amounts in respect of deferred charges are included in note 8. 51
Page 60 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
NOTES TO THE CONSOLIDATED BALANCE SHEET
2. PRIOR YEAR ADJUSTMENT
In recognition of current developments in the accounting arrangements for PFI contracts, the comparative figures for 2004/05 have been restated as follows:
Extract from the Consolidated Balance Sheet
31 March Education 31 March 2005 PFI 2005 Before Contract After Adjustment Adjustment £000s £000s £000s Operational assets – other land and buildings 713,390 (18,950) 694,440 Total Fixed Assets 1,501,419 (18,950) 1,482,469 Long term debtors 3,369 1,059 4,428 Total long term assets 1,509,788 (17,891) 1,491,897 Debtors and payments in advance 63,957 9,792 73,749 Total Assets 1,706,464 (8,099) 1,698,365 Total Assets Less Current Liabilities 1,617,339 (8,099) 1,609,240 Total Assets Less Liabilities 1,252,532 (8,099) 1,244,433 Fixed Asset Restatement Account (950,858) 19,250 (931,608) Capital Financing Account (260,700) (11,151) (271,851) Total Equity (1,252,532) 8,099 (1,244,433)
52 Page 61 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
NOTES TO THE CONSOLIDATED BALANCE SHEET
3. CAPITAL EXPENDITURE AND FUNDING
An analysis of this year’s capital expenditure, and how it has been financed is as follows:
EXPENDITURE 2005/06 2004/05 £000s £000s Capital Financing Requirement at 1 st April 204,142 194,444 Capital Investment: Fixed assets – Operational 44,167 36,460 - Non Operational 9,804 9,846 Intangible Assets 1,322 1,237 Registered Social Landlords 3,445 1,452 Deferred charges 14,254 7,543 Sources of Finance: Capital Receipts (17,008) (4,271) Revenue (17,747) (13,614) Government grants/reimbursements (29,633) (23,982) Increase in CFR due to Capital Investment 212,746 209,115 Provision for repayment of debt and other financing transactions MRP (5,871) (5,160) Write down deferred contributions re PFI 816 877 Contribution to Long Term Debtor re PFI (946) (726) Other contributions (472) 36 Closing Capital Financing Requirement 206,273 204,142 Increase in the underlying need to borrow (supported 8,604 13,743 by Government financial assistance) Increase in the underlying need to borrow (unsupported 0 1,748 by Government financial assistance) Provision for repayment of debt and other financing (6,473) (4,973) Adjustment re creditors (820) Increase/(decrease) in CFR 2,131 9,698
4. CAPITAL COMMITMENTS
As at 31 March 2006, the Council was committed to major capital projects, which amounted to approximately £34.2m, of which £23.7m will be funded from government grants and other external resources. The majority of these schemes will be practically complete in 2006/07 except where indicated. These can be analysed as follows:
53 Page 62 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
NOTES TO THE CONSOLIDATED BALANCE SHEET
SCHEMES 2006/07 2007/08 and later £000s £000s Education Projects Wilbury School replacement of hutted classroom 4,200 115 Durants School works to accomodation 171 Chesterfield Infants early years unit 1,478 39 Childrens Centres works to Bowes, Galliard, 2,300 80 Raynham & Garfield Centres Keys Meadow Primary works 185 Brimsdown Infants improvements 130 Salisbury 6 th form works to Turin Road Site 770 Kingsmead new Design & Technology rooms 705 25 Academy Site residual payments 164 Environment & Leisure Projects Edmonton Heritage Economic Regeneration 479 Town & Durants Parks water play facilities 250 Pymmes Park lottery project 469 Elsinge Road Jubilee Park works 139 Parks Playgrounds improvements 353 Property Strategy Projects Charles Babbage House refurbishment 118 9 Centre Way refurbishment 207 Arlington House refurbishment 557 Industrial improvements to Claverings, Montagu 1,977 and Brimsdown Estates Upgrade of IT system for purchasing 654 Charles Babbage House cabling/ telephones 107 Former Enfield Arms Site acquisition 1,000 North/South Road land acquisition 189 Enfield Town Cultural Centre 105 Melling Drive site acquisition 329 CCTV Cameras on Housing Estates 318 Housing and Adult Social Services Projects Lift Renewals and modernisation programme 2,300 Door Entry Programmes 385 Elsinge estate Kitchen & Bathroom upgrades 1,700 89 Estate security improvements at Ladderswood, St 742 18 Marys, & Tanners End Kitchen & Bathroom upgrades at Edmonton 1,080 24 Kitchen & Bathroom upgrades Western 1,780 51 Heating Systems upgrades 830 10 Four Hills balcony balustrades 1,280 1,654 Potters Bar Estates Houses 139 14 Window Replacement programme 515 20 Electrical Upgrade programme 200 5 Harbet Road phase 3 1,009 Housing IT systems 1,743 Park Avenue Day Centre 247 Learning Disabilities Centre at Claverings 792 Total 32,096 2,144
54 Page 63 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
NOTES TO THE CONSOLIDATED BALANCE SHEET
5. INFORMATION ON ASSETS HELD
Fixed assets owned by the Council include the following:
Number as at Number as at 31 March 2006 31 March 2005 Council homes 11,951 12,032 Operational assets: Civic centre 1 1 Other civic offices 20 21 Social Services establishments 17 17 Recreation & sports centres 11 11 Libraries 13 14 Primary schools 49 49 Secondary schools 13 13 Special schools 6 6 Depots and civic amenities sites 6 6 Surface car parks 22 22 Multi-storey car parks 1 1 Lorry park 1 1 Cemeteries 3 3 Museums 1 1 HRA shops 210 211 HRA community halls 18 18 HRA garages 4,196 4,196 HRA moped stores 7 7 HRA parking bays 18 18 Operational equipment Vehicles 72 69 Infrastructure assets Highways (kilometres) 574 566 Bridges 302 297 Subways/retaining walls 100 93 Community assets Parks and open spaces (hectares) 902 908 Other non-operational assets Green Belt lettings 53 52 Other commercial properties, units and 633 663 Lettings
A number of assets such as vehicles, plant and equipment are under operating lease arrangements; as such, they are not fixed assets of the Council.
The number of schools shown in the above table does not include voluntary aided schools, but does include foundation schools.
55 Page 64 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
NOTES TO THE CONSOLIDATED BALANCE SHEET
6. OPERATING LEASES
The Council was committed at 31 March 2006 to making payments of £1.051m under operating leases in 2006/07, comprising the following elements.
Other Land and Vehicles, Plant and Buildings Equipment £000s £000s Leases expiring in 2006/07 73 - Leases expiring between - 2007/08 and 2010/11 395 Leases expiring after 2010/11 583 -
In addition, the Council had total commitments of approximately £7.679m in respect of leased in properties from Transport for London and other private sector sources to provide accommodation services to residents.
Other Land and Buildings £000s Leases expiring in 2006/07 2,864 Leases expiring between 2007/08 and 2010/11 4,386 Leases expiring after 2010/11 429
Council as Lessor – with regard to the Council’s activity as a lessor, the gross value of assets held for use in operating leases was £41.794m reflecting for the most part the Council’s commercial property portfolio (valued at 31 March 2005 and subject to £6,000 depreciation to 31 March 2006 – as stated in the Statement of Accounting Policies, it is not the Council’s policy to depreciate land and non operational buildings).
7. FIXED ASSET VALUATION
The freehold and leasehold properties which comprise the Authority’s property portfolio is the subject of annual review. A programme of revaluation ensures that where market conditions or rebuilding costs alter, all affected assets can be considered. Valuation work has been undertaken by David Tullis MRICS (Assistant Director of Resources - Corporate Property Officer).
Some parts of the portfolio have been the subject of complete review whilst in other sections valuations have been indexed, where appropriate, to reflect changes in market conditions or increases in building costs over the period to 1 st April 2005. A rolling programme of valuations is in place to ensure all properties are valued at least once every five years
Valuations of land and buildings resulting in an increase in value of £370.4m were carried out during 2005/06, (analysed in Note 1 to the Consolidated Balance Sheet). Schools and Commercial Properties were valued individually during the year.
56 Page 65 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
NOTES TO THE CONSOLIDATED BALANCE SHEET These valuations were in accordance with the Statements of Asset Valuation Practice and Guidance Notes of the Royal Institution of Chartered Surveyors, except that not all the properties were re-inspected, and measured planned surveys were relied on for some assets.
In relation to the HRA housing stock, the valuations were undertaken on the basis laid down by the ODPM (revised 1/4/2005) in accordance with the regulations for Resource Accounting and reflects the use of assets for social housing purposes. A complete revaluation was undertaken according to these principals in 2005/06
Valuation of properties regarded by the Authority as operational are included on the balance sheet at net current replacement cost. Non specialised operational properties being valued on the basis of existing use value, and specialist operational properties valued on the basis of depreciated replacement cost.
Valuation of properties regarded by the Authority as non-operational was on the basis of open market value for investment and surplus properties and historic costs for assets under construction.
Infrastructure assets are recorded in the Balance Sheet at historic cost less depreciation. With the exception of Street Lighting which has been re-valued to reflect the value of assets to be transferred to a contractor under a PFI contract in April 2006.
Community assets are included either at historic cost or a nominal value of £1.
Infrastructure and community assets are recognised in the Balances Sheet as the expenditure is incurred. Other operational assets are recognised from the date they become operational.
In accordance with Financial Reporting Standard 11 (FRS11), which is concerned with the reporting of any impairment to the value of fixed assets, the Council has reviewed the balance sheet valuations and has not identified any assets that have suffered a significant fall in value.
8. DEFERRED CHARGES
Deferred charges refer to capital expenditure not in connection with council-owned assets; grants for welfare adaptations to private householders; contributions to regeneration projects and capital expenditure incurred on voluntary aided schools. They are wholly written off in the year incurred.
These sums are charged to the Consolidated Revenue Account and met from a contribution from the Capital Financing Reserve net of specific grants.
57 Page 66 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
NOTES TO THE CONSOLIDATED BALANCE SHEET
The following table analyses the expenditure and write off of these items:
Movements in Deferred Balance at Transfer from Expenditure Written Balance at st st Charges 1 April 2005 Work in in Year Off in 31 March Progress Year 2006 £000s £000s £000s £000s £000s Grants for the improvement - 3,703 3,703 - and vacation of properties Capital expenditure not in - 441 10,023 10,464 - connection with a council asset Expenditure Capitalised under - 528 528 - Direction Total - 441 14,254 14,695 =
9. STOCKS AND WORK IN PROGRESS
31 March 31 March 2006 2005 £000s £000s Stocks 295 269 Works in progress 165 300 460 569
Work in progress refers to re-instatement work subject to insurance claims.
10. LONG-TERM DEBTORS
31 March 31 March 2006 2005 £000s £000s Education PFI Contract – Residual Interest (see note below) 2,198 1,059 Sale of council houses 101 159 Transferred debt from Middlesex University 0 981 Loan to Enfield Enterprise Agency (see note below) 750 750 Staff car/equity loans 207 478 Leaseholders service charges 26 26 Secured Debt - Council Tax 389 193 Secured Debt - Social Services 662 782 4,333 4,428
The residual interest debtor represents the build up of the estimated value of the assets that will transfer to the Council at the end of the PFI contract for the operation of Starksfield Primary School, Tottenhall Primary School and Lea Valley Secondary School.
The loan to the Enfield Enterprise Agency was originally advanced in 1989 to support the development of managed workspace at 26/28 Queensway. Under the terms of the loan agreement, the EEA is required to pay interest on the advance; repayment of the loan is
58 Page 67 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
NOTES TO THE CONSOLIDATED BALANCE SHEET required should the property be disposed of or the EEA cease to exist. The loan is secured against the value of the building.
11. DEBTORS AND PAYMENTS IN ADVANCE
31 March 31 March 2006 2005 £000s £000s Debtors account ledger 13,406 17,035 Debtors Accruals 3,830 4,433 Accrued Interest 3,437 2,968 Council tax payers 15,606 13,362 Business rate payers 4,467 4,660 Government departments 32,449 14,034 Other authorities 2,566 446 Housing tenants 5,341 5,030 Council tax/community charge/national non – domestic rates costs 1,048 634 Housing Mortgages 119 114 Private sector leasing/bed and breakfast fees 7,837 8,189 Housing Benefit Overpayments 10,440 11,453 Other Grants 6,433 6,335 Other debtors 2,011 2,064 Total Debtors 108,990 90,757 Provisions Debtors account ledger (5,178) (5,859) Council tax payers (6,584) (5,822) Business rate payers (1,546) (1,584) Housing tenants (1,039) (1,130) Private sector leasing/bed and breakfast fees (6,245) (6,813) HB Overpayments (7,813) (9,313) Total Provisions (28,405) (30,521) Total Net Debtors 80,585 60,236 Payments in advance 3,687 3,721 Education PFI Contract – Deferred Consideration 8,975 9,792 93,247 73,749
The deferred consideration item included in the above table refers to the estimated reduction in the value of the Education PFI contract as a consequence of the transfer of related assets at the start of the contract from the Council to the operator. This amount will be written down over the remaining contract period.
12. INVESTMENTS
31 March 2006 31 March 2005 Short Term Investments No of Deals Amount No of Deals Amount Maturing £000s £000s Within 1 Month 3 15,000 6 27,500 Within 3 Months 2 9,000 6 25,000 Within 6 Months 8 35,000 9 22,000 Within 9 Months 7 35,000 5 25,000 Within 12 Months 8 39,000 5 20,000 Money Market Funds - - 1 2,650 Call Accounts 2 4,400 1 10,000 TOTAL 30 137,400 33 132,150
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NOTES TO THE CONSOLIDATED BALANCE SHEET
31 March 2006 31 March 2005 Long Term Investments No of Deals Amount No of Deals Amount Maturing £000s £000s 2-3 Years 1 5,000 1 5,000 3-4 Years 2 10,000 - - TOTAL 3 15,000 1 5,000
31 March 2006 31 March 2005 No of Deals Amount No of Deals Amount £000s £000s TOTAL INVESTMENTS 33 152,400 34 137,150
13. CREDITORS, DEPOSITS AND RECEIPTS IN ADVANCE
31 March 31 March 2006 2005 £000s £000s Creditors Trade creditors 39,481 38,279 Public Bodies 10,760 13,749 Loan interest 3,257 3,209 Other creditors 669 134 Receiverships 1,254 918 55,421 56,289 Deposits Deposits 288 680
288 680 Unapplied Grants and Contributions Government grants 5,134 9,743 Other grants 1,509 2,037 Planning gain receipts 4,791 6,384 11,434 18,164
Receipts in advance General Receipts 1,407 1,237 Housing Prepayments 1,376 1,971 Council Tax payers 2,029 2,296 Business Rate payers 2,252 1,773 7,064 7,277 TOTAL 74,207 82,410
Unapplied Grants and Contributions refer to receipts from government departments or other third parties that have not yet been applied in the funding of expenditure. The conditions attached to these receipts allow the Council to carry these balances forward to be used in future years. Planning Gain Receipts refer to contributions from developers to meet the cost of social, community or environmental measures arising as a consequence of new private sector development in the Borough.
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NOTES TO THE CONSOLIDATED BALANCE SHEET
14. ANALYSIS OF BORROWING
31 March 31 March 2006 2005 £000s £000s Public Works Loan Board 197,043 168,043 Commercial loans 30,000 30,000 Superannuation Fund 0 0 227,043 198,043 Analysis of loans by maturity: Less than 1 year 10,000 0 Between 1-2 years 0 10,000 Between 2-5 years 0 0 Between 5-10 years 3,000 0 More than 10 years 214,043 188,043 227,043 198,043
15. LONG TERM LIABILITIES
This sum represents the outstanding amount due to be paid under the PFI contract for the provision of Highlands Secondary School in respect of the capital cost of the school. The movement during the year of £303k represents principal repaid.
In addition, there is a long term creditor £7k payable in 2007/08 in respect of the Council’s contributions under a housing inter borough nominations scheme managed by the London Borough of Lewisham.
16. DEFERRED CREDITS
This sum represents deferred capital receipts, which are written down when the cash is received. Capital receipts, which are to be collected at a future date, are matched by equivalent amounts included within the total of Current Debtors shown in note 11 and Long Term Debtors shown in Note 10 to the Consolidated Balance Sheet (page 58 ). The principal item refers to the Enfield Enterprise Agency Loan.
31 March 31 March 2006 2005 £000s £000s Sale of council houses 139 199 Housing association mortgages 13 14 Housing Act advances 13 16 Enfield Enterprise Agency Loan 750 750
DEFERRED CAPITAL RECEIPTS 915 979
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NOTES TO THE CONSOLIDATED BALANCE SHEET
17. CAPITAL RESERVES AND CAPITAL GRANTS AND CONTRIBUTIONS DEFERRED ACCOUNT
These are described in detail in Section 5 of the Statement – Total Movement in Reserves – pages 68 to 72.
18. PROVISIONS
31 March 31 March 2006 2005 £000s £000s Suspended holiday pay - 195 Insurance claims 1,873 2,016 Repairs and maintenance obligations 171 171 Other Provisions 473 432 Clawback of grant funding 1,117 926 Housing Subsidy 3,362 3,381 Total 6,996 7,121
A specific provision for the liability for suspended holiday pay arising from changes in the conditions of service for manual workers implemented some years ago is no longer considered necessary.
It has been necessary to create a provision in respect of Housing Subsidy for 2005/06. During 2004/05, the DWP introduced revised subsidy arrangements for housing benefit but there continues to be some uncertainty over the impact of these changes for each administering authority into 2005/06. It is understood that some level of subsidy redistribution will take place once the DWP has received final subsidy claims from all administering authorities. In view of this uncertainty, the accounts have been prepared on the basis of the new subsidy rules offset by a provision of £3.362m (£3.381m in 2004/05). This represents the Council’s potential additional subsidy entitlement for 2005/06 compared to that receivable under the subsidy rules that applied in 2003/04 pending further clarification of the impact of the new arrangements.
The Council acted as the Accountable Body for grant funding applied in the construction of premises at Innova Science Park – the Business Innovation Centre (BIC). Following the liquidation of the Business Innovation Centre Ltd (see Note 26), there may be a requirement for the Council to repay a proportion of the original grant allocations (estimated at £0.926m) dependant on the future use of the premises. The Council is currently in discussions with the Government Office for London and the London Development Agency to resolve these issues. With effect from 1 st April 2006, the Council took over the management of the BIC premises and will operate the building as a managed workspace for the foreseeable future. The requirement for the provision will be reviewed in 2006/07.
Further provisions have been created in respect of the estimated settlement value of insurance claims in progress and repair and maintenance obligations in connection with leased in properties.
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NOTES TO THE CONSOLIDATED BALANCE SHEET 19. EARMARKED RESERVES
Earmarked reserves are held to meet the cost of planned future expenditure. The movement between the two years of £12.367m is reflected in the year’s Consolidated Revenue Account.
31 March 31 March 2006 2005 £000s £000s
Insurance fund 4,552 3,784 Repairs and maintenance 1,653 1,784 Uncompleted projects - General Fund 4,085 4,405 Uncompleted projects - HRA 785 742 Repairs fund – Housing Revenue Account 6,037 4,322 Private sector leasing repairs 1,080 869 VAT reserve 587 396 HRA capital spending reserve 7,632 6,892 Internal leasing fund 413 616 General Fund capital spending reserve 7,831 2,551 Housing Association contributions 212 164 Restructuring reserve 1,070 1,070 Parking Development Fund 349 104 IT Invest to Save 851 1,018 PFI Investment Reserve 2,905 4,502 Investment fund 1,957 1,465 ICT Investment Fund 4,443 2,321 Council Development Reserve 8,582 5,094 Homelessness Initiatives 805 - Other specific reserves 3,246 4,609 Total Earmarked Reserves 59,075 46,708
20. TRUSTS AND OTHER MONEY
Although not part of the Consolidated Balance Sheet the Council administers certain trusts and other sums of money as detailed below:
31 March 31 March 2006 2005 Funds £000s £000s Belling Education Trust* 63 61 ICL Users Group 52 50 King George V Playing Field* 560 621 New Southgate Playground* 281 269 Other funds 60 137 1,016 1,138 Represented by Investments at cost 25 25 Cash 990 1,112 Debtors 1 1 1,016 1,138 Market value of investments 121 100
* These are charitable trusts for which the Council acts as trustees.
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NOTES TO THE CONSOLIDATED BALANCE SHEET
21. INSURANCE ARRANGEMENTS
The Council’s insurance provision comprises both internal and external arrangements.
The internal insurance fund provides cover in full for tree root damage claims, burglary and “all risks” on specified equipment. In addition, the fund meets the cost of all claims within the external policy excesses for general building fire damage (including housing properties), motor, cash and public and employer liability claims.
External cover is arranged for claims above the policy excesses noted above and for specific risks in full such as those in respect of industrial and commercial properties, leaseholder properties and terrorism.
In 2005/06, the cost of internal and external insurance premiums amounted to £2.565m and £1.853m respectively (£2.514m and £1.783m in 2004/05). The internal premiums represent a contribution to the Insurance Fund.
The balance on the Insurance Fund at 31 st March 2006 was £4.552m (2004/05 £3.784m). This is after a provision has been made amounting to £1.873m (£2.016m in 2004/05) in respect of unsettled claims at 31 st March (see Note 18).
While the balance on the Fund is considered sufficient to meet the estimated cost of claims under the terms of the Fund, the position is closely monitored, in particular in the light of significant tree root damage claims in recent years.
22. ENFIELD AND THE EURO
The Council’s financial management system (SAP) is fully Euro-compliant and will be capable of supporting the Euro should it be implemented in the UK enabling additional software costs to be minimised. The Council is ensuring that the specification for all other financial systems requires that they are Euro-compliant. As yet, no commitments or firm estimates of the cost to Enfield have been made.
23. CONTINGENT ASSETS AND CONTINGENT LIABILITIES
There are a number of potential assets and liabilities at the year end that are subject to legal proceedings or specific circumstances arising in the future. These are:
A claim against the Council subject to litigation in respect of the Council’s liability for payments for consultancy services - £300k.
A claim subject to litigation in respect of a property that was damaged by fire prior to the completion of the sale to the tenant – the purchaser is claiming against the Council over the reinstatement work. There is a potential claim in the region of £120k. this sum is held in an escrow account by external solicitors.
A claim against the Council subject to final adjudication regarding construction work (£300k) where the Council has alleged poor contract performance.
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NOTES TO THE CONSOLIDATED BALANCE SHEET A claim from against the Council in respect of non payment of grant funding (£45k).
An indemnity given by the Council to the developer of the Oasis Academy at Innova Park in respect of the provision of services to the site. No claims have been made at this stage.
A dispute with the provider of buildings and services under a PFI contract. The contractor is claiming for the provision of additional furniture and equipment in the buildings (£700k). There is also a potential claim for the provision of temporary accommodation during the building works programme although this is not currently being pursued (£250k). In turn, the Council has withheld payments to the contractor in respect of service failures and unavailability of buildings and facilities (£1m). It is planned to hold a mediation meeting to resolve these issues during 2006/07.
Claims from the operator of the Council’s leisure centres for loss of net earnings as a result of delays in the opening of a new sports hall (£70k). The operator is also seeking compensation for the effect on the availability of facilities of existing levels of landlord repairs and maintenance expenditure and for increased energy costs; these claims cannot be quantified at this stage.
Legal proceedings arising from the Council’s social care responsibilities may give rise to claims in the region of £260k.
There is a long standing employment tribunal claim against the Council which has not yet been finally settled – the Council is currently seeking recovery of costs (£36k).
The 2004 pay settlement covering the period 2004/05 to 2006/07 requires local authorities to introduce single status pay and conditions across the workforce with effect from 1 st April 2007. The impact of single status is potentially significant but cannot be quantified at this stage.
24. PENSION FUND LIABILITY
Note 10 to the Consolidated Revenue Account contains details of the Council’s Local Government Pensions Scheme.
The underlying assets and liabilities for retirement benefits attributable to the Council at 31 March are as follows:
31 March 31 March 2006 2005 £000s £000s Estimated Value of Scheme Liabilities in Scheme (593,000) (490,000) Estimated Value of Unfunded Liabilities (47,000) (43,000) Estimated Assets in Scheme 484,000 389,000 Net Pension Liability (156,000) (144,000)
The liability shows the underlying commitment that the Council has in the long run to pay retirement benefits. The liability of £156.0m has a substantial impact on the net worth of
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NOTES TO THE CONSOLIDATED BALANCE SHEET the Council as recorded in the balance sheet. However, statutory arrangements for funding the deficit mean that the financial position of the Council remains satisfactory. The deficit on the Scheme will be made good by increased contributions over the remaining working life of employees as assessed by the Scheme actuary.
Liabilities have been assessed on an actuarial basis using the projected unit method, an estimate of the pensions that will be payable in future years dependant on assumptions about mortality rates, salary levels etc. The Council’s Scheme has been assessed by Hymans Robertson, an independent firm of actuaries based on the latest full valuation of the scheme as at 1 st April 2004.
The main assumptions used in their calculations have been:
31 March 31 March 2006 2005 Rate of Inflation 3.1% 2.9% Rate of Increase in Salaries 4.6% 4.4% Rate of Increase in Pensions 3.1% 2.9% Rate for Discounting Scheme Liabilities 4.9% 5.4%
Assets in the Council’s Pension Fund are valued at fair value, principally market value for investments, and consist of the following categories, by proportion of the total assets held by the Fund.
Long Term 31 March 31 March Return 2006 2005 Equity Investments 7.4% 71% 69% Bonds 4.6% 17% 18% Property 5.5% 11% 11% Cash 4.6% 1% 2% 100% 100%
25. TEACHERS’ PENSION FUND
With regard to the Teachers’ Pensions Scheme, the Council owed £1.593m (£1.506m in 2004/05) to the Teachers Pensions Agency in employers and employees pension contributions at the year end.
The Scheme is a defined benefit scheme, administered by the Teachers Pensions Agency (TPA). Although the scheme is unfunded, the TPA uses a notional fund as the basis for calculating the employers’ contribution rate paid by local education authorities (LEAs). However, it is not possible for the Council to identify a share of the underlying liabilities in the scheme attributable to its own employees. For the purposes of the Council’s financial statements, it is therefore accounted for on the same basis as a defined contribution scheme.
The Council is responsible for the costs of any additional benefits awarded upon early retirement outside of the terms of the teachers’ scheme. These benefits are fully accrued in the pensions liability described in Note 24.
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NOTES TO THE CONSOLIDATED BALANCE SHEET 26. THE LONDON BUSINESS INNOVATION CENTRE
On 6 th November 2003, the London Business Innovation Centre Ltd (a company limited by guarantee) was placed in liquidation. The Council was a member of the company and had two nominee directors on the board. The company had been set up to provide premises, support and advice to start up businesses involved in the development of new technology products and services.
As the owner of the freehold of the principal building occupied by the BIC and in the interests of protecting the business tenants, the Council agreed to fund the liquidation and the management of the company in liquidation pending further consideration of the options for the disposal of the premises and the winding up of the company. During 2005/06, the Council incurred £275,000 in liquidator’s fees (£340,000 in 2004/05).
In January 2006, Cabinet agreed to the Council taking over the operation of the BIC from the liquidators. This took place with effect from 1 st April 2006. The Council proposes to manage the BIC facility as part of its commercial portfolio until a longer term solution can be identified.
27. EVENTS AFETR THE BALANCE SHEET DATE
The Director of Finance and Corporate Resources authorised the Council’s Statement of Accounts to be issued on 19 th June 2006. Events that have taken place after this date will not have been recognised in the financial statements.
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SECTION 5 STATEMENT OF TOTAL MOVEMENT IN RESERVES
This statement summarises the overall movement in reserves during 2005/06.
2005/2006 2004/2005 £000s £000s Surplus/(deficit) for the year: General Fund (849) 4,616 Housing Revenue Account 879 2,479 Collection Fund 1,320 (1,231) Add back movements on specific revenue reserves 12,367 15,840 Appropriations from Pensions Reserve (7,002) (7,024) Actuarial gains and losses relating to pensions (note 6) (4,998) (50,603) Total increase/(decrease) in revenue resources 1,717 (35,923) (Note 1) Increase/(decrease) in usable capital receipts (1,102) 24,242 Amount applied to meet payments to the Pool (5,074) (12,592) Increase/(decrease) in unapplied capital grants and (3,441) Contributions 4,439 Total increase/(decrease) in realised capital (1,737) 8,209 resources (Note 2)
Gains/losses on revaluation of fixed assets & long term 370,563 85,769 debtors Impairment losses on fixed assets due to general changes in prices Total increase/(decrease) in unrealised value of fixed 370,563 85,769 asset (Note 3)
Value of assets sold, disposed of or decommissioned (9,359) (15,584) (Note 4) Capital receipts set aside 17,008 4,271 Revenue resources set aside (2,770) (5,468) Contribution to Consolidated Revenue Account (9,980) (4,561) Payments to Housing Associations written down (1,077) (1,452) Movement on Government Grants Deferred 19,770 18,520 Deferred Debtor re Middlesex University Transfer 0 (155) Other PFI transactions 140 (152) Total increase/(decrease) in amounts set aside to 23,091 11,003 finance capital investment (Note 5) Total recognised gains and losses 384,275 53,474
The movement in School Balances are included in the movement in the General Fund Balance.
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NOTES TO THE STATEMENT OF TOTAL MOVEMENT IN RESERVES
Note 1 - Movements in General HRA Collection Earmarked Pensions revenue resources Fund Fund Reserves Reserve Surplus/(deficit) for year (849) 879 1,320 12,367 Appropriation to/from revenue (7,002) Actuarial gains and losses (4,998) Movement (849) 879 1,320 12,367 (12,000) Balance B/F 24,822 8,080 (1,416) 46,708 (144,000) Balance C/F 23,973 8,959 (96) 59,075 (156,000)
Usable capital Unapplied receipts capital grants and contributions £000s £000s Note 2 - Movement in realised capital resources
Amounts received in 2005/2006 15,906 19,807 Amounts reclassified from creditors 3,707 Amounts applied in 2005/2006 (17,008) (19,075) Amount applied to meet payments to Government Pool (5,074) Total increase/(decrease) in realised capital resources in (6,176) 4,439 2005/2006 Balance B/Fwd at 1st April 2005 33,819 3,089 Balance C/Fwd at 31st March 2006 27,643 7,528
Fixed Asset Restatement Account £000s Note 3 - Movements in unrealised value of fixed assets Gains/losses on revaluation of fixed assets 370,381 Gains/losses on Long Term Debtors 182 Total increase/(decrease) in unrealised capital Resources in 2005/2006 370,563
Note 4 - Value of assets sold, disposed of or de- Commissioned Amount written off fixed asset balances for disposals in (9,359) 2005/2006 Total amounts written off fixed asset values (9,359) Total movement on reserve in 2005/2006 361,204 Balance B/Fwd at 1st April 2005 931,608 Balance C/Fwd at 31st March 2006 1,292,812 Prior Period Adjustment Original Balance B/Fwd at April 2005 950,858 Prior period adjustment -19,250 Revised Balance B/Fwd at April 2005 931,608
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NOTES TO THE STATEMENT OF TOTAL MOVEMENT IN RESERVES
Capital Government Total Financing Grants Account Deferred £000s £000s £000s Note 5 - Movement in amounts set aside to finance capital investment
Useable Capital receipts set aside in 2005/2006 17,008 17,008 Total capital receipts set aside 17,008 17,008
Revenue resources set aside in 2005/2006 Capital expenditure financed from revenue 8,853 8,853 Reconciling amount for provisions for loan Repayment (11,623) (11,623) Total revenue resources set aside in 2005/2006 (2,770) (2,770)
Other movements Contribution to Consolidated Revenue Account (9,980) (9,980) Housing Association Debtor (1,077) (1,077) Grants transferred from deferred grants 2,839 2,839 Write down of deferred consideration (816) (816) Contribution to Long Term Debtor re PFI 946 946 Revaluation adjustment to Long term Debtor 10 10 (8,078) (8,078)
Grants applied to capital investment in 2005/2006 22,550 22,550 Amounts credited to the Asset Management (2,780) (2,780) Revenue Account in 2005/2006 Movement on Government Grants Deferred 19,770 19,770
Other movements Middlesex University Debtor Write down of Deferred grants (2,839) (2,839) Total other movements 6,160 16,931 23,091 Total increase/(decrease) in amounts set aside to finance capital investment in 2005/2006
Balance B/Fwd at 1st April 2005 271,851 74,870 346,721 Balance C/Fwd at 31st March 2006 278,011 91,801 369,812
Prior period adjustment Original Balance B/Fwd at 1 st April 2005 260,700 74,870 335,570 Prior period adjustment 11,151 11,151 Revised Balance B/Fwd at 1 st April 2005 271,851 74,870 346,721
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NOTES TO THE STATEMENT OF TOTAL MOVEMENT IN RESERVES
6. PENSION RESERVE
The actuarial gains/losses identified as movements on the Pensions Reserve in 2005/06 can be analysed into the following categories measured as absolute amounts and as a percentage of assets or liabilities at 31 March 2006.
31 31 31 31 31 31 31 31 March March March March March March March March 2003 2003 2004 2004 2005 2005 2006 2006 £000s % £’000 % £000s % £000s % Difference between the expected and 90,192 32.8 (49,222) (14.3) (18,541) (4.8) (64,160) (13.3) actual return on assets Difference between actuarial assumptions 33,914 8.4 380 0.1 (1,468) (0.3) 919 0.1 about liabilities and actual experience Changes in demographic and financial - - - - 73,476 13.8 71,224 11.1 assumptions used to estimate liabilities Contributions in respect of - (2,794) (2,864) (2,985) Unfunded Benefits Actuarial (Gains)/Losses 124,106 (51,636) 50,603 4,998
7. OTHER RESERVES
The usable capital receipts reserve represents the capital receipts available to finance capital expenditure in future years, after setting aside statutory amounts for repaying external loans. Capital receipts regulations allow receipts under £10,000 to be taken to the Revenue Account.
The unapplied capital grants and contributions reserve principally includes the balance of Education Grants received but not yet applied to finance expenditure.
The Fixed Asset Restatement Account represents the difference between the cost of fixed assets and their current valuations shown in the balance sheet.
The Capital Financing Account includes amounts that are required to be set aside from capital receipts to repay external loans and the amount of capital expenditure financed from sources such as revenue and capital receipts. It also includes the difference between amounts provided for depreciation and that required to be charged to revenue to repay the principal element of external debt. The balance is reduced as loan debt is repaid.
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NOTES TO THE STATEMENT OF TOTAL MOVEMENT IN RESERVES
Under capital accounting requirements, capital grants and other external funding applied to finance fixed assets are not recorded against the capital cost of the asset; instead they are taken to the Government Grants Deferred Account and written down to the Asset Management Revenue Account to offset depreciation charges on the projects concerned. The items within this account relate to government funding; health authority receipts and other non-governmental contributions such as national lottery funding. Grants where no asset can be identified or where the asset is not subject to depreciation have been transferred to the Capital Financing Account.
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SECTION 6 CONSOLIDATED CASH FLOW STATEMENT
This consolidated statement summarises the inflows and outflows of cash arising from transactions with third parties for both revenue and capital purposes. Cash is defined for the purpose of this statement as cash in hand and deposits repayable on demand, less overdrafts repayable on demand. Additional reconciliation statements have been produced to show the comparison to the Consolidated Revenue Account (Note 1) and the analysis and reconciliation of movement in net debt (Notes 2 & 3).
2005/2006 2004/2005 REVENUE ACTIVITIES £000s £000s £000s £000s Cash outflows Cash paid to and on behalf of employees 330,520 321,405 Other operating cash payments 199,337 176,209 Housing Benefits paid out 140,411 122,596 Precepts paid out 27,099 25,725 Payments to NNDR pool 85,866 62,129 Payments to the Capital Receipts Pool 5,934 10,657 Total outflows 789,167 718,721 Cash inflows Rents (after rebates) (29,346) (28,295) Council Tax income (105,458) (101,471) Receipts from business rate payers (69,668) (61,637) Receipts from NNDR pool (93,424) (78,713) Revenue Support Grant (173,805) (174,074) DSS benefit grant received (163,408) (144,539) Other government grants (NOTE 4) (85,591) (84,979) Cash received for goods and services (72,793) (83,037) Other operating cash receipts (14,233) (13,055) Total inflows (807,726) (769,800) NET REVENUE CASH INFLOW (18,559) (51,079) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Cash outflows Interest Paid 14,681 14,983 Interest element finance leases 1,299 1,323 Cash inflows Interest Received (7,929) (7,857) NET SERVICING AND INVESTMENT CASH 8,051 8,449 OUTFLOW CAPITAL ACTIVITIES Cash outflow Purchase of fixed assets 54,484 43,197 Purchase of Long Term Investments 10,000 5,000 Spending on deferred charges 14,254 7,542 Spending on house purchase initiatives 3,445 1,452 Total outflows 82,183 57,191 Cash inflow Sales of fixed assets (15,863) (28,366) Capital grants received (27,845) (17,410) Repayment Middx Debtor (981) 0 Other capital income (43) (147) Total inflows (44,732) (45,923) NET CAPITAL ACTIVITIES CASH OUTFLOW 37,451 11,268 NET CASH (INFLOW)/OUTFLOW BEFORE 26,943 (31,362) FINANCING
73 Page 82 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
CONSOLIDATED CASH FLOW STATEMENT CONT’D
2005/2006 2004/2005 £000s £000s £000s £000s
NET CASH (INFLOW)/OUTFLOW BEFORE 26,943 (31,362) FINANCING
MANAGEMENT OF LIQUID RESOURCES Net increase/(decrease) in short-term deposits 5,250 38,650 FINANCING Cash outflows Borrowing repayments 0 0 Leasing Repayments 296 280 Cash inflows New loans (29,000) (5,000) NET FINANCING CASH OUTFLOW (28,704) (4,720)
NET (INCREASE)/REDUCTION IN CASH 3,489 2,568
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NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
1. RECONCILIATION OF THE REVENUE CASH FLOW
2005/2006 2004/2005 £000s £000s £000s £000s Consolidated revenue account deficit 849 (14,780) Housing Revenue Account deficit (879) (2,479) Collection Fund (surplus)/deficit (1,320) (1,350) 1,231 (16,028) Interest (8,051) (8,449) Appropriation account cash adjustments:
Non -cash transactions: Long -term debtors (195) 895 Deferred Premiums (245) (819) Deferred charges 0 (1,275) Contribution (to)/ from earmark ed reserves (12,367) (5,987) Other Provisions 124 (3,003) Stocks/work in progress (109) (3) Debtors/payments in advance 20,860 1,711 Creditors/deposits/receipts in advance 4,203 (8,153) Depreciation re HRA Major Repairs Allowance (9,173) (9,597) Other balances (652) (268) Provisions for credit liabilities (5,871) (5,160) Contribution from Capital Receipts Reserve 5,934 10,657 Contributions to capital expenditure (11,667) 9,158 (5,600) (26,602) Revenue activities net cash inflow (18,559) (51,079)
2. ANALYSIS OF NET DEBT
31 March Net 31 March Net 31 March 2006 Movement 2005 Movement 2004 £000s £000s £000s Investments 137,400 5,250 132,150 38,650 93,500 Cash (over-drawn)/in hand (10,204) (3,489) (6,715) (2,568) (4,147) Other Long Term Liabilities (14,988) 296 (15,284) 280 (15,564) Short Term Borrowing (10,000) (10,000) 0 0 0 Long Term Loans (217,043) (19,000) (198,043) (5,000) (193,043) Total Net Debt (114,835) (26,943) (87,892) 31,362 (119,254)
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NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
3. RECONCILIATION OF NET CASH FLOW TO THE MOVEMENT IN NET DEBT
2005/06 2004/05 £000s £000s (5,250) Increase in Short Term Deposits (38,650) 3,489 Net increase/(decrease) in Cash 2,568 (296) Leasing Repayment (280) 29,000 New Loans Raised 5,000 0 Repayment of Loans 0 26,943 Total Movement in Net Debt (31,362)
The Council’s overall financing strategy, as set out in its Treasury Management policy, is to minimise the Council’s external borrowing by using the Council’s own internal cash resources to fund capital investment. Short-term deposits and borrowings occur where cash flow movements lead to temporary cash surpluses/shortfalls.
4. ANALYSIS OF GOVERNMENT GRANTS
2005/2006 2004/2005 £000s £000s
Education standards fund 19,940 14,359 Learning and skills 19,352 17,890 Supporting people 11,609 12,230 Threshold teachers pay 5,357 4,763 Schools Standards Grant 5,025 4,759 PFI revenue support 4,890 6,094 Access and Systems 3,260 2,494 Education support 2,900 1,483 Pension Credits 2,099 1,962 Preserved rights 1,806 2,099 Surestart 1,396 1,324 Asylum seekers 1,346 7,326 Residential Allowances 1,127 2,177 Other grants 5,484 6,019
85,591 84,979
76 Page 85 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
SECTION 7 COLLECTION FUND INCOME AND EXPENDITURE ACCOUNT
This account represents the transactions of the Collection Fund, a statutory fund separate from the General Fund of the Council. This fund accounts independently for the income relating to Council Tax, Business Rates and residual Community Charge on behalf of those bodies (including the Council’s own General Fund) for whom the income is raised. The costs of administering collection are accounted for in the General Fund.
INCOME AND EXPENDITURE ACCOUNT 2005/2006 2004/2005 NOTES £000s £000s £000s £000s
Council taxpayers 1 (133,006) (128,543) Business ratepayers 2 (69,557) (62,239) Community Charge (3) (2) (202,566) (190,784) EXPENDITURE Precepts and demands: London Borough of Enfield 104,272 101,443 Greater London Authority 27,251 25,725
131,523 127,168 Estimated 2005/06 Council Tax and Community Charge(deficit)/surplus distribution London Borough of Enfield (598) 0 Greater London Authority (152) 0 (750) 0 Business rates: Payment to national pool 69,196 61,879 Cost of collection allowance 361 360 69,557 62,239 Bad and doubtful debts: Council Tax – Contribution to provision 916 2,608 916 2,608 (SURPLUS)/DEFICIT for year (1,320) 1,231 (SURPLUS)/DEFICIT as at 1 April 1,416 185 (SURPLUS)/DEFICIT as at 31 March 3 96 1,416
77 Page 86 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
NOTES TO THE COLLECTION FUND INCOME AND EXPENDITURE ACCOUNT
1. COUNCIL TAX
Council Tax income derives from charges raised according to the value of residential properties, which have been classified into 8 valuation bands estimated at 1 April 1991 values for this specific purpose. Individual charges are calculated by estimating the amount of income that the Council and its preceptors take from the Collection Fund for the forthcoming year and dividing this by the council tax base. This tax base represents the total number of properties in each band, adjusted by a proportion to convert the number to a Band D equivalent and adjusted for discounts and estimated non-collectibles.
The tax base calculation for 2005/06 is as follows:
Chargeable properties Band D equivalent adjusted BAND adjusted for discounts for estimated non-collection
A 3,972 2,595 B 8,812 6,716 C 26,202 22,825 D 31,266 30,641 E 18,644 22,331 F 8,149 11,536 G 5,459 8,917 H 749 1,467 103,253 107,028
This basic amount of Council Tax for a Band D property, £1228.87, (2004/05 £1,192.99), is multiplied by the proportion specified for the particular band to give an individual amount due.
The income receivable is attributable to the following sources:
2005/2006 2004/2005 £000s £000s Billed to Council Tax Payers 107,601 104,851 Council Tax Benefits 25,405 23,692
133,006 128,543
Analysis of Council Tax Bad Debt Provision
2005/2006 2004/2005 £000s £000s Council Tax Bad Debt Provision B/fwd 5,822 5,381 Amount written off (154) (2,167) Contribution to Bad Debt Provision 916 2,608 Council Tax Bad Debt Provision C/fwd 6,584 5,822
78 Page 87 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
NOTES TO THE COLLECTION FUND INCOME AND EXPENDITURE ACCOUNT
2. BUSINESS RATES
Business rates are organised on a national basis. In 2005/06 the Government specified an amount of 41.5p for small businesses who qualify for rate relief and 42.2p for all other businesses. Local businesses pay rates calculated by multiplying their rateable value by these amounts. The Council is responsible for collecting rates due from the ratepayers in its area, but pays the proceeds into a Government-administered pool.
The Government redistributes the sums paid into the pool back to local authorities’ General Funds on the basis of a fixed amount per head of population. The Business Rate income after reliefs and provisions of £69,557m for 2005/06 was based on the notified rateable values and their effective dates. The total non-domestic rateable value for the area at the year-end was £215.7m (2004/05 £168.5m). The large increase in non- domestic rateable values reflects the national revaluation of properties undertaken in 2005.
3. CONTRIBUTIONS TO COLLECTION FUND SURPLUSES/DEFICITS
The revenue account surplus of £86k relates to Council Tax at 31 March 2006, and will be returned in subsequent years to the Council and its major preceptors in proportion to the value of the respective precepts and demands on the Collection Fund.
79 Page 88 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
SECTION 8 THE PENSION FUND
1. INTRODUCTION
Under the Local Government Pension Scheme Regulations 1995, the fund provides benefits for employees, which include retirement pensions, widows’ pensions, death grants and other lump sum payments.
The fund is financed by contributions from employees, employers and from profits on realised investments, interest and dividends on its investments.
The main investment objective is to maximise the overall return from income and capital appreciation without high risk and to maintain the ready marketability of the portfolio to meet the fund’s fluctuating cash requirements and to react to the fund’s increasing maturity.
A full description of the Pension activities is shown in the Pension Fund Annual Report.
The Fund accounts have been produced using the Fund’s custodian reports. This change has been introduced to increase the level of consistency and transparency in presenting the accounts. The following accounting policies have been changed and may distort direct inter-year comparisons:
(i) Unsettled purchases & sales had previously been shown as adjustments to cash, in the 2004/05 accounts they have now been stated as payments & receipts in advance. (ii) Some changes have been made on definitions of asset classes. (iii) In 2004/05, tax re-claimed has been allocated to the income class it relates to.
As at the 31 st March 2006 the Fund Membership was 11,173 compared to 10,911 at 31 st March 2005.
This is analysed below:-
31st March 2006 31st March 2005 Current Members 5,378 5,288 Retired Members 2,781 2,704 Widows/Dependants 593 589 Deferred Members 2,421 2,330 11,173 10,911
The accounts shown overleaf represent a stewardship report on the fund, together with a statement of the assets position at the year end.
A copy of the Council’s Statement of Investment Principles (SIP) together with an assessment of Enfield’s compliance with the Myner’s Report is available on the Council’s web site www.enfield.gov.uk .
80 Page 89 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
THE PENSION FUND
PENSION FUND REVENUE ACCOUNT FOR THE YEAR ENDED 31 MARCH 2006 FUND ACCOUNT 2005/06 2004/05 Notes £000s £000s CONTRIBUTIONS & BENEFITS Contributions receivable - Employees’ contributions 6,193 5,899 1a - Employer’s contributions 14,013 12,258 1b Transfer values receivable 4,267 4,793 2 Council Contribution for cost of early retirements 375 253 3 Distribution from Fund Manager 945 - Distribution to Fund Manager (1,296) - Benefits payable - Retirement and widows’ pensions (14,164) (13,487) 4a - Retirement and death grants (2,431) (1,882) 4b Payments to and on account of leavers - Refunds of Contributions (39) (60) - Transfer values payable (4,813) (4,405) 2 - Contribution Equivalent Payment in Lieu (26) (27) Administration (437) (369) 5a Net Contributions (Withdrawals) from Dealings with Members 2,587 2,973
Returns On Investments - Expenses Of Investment Portfolio & Fees (1,502) (1,693) 5b - Investment Income 10,774 12,592 6 Changes in market value of investments - Realised Capital Gains/(Losses) 38,690 7,762 17 - Unrealised Capital Gains/(Losses) 51,721 20,562 17 Net Returns On Investment 99,683 39,223 Net Increase/(decrease) in the Fund in Year 102,270 42,196 Opening Net Assets of Fund 398,509 356,313 Closing Net Assets of Fund 500,779 398,509
81 Page 90 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
THE PENSION FUND
NET ASSETS STATEMENT as at 31 st MARCH 2006 2006 2005 Notes £000s £000s Investments at Market Value Fixed Interest Securities 65,922 52,475 7 Index Linked Securities 17,906 16,452 8 Equities 160,803 244,014 9 Unit Trusts 196,206 32,339 10 Property Unit Trusts 47,079 44,628 Other Investments 3,964 1,470 11 Cash and Deposits 6,596 4,472 12
Total Investments 498,476 395,850
Current Assets and Liabilities
Debtors 2,959 4,015 13 Creditors (656) (1,356) 14
Net Assets 500,779 398,509
I certify that the Pension Fund Revenue Account and the Net Assets Statement present fairly, the financial position of the Pension Fund Accounts at 31 March 2006 and its income and expenditure for 2005/06.
82 Page 91 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
PENSION FUND – Accounting Policies and Principles
Accounting Standards The Fund's accounts are compiled in accordance with the principles set out in The Statement of Recommended Practice on Pension Scheme Accounts (SORP) and the CIPFA Code of Practice on Local Authority Accounting.
Basis of Preparation The accounts are prepared on an accruals basis, except in the case of transfer values, which are debited or credited in the year of payment or receipt, in accordance with recommended practice. Investment income is recorded on an accruals receipts basis.
Quoted Investments Market value for securities is determined by Stock Exchange prices at the balance sheet date. Shares quoted in the FTSE (Financial Times Stock Exchange 100) and its reserve list have been valued on the basis of the last traded price recorded on SETS (the Stock Exchange Electronic Trading Service). Foreign currency items are converted into sterling at the closing middle rates of exchange at the balance sheet date. Overseas income is converted at rates of exchange ruling when banked.
Unquoted Investments Since April 2003 the Pension Fund holds unlisted investments in private equity schemes (via a fund of fund portfolio held with Adam Street Partners). These investments are based the latest market value Adam Street Partners market valuation at 31 December with any contribution made between January and March based on a book costs.
UK Tax The fund is an exempt approved fund liable neither to UK income tax on interest, dividends and property income nor capital gains tax on the sale of investments. As a local authority is the administrator for the fund, VAT input tax is recoverable on all fund activities.
Overseas Tax Income from the USA and Australian investments is exempt from their respective taxes and is received gross. Reciprocal arrangements exist between the UK and many European countries for the recovery of varying proportions of locally deducted tax. The timing of the recovery of this ‘withholding tax’ can vary between countries.
Actuarial Position The accounts summarise the transactions and net assets of the Fund, but do not take account of the liabilities to pay pensions and other benefits in the future. An actuarial valuation is made every three years to ascertain the state of the Fund, when the Actuary issues a certificate determining the Council’s common rate contribution to the Fund.
Contributions are paid to the Fund to provide for the benefits which will become payable to Scheme members when they fall due. The funding objectives are to meet the cost of the scheme members benefits whilst they are working and to build up assets to provide adequate security for the benefits as they accrue.
83 Page 92 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
PENSION FUND – Accounting Policies and Principles
The 31 st March 2004 actuarial valuation valued liabilities of the Fund on the basis of benefits in respect of service completed before the valuation date (‘past service’) and benefits in respect of service expected to be completed after the valuation date (‘future service’).
Assets of the fund - i.e. investments - were valued on the basis of their market value at the time of the valuation, adjusted to smooth out variations in market values over the previous 12 months.
The key financial assumptions adopted at this valuation were as follows:
Nominal Real % p.a. % p.a. Discount rate 6.3 3.4 Pay Increases (excluding increments) 4.4 1.5 Price inflation/Pension Increase 2.9
The funding level (ratio of assets to past service liabilities) as at 31 March 2004 is 88% (compared to 104% as at 31 March 2001). This corresponds to a past service deficit of £50m.
The minimum contributions to be paid by each employer from April 2005 to March 2009 are shown below:
Year Employer’s Contribution Rate 1 April 2005 to 31 March 2006 13.6% 1 April 2006 to 31 March 2007 14.6% 1 April 2007 to 31 March 2008 15.4% 1 April 2008 to 31 March 2009 16.4%
The next actuarial valuation will as at 31 st March 2007
These rates have been agreed by the Council and provision included within the Medium Term Financial Strategy & Plan (MTFSP).
A more detailed explanation is set out in the Pension Fund’s Funding Strategy Statement (FSS).
84 Page 93 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
PENSION FUND – NOTES TO THE ACCOUNTS
1. Contributions
These are the sums receivable from Enfield, as employer, and from employees, scheduled and admitted bodies. The employers’ contributions are determined by the actuary at periodic valuations (see section above - Actuarial Position) of the fund’s liabilities. Employees’ contributions are paid at the rates required by the 1997 regulations: officers and new manual workers pay 6% of earnings but manual workers who began contributing before 1 April 1998 pay 5%.
a. Employees’ Contributions
2005/06 2004/05 £000s £000s London Borough of Enfield 5,821 5,537 Scheduled Bodies - Capel Manor College 58 55 - Enfield College 112 106 - Southgate College 140 139 Admitted Bodies - Enfield Voluntary Action 10 9 - Millfield Theatre Trust 0 2 - Enfield Leisure Trust 50 49 - Equion Facilities 2 2 6,193 5,899
b. Employers’ Contributions
2005/06 2004/05 £000s £000s London Borough of Enfield 13,178 11,507 Scheduled Bodies - Capel Manor College 131 105 - Enfield College 247 222 - Southgate College 316 293 Admitted Bodies - Enfield Voluntary Action 23 18 - Millfield Theatre Trust 0 3 - Enfield Leisure Trust 113 104 - Equion Facilities 5 6 14,013 12,258
85 Page 94 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
PENSION FUND – NOTES TO THE ACCOUNTS
2. Transfer Values
Transfer values are those sums paid to or received from other pension schemes relating to periods of previous pension employment. Transfer values are included in the accounts on the basis of the date of payment or receipt.
3. Council Contribution for cost of early retirements
Since April 2001, all the capital costs (these are costs such as losing employee and employer contributions, the cost of making the pension payments early and the cash flow effects of these costs) have to be met by the service group that has allowed the early retirement. The costs are recovered by the Pension Fund over a five year period.
4. Benefits, Refunds of Contributions and
Benefits payable and refunds of contributions are brought into the accounts on the basis of valid claims approved during the year.
a. Retirement & widows’ pensions
2005/06 2004/05 £000s £000s London Borough of Enfield 13,987 13,335 Scheduled Bodies - Capel Manor College 6 5 - Enfield College 54 33 - Southgate College 115 113 Admitted Bodies - Enfield Voluntary Action 0 0 - Millfield Theatre Trust 0 0 - Enfield Leisure Trust 2 1 - Equion Facilities 0 0 14,164 13,487
b. Retirement & death grants
2005/06 2004/05 £000s £000s London Borough of Enfield 2,322 1,839 Scheduled Bodies - Capel Manor College 8 2 - Enfield College 70 19 - Southgate College 31 20 Admitted Bodies - Enfield Voluntary Action 0 0 - Millfield Theatre Trust 0 0 - Enfield Leisure Trust 0 2 - Equion Facilities 0 0 2,431 1,882
86 Page 95 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
PENSION FUND – NOTES TO THE ACCOUNTS
5. Investment Management and Administration
Regulations issued in 1989 permit the Council to charge administration costs to the fund. A proportion of relevant officers’ salaries, including related overheads, has been charged to the fund for their work on scheme and investment administration.
The fees of the investment managers are paid in accordance with the management agreement and are tied to the current value of their portfolio.
2005/06 2004/05 £000s £000s Enfield Staff Costs – Benefits Admin. 372 333 Other Costs & Charges 65 36 Enfield Administration Costs (5a) 437 369
Investment Managers’ Fees 1,191 1,324 Custody Charges 129 167 Enfield Staff costs – Investment 63 53 Interest Paid to General Fund 61 70 Other Costs 58 79 Expenses Of Investment Fees (5b) 1,502 1,693
6. Investment Income
Dividends and interest have been accounted for on an accruals basis. Foreign income has been converted into sterling at the rate of exchange on settlement day.
Investment Income received is shown below, split over the major investment income classifications:
2005/06 2004/05 Investment Income £000s £000s Fixed Interest Securities 2,811 2,435 Indexed Linked Securities 713 764 Equities & Unit Trusts 5,672 6,295 Property Unit Trusts 1,536 2,889 Interest on Cash 8 145 Commission re-capture 33 43 Stock Lending 0 21 Total Investment Income 10,773 12,592
87 Page 96 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
PENSION FUND – NOTES TO THE ACCOUNTS
7. Fixed Interest Securities
2005/06 2004/05 Fixed Interest Securities £000s £000s Government Securities - UK 14,195 11,172 Government Securities - Overseas 12,138 11,181 Company Bonds 39,589 30,122 Total Fixed Interest Securities 65,922 52,475
8. Index Linked Securities
2005/06 2004/05 Index Linked Securities £000s £000s Government Securities - UK 10,824 10,057 Government Securities - Overseas 2,608 2,062 Company Bonds 4,474 4,333 Total Index Linked Securities 17,906 16,452
9. Equities
2005/06 2004/05 Equities £000s £000s UK Equities 68,423 163,266 Overseas Equities: Europe 38,249 36,870 North America 29,173 25,205 Japan 13,864 10,284 Pacific (excluding Japan) 8,294 8,389 Other 2,800 0 Total Equities 160,803 244,014
10. Unit Trusts
Unit Trusts 2005/06 2004/05 £000s £000s Pooled Equities UK 137,498 8,853 Japan 7,735 5,093 Pacific excluding Japan 4,322 3,882 Europe 15,416 381 Mutual Fund 12,434 10,298 North America 13,981 0 Emerging Markets 4,794 3,806 Venture Capital 26 26 Total Unit Trusts 196,206 32,339
88 Page 97 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
PENSION FUND – NOTES TO THE ACCOUNTS
11. Other Investments
The Pension Fund has made two annual subscriptions into a private equity fund of funds. The Fund’s total commitment to these funds will be $30 million.
2005/06 2004/05 Other Investments £000s £000s Private Equity – Fund of Funds 3,964 1,470
Total Other Investments 3,964 1,470
12. Cash and Deposits
2005/06 2004/05 Cash £000s £000s Managers’ Cash & Deposits 8,566 5,713 Enfield’s Cash Overdrawn (1,970) (1,241)
Total Cash and Deposits 6,596 4,472
13. Debtors
2005/06 2004/05 £000s £000s Receivable on Sales of Stock, Shares & Unit Trusts 457 644 Dividends & Interest receivable 2,064 2,999 Tax recoverable 369 372 Other 40 Enfield 29 0 Total Debtors 2,959 4,015
14. Creditors
2005/06 2004/05 £000s £000s Fund Managers Fees & Other Expenses Due (311) (311) Receivable on Sales of Stock, Shares & Unit Trusts (101) (945) Other on Investments Expense due (244) (100)
Total Creditors (656) (1,356)
15. Book Value
The difference between cost and market value represents the appreciation in value of the investments held.
89 Page 98 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
PENSION FUND – NOTES TO THE ACCOUNTS 16. Investment Policy
The Council performs its fund management responsibilities through appointed managers. The Fund is managed on a segregated basis. The portfolio summary is shown below:
Manager Mandate Benchmark Perfor- Date Value £m mance Appointed Target Barclay Global Index Index April 91 181.4 Global Inv Equity Deutsche Property Bespoke +1.0% April 91 56.0
Capital Global Bespoke +1.0% Dec 00 175.1 Int. Equity Western Bonds Bespoke 0.75% April 03 86.4 Asset Adam St Private Internal rate April 03 4.0 - Partners Equity of return L.B. of - - - - (2.1) Enfield 500.8m
17. Analysis of Purchases & Sales
Manager Purchases Sales for Realised Unrealised Year Year Gains/Losses on Gains/Losses on Sales Sales £m £m £m £m Capital (Equity) 50.1 (48.4) 8.8 28.6 Deutsche 1.0 - (0.1) 8.5 (Property) Deutsche (Equity) 26.3 (187.8) 29.2 (12.5)
Western (Bonds) 168.5 (155.3) 1.2 2.0
BGI (Equity) 302.2 (145.1) (0.6) 25.0
Adam St 2.5 (0.3) 0.2 0.1
Total 2005/06 550.6 (536.9) 38.7 51.7
Total 2004/05 153.3 (141.4) 7.8 20.6
90 Page 99 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
PENSION FUND – NOTES TO THE ACCOUNTS 18. Top Ten UK Individual Holdings
£m Vodafone 7.4 HBOS 5.3 Astrazeneca 5.3 Royal Bank of Scotland 5.2 Shell 4.3 Signet 2.1 Standard Chartered 1.9 Reed Elsevier 1.9 Yell Group 1.8 Rio Tinto 1.8 37.0m
19. Pension Fund Performance
One Year The Fund return over the last 12 months of 25.0% was 0.2%. below the benchmark return of 25.2%. This was due to asset allocation decisions which reduced the return by 0.2%, mainly the impact of the Fund's exposure to cash. Stock selection had a neutral impact overall with the beneficial stock selection in Property reduced by the below benchmark performance in UK Equities.
Three Years The Fund return of 20.0% p.a. was 0.2% p.a. below the benchmark return of 20.3% p.a. The relative return in Property was beneficial but was reduced by the below benchmark performance in UK equities. Holding cash over the period also proved unfavourable.
Ten Years The return of 9.0% was 0.7% above the benchmark and ranks Enfield in 14 th place
20. Related Party Transactions
The Fund managers, Deutsche Asset Management Ltd, Capital International, Western Asset Management and Adam Street Partners are related parties responsible for investment within the parameters agreed by the Council’s Investment Panel. Total investments expenses in 2005/06 are shown in the Pension Fund revenue account on page 81.
The above figures have been provided by the actuaries to the Authority’s Pension Scheme using information provided by the scheme and assumptions determined by the Council in conjunction with the actuary.
Actuarial calculations involve estimates based on assumptions about events and circumstances in the future, which may mean that the result of actuarial calculations may be affected by uncertainties within a range of possible values.
91 Page 100 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
AUDITORS REPORT TO THE LONDON BOROUGH OF ENFIELD
Independent Auditor’s Report to London Borough of Enfield
I have audited the statement of accounts on pages 21 to 79 which have been prepared in accordance with the accounting policies applicable to local authorities as set out on pages 21 to 32 and the Pension Fund accounts, on pages 80 to 91 which have been prepared in accordance with the accounting policies applicable to pension funds set out on pages 83 to 84.
This report is made solely to the London Borough of Enfield in accordance with Part II of the Audit Commission Act 1998 and for no other purpose, as set out in paragraph 54 of the Statement of Responsibilities of Auditors and of Audited Bodies, prepared by the Audit Commission.
Respective Responsibilities of the Chief Financial Officer and Auditor
As described on page 2 the Chief Financial Officer is responsible for the preparation of the statement of accounts in accordance with the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2005. My responsibilities, as independent auditor, are established by statute, the Code of Audit Practice issued by the Audit Commission and my profession’s ethical guidance.
I report to you my opinion as to whether the financial statements present fairly:
• the financial position of the Council and its income and expenditure for the year, • the financial transactions of its Pension Fund during the year and the amount and disposition of the Fund’s assets and liabilities, other than liabilities to pay pensions and benefits after the end of the scheme year.
I review whether the statement on internal control on pages 3 to 12 reflects compliance with CIPFA’s guidance ‘The Statement on Internal Control in Local Government: Meeting the Requirements of the Accounts and Audit Regulations 2003’ published on 2 April 2004. I report if it does not comply with proper practices specified by CIPFA or if the statement is misleading or inconsistent with other information I am aware of from my audit of the financial statements. I am not required to consider, nor have I considered whether the statement on internal control covers all risks and controls. I am also not required to form an opinion on the effectiveness of the Council’s corporate governance procedures or its risk and control procedures. My review was not performed for any purpose connected with any specific transaction and should not be relied upon for any such purpose.
I read the other information published with the statement of accounts and consider the implications for my report if I become aware of any apparent misstatements or material inconsistencies with the statement of accounts.
Basis of audit opinion
I conducted my audit in accordance with the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission, which requires compliance with relevant Auditing Standards issued by the Auditing Practices Board.
92 Page 101 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
AUDITORS REPORT TO THE LONDON BOROUGH OF ENFIELD
An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the statement of accounts. It also includes an assessment of the significant estimates and judgements made by the Council in the preparation of the statement of accounts, and of whether the accounting policies are appropriate to the Council's circumstances, consistently applied and adequately disclosed.
I planned and performed my audit so as to obtain all the information and explanations which I considered necessary in order to provide me with sufficient evidence to give reasonable assurance that the statement of accounts are free from material misstatement, whether caused by fraud or other irregularity or error. In forming my opinion, I evaluated the overall adequacy of the presentation of the information in the statement of accounts.
Opinion
In my opinion, the statement of accounts presents fairly the financial position of the London Borough of Enfield as at 31 March 2006 and its income and expenditure for the year then ended.
Opinion on the Pension Fund Accounts
In my opinion the statement of accounts presents fairly the financial transactions of the London Borough of Enfield Pension Fund during the year ended 31 March 2006, and the amount and disposition at that date of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the scheme year.
Certificate
I have carried out the audit of the accounts in accordance with the requirements of the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission. However, the audit cannot be formally concluded, and an audit certificate issued, until I have considered matters in respect of which a local government elector might ask me to exercise my formal powers. I am satisfied that the amounts involved will not have a material effect on the statement of accounts.
Signature: Date: September 2006
Name: Michael Haworth-Maden Address: Audit Commission Audit Commission 1st Floor Millbank Tower London SW1P 4HQ
93 Page 102 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
GLOSSARY OF TERMS
ACCRUALS Amounts charged to the accounts for goods and services received during the year for which payments have not been made.
ACTUARY One who makes calculations for pensions and insurance purposes.
AMORTISE To wipe out debt.
APPROPRIATION The assignment of revenue to a specific purpose.
CAPITAL CHARGES (CC) Annual charges made to Service Groups for the use of capital assets.
CAPITAL EXPENDITURE Payments on the acquisition or enhancement of assets that are considered to be of benefit to the authority over a period of more than one year, e.g. buildings, land. Payments of grants and financial assistance to third parties. Expenditure that is classified as capital following a ministerial direction, e.g. capitalised redundancy costs.
CAPITAL FINANCING ACCOUNT This reserve includes amounts set aside from either revenue resources or capital receipts to fund capital expenditure.
CAPITAL GRANTS A grant received from Government departments and other statutory bodies to finance capital expenditure.
CAPITAL RECEIPTS Income received from the sale of land, buildings and other capital assets.
COLLECTION FUND A separate account that discloses the income and expenditure relating to residual Community Charge, Council Tax and National Non Domestic Rates.
CONSOLIDATED BALANCE A statement of all the assets, liabilities and other SHEET balances of the Authority.
CONSOLIDATED REVENUE A statement showing the net cost for the year of all ACCOUNT the services for which the authority is responsible and how that cost has been financed from general government grants and income from local taxpayers.
94 Page 103 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
CONTINGENT LIABILITY A possible liability to future expenditure at the balance sheet date, depending on the outcome of uncertain events.
COUNCIL TAX (CT) A tax on domestic property values.
CREDITORS Amounts owed by the Council for goods received or services provided but not yet paid for as at 31 March 2006.
DEBTORS Amounts owed to the Council but not received at 31 March 2006.
DEFERRED CHARGES Expenditure of a capital nature not in connection with a Council owned asset e.g. private sector renewal grants.
DEPRECIATION The loss in value of an asset due to age, wear and tear, deterioration or obsolescence.
EARMARKED RESERVES These are reserves set aside to meet specific liabilities and future expenditure.
FIXED ASSETS Tangible and intangible assets that yield benefits to the local authority and the services it provides for a period of more than one year.
FUNDED SCHEME A superannuation scheme that is supported by a fund of money, which is maintained at a level sufficient to meet all future liabilities under the scheme.
GENERAL FUND The account that summarises the cost of providing Council services (excluding the Housing Revenue Account).
GROSS EXPENDITURE The total cost of providing services before taking into account income, e.g. from government grants or fees and charges.
HOUSING REVENUE ACCOUNT A statutory account maintained separately from the (HRA) General Fund for the recording of income and expenditure relating to the provision of council housing.
INTEREST The amount received or paid for the use of a sum of money when it is invested or borrowed
95 Page 104 ENFIELD STATEMENT OF ACCOUNTS 2005/2006
MINIMUM REVENUE PROVISION The minimum amount that the Council must charge to the revenue account to provide for the repayment of debt.
NATIONAL NON-DOMESTIC A flat rate in the pound set by central government and RATES (NNDR) levied on businesses in the borough. This money is collected by Enfield and then passed to central government, which reallocates the income to all councils in proportion to their population.
NET EXPENDITURE Total expenditure less any income due to the Council.
PRECEPT A charge on the Collection Fund by the Greater London Authority, who are known as ‘preceptors’
PRIOR YEAR ADJUSTMENT A material adjustment applicable to prior years arising from changes in accounting policies or from the correction of fundamental errors.
PROVISION An amount set aside for liabilities and losses, which are likely to be incurred, but where the exact amount and the date on which it will arise is uncertain.
PUBLIC WORKS LOANS BOARD Central government agency, which is used to fund local government borrowing.
RESERVES An amount set aside for a specific purpose in one financial year and carried forward to meet expenditure in future years.
REVENUE EXPENDITURE Spending on day-to-day items including salaries and wages, premises costs, and supplies and services.
REVENUE SUPPORT GRANT The main grant paid by central government to a local authority towards the cost of all its services.
SUPPORT SERVICES These services are provided by the administrative and professional Service Groups that support all the Council’s services. They include financial, legal, personnel, computer, property and general administrative support.
UNFUNDED SCHEME A superannuation scheme that is not supported by a fund of money.
96 Page 105 Agenda Item 6
MUNICIPAL YEAR 2006/2007 REPORT NO. 28
Agenda – Part: 1 Item: 6 MEETING TITLE AND DATE: Audit Committee – Subject: Statement of Internal Control
Thursday 29 th June 2006 Wards: All
REPORT OF: Director of Finance and Cabinet Member consulted: Corporate Resources.
Contact officer and telephone number: Mark McLaughlin – x 4650
1. EXECUTIVE SUMMARY
In accordance with the Accounts and Audit Regulations 2003 the Council is required to produce a Statement of Internal Control each year as a part of its Accounting Statements.
Attached to this report is this years statement for consideration by the committee.
2. RECOMMENDATIONS
2:1 That the Committee review and approve the Statement of Internal Control for 2005/6 for inclusion within the Statement of Accounts.
- 1 - Page 106
3. BACKGROUND
3:1 Sound practice determines that the Statement of Internal Control should be discussed separately from the main statement of accounts, although it is included with, and forms a part of, those statements.
3.2 This report now considers the Statement of Internal Control (attached as appendix 1 to this report) which has been produced in accordance with the CIPFA guidelines.
3.3 The objective of the statement is to provide an assurance to members that all risks have been reviewed during the year and appropriate controls exist to contain major risks which face the Council.
3.4 The statement also sets out the main areas of internal control which exist within the Council and indeed section 3 of the statement describes the internal control environment. This includes: Establishing and monitoring the authorities objectives Policy and decision making Compliance Risk Management Economic, effective and efficient use of resources Financial Management Internal Audit Performance management
Attached at appendix 2 to this report is a matrix which shows how these elements of internal control fit into the internal control environment and how the outcomes of each element are monitored.
3:5 There are a number of mechanisms in place that maintain an ongoing review of the internal control environment across the Council and provide assurance to the Audit Committee that the control arrangements are effective.
These include:
• The Council’s risk management arrangements, including reports on the improvements made as a result of weaknesses identified in the Corporate risks register.
• The work undertaken by internal audit as evidenced by internal audit reports and their associated action plans on the control environment and the Annual audit report which includes an assurance statement.
• Work undertaken by external auditors and the production of the Audit Commission’s Annual Audit and Inspection Letter
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• Other external inspection work resulting in action plans arising from Audit Commission and any other Inspection reports
The areas listed above have all been the subject of reports to the audit committee over the last twelve months. Key issues identified from the above reports are set out below for your consideration.
Risk Management Strategy
3:6 The strategy is an integral part of the strategic corporate planning process. As part of the strategy we provide combined departmental and corporate risk assessments to generate a risk register. These risk assessments cover all aspects of services including, risks, controls and their significance.
The report outlined the performance during 2005/6 in reviewing risk assessments and how the strategy covers the main strategic risks that face the Council. The main risks requiring action were : Achievement of the Decent Homes Standard Vulnerability of clients in care, failure to carry out CRB checks. Business continuity.
The report also identified the measures that had been taken during the year to improve the risk management process within the Council and made proposals for further improvement in 2006/07.
Internal Audit Assurance statement.
3:7 The preparation of the Statement of Internal Control makes reference to the assurance statements from internal audit. Clearly the work of internal audit is a key factor in giving assurance on the main financial systems of the Council.
The statement contains reference to the audits undertaken which contained a risk category 1 finding and consequently no assurance could be given on those systems without immediate remedial action. These audit reports are to be considered in detail by the Audit Committee at their September meeting.
The reports to be considered in this category are;
Housing Benefits Overpayments. Housing Voids Millfield Arts centre City Learning Centre Social Services, Invoicing and collection SAP HR Payroll system
Each of the above reports contain agreed action plans that are designed to
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ensure that the weaknesses are remedied immediately.
Audit Commission Annual Letter
3.8 The Audit Commission annual letter and associated action plans to deal with matters raised was considered at the meeting of the Audit Committee on 5th April 2006 and an update on the progress made on these matters will be presented to the Audit Committee at a later meeting.
The annual letter is the means by which the Audit Commission reports on the findings of their annual audit and they agree actions to remedy any matters they find.
Each of the above areas forms a part of the overall evaluation of the internal control which operates within the Council.
3.9 Contained in paragraph 5 of the Statement of Internal Control are the Significant Internal Control Issues which the Council will need to address in the coming year. The schedule attached at this point shows the It is proposed to bring back to the audit committee an update on the items recorded in paragraph 5 of the statement at regular intervals. In this way it will ensure that the matters are dealt with in a timely manner and furthermore that the audit committee are kept informed of progress.
4. ALTERNATIVE OPTIONS CONSIDERED
Members are required to consider the document on an annual basis and as such there is no alternative course of action which would satisfy the requirements of the Accounts and Audit regulations.
5. REASONS FOR RECOMMENDATIONS
To comply with statutory requirements and ensure that the matter is fully considered.
6. COMMENTS OF THE DIRECTOR OF FINANCE AND CORPORATE RESOURCES AND OTHER DEPARTMENTS
6.1 Financial Implications
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There are no specific financial implications arising from this report. Any actions which are taken concerning the reports mentioned in this report will be the subject of a separate decision report at which point any financial implications would be considered.
6.2 Legal Implications
The Accounts and Audit Regulations 2003 (issued under section27 Audit Commission Act 1998) provide that local authorities must issue a statement of internal control at least once a year. This report is produced pursuant to that requirement. The controls in place clearly assist the Council in identifying any procedural weaknesses so as to ensure that the highest standards of control and probity are maintained.
8. PERFORMANCE MANAGEMENT IMPLICATIONS
This report contributes to the overall performance management of the Council in so far as one of the key elements of financial control contained within the Statement of Internal Control is performance management.
To that end the processes in place for performance management are reviewed and any weaknesses addressed.
7. PUTTING ENFIELD FIRST
The report contributes to the Council’s aim of “Supporting the Delivery of Excellent Services” by advising on the system of internal control which “facilitates the effective exercise of the Council’s functions and which includes the arrangements for the management of risk”.
Background Papers
Statement of Internal Control in Local Government – meeting the requirements of the Accounts and Audit Regulations 2003
Previous reports to audit committee.
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LONDON BOROUGH OF ENFIELD
STATEMENT ON INTERNAL CONTROL
FOR THE PERIOD 1 ST APRIL 2005 TO 31 ST MARCH 2006
1. SCOPE OF RESPONSIBILITY
The London Borough of Enfield is responsible for ensuring that its business is conducted in accordance with the law and proper standards, and that public money is safeguarded, properly accounted for, and used economically, efficiently, and effectively. The Council also has a duty under the Local Government Act 1999 to make arrangements to secure continuous improvement in the way its functions are exercised having regard to economy, efficiency, and effectiveness.
The framework within which the Council operates and through which authority is delegated is the Constitution. This document forms the basis of the control environment that includes, among other things, the process for decision making, the Scrutiny Function and the Financial Regulations and Procedure Rules relating to Contracts and Property. This document is widely available to staff and citizens as a whole in so far as it may be accessed via the Council web site, it is on the Council intranet and is also available in hard copy. In this way the Council seeks to make its procedures open and transparent.
In discharging its overall responsibility the Council is also responsible for ensuring that there is a sound system of internal control that facilitates the effective exercise of its functions and which includes arrangements for the management of risk.
To this end, Enfield Council has approved and adopted a Local Code of Corporate Governance, which is consistent with the principles and reflects the requirements of the CIPFA/SOLACE Framework “ Corporate Governance in Local Government: A Keystone for Community Governance”.
The local code relates to the appropriate management and reporting arrangements, which the Council has in place, to enable it to satisfy itself that its approach to Corporate Governance is both adequate and effective.
These arrangements give the Chief Finance Officer (the Director of Finance and Corporate Resources) and the Monitoring Officer (Borough Secretary) responsibility for:
• Overseeing the implementation and monitoring the operation of the Local Code.
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• Reviewing the operation of the Local Code in practice.
The Monitoring Officer holds monthly meetings with the S151 officer, the Chief Executive, Assistant Director (Audit and Risk Management) and the Borough Solicitor to review matters relating to corporate governance including the local code.
In addition, the Assistant Director (Audit and Risk Management) has been given the responsibility to review the arrangements independently and report annually to the Audit Committee, to provide assurance on the adequacy and effectiveness of the Local Code and the extent of compliance with it.
The Audit Committee terms of reference require that these reports are submitted to them for their consideration. The Audit Committee has determined a workplan and meet on a regular basis throughout the year.
2. PURPOSE OF THE SYSTEM OF INTERNAL CONTROL
The system of internal control is designed to manage risk to a reasonable level rather than to eliminate all risk of failure to achieve policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness. As a part of embedding risk management throughout the Council all service centre plans contain an assessment the risks facing them. The system of internal control is based on an ongoing process designed to identify and prioritise risks to the achievement of the Council’s policies, aims and objectives, to evaluate the likelihood of those risks being realised (and impact should they be realised), and to manage them efficiently, effectively, and economically.
The system of internal control has been in place at the London Borough of Enfield for the year ended 31 st March 2006 and up to the date of approval of the annual report and accounts.
3. THE INTERNAL CONTROL ENVIRONMENT
The key elements of the internal control environment are summarised below:
Establishing & monitoring of the Authority’s objectives
The Council’s aims and objectives are set out in documentation including “Putting Enfield First”, the Community Strategy and the Improvement Plan. The Budget and the Medium Term Financial Plan underpin these aims by ensuring that there are sufficient resources are available to deliver them. All of these documents are widely available through the Internet, the Intranet and in hard copy.
Regular monitoring of the progress towards achieving the aims and objectives is undertaken and reported to the Corporate Management Board and Cabinet.
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The Council is committed to consulting residents and customers so that their views directly inform the priorities for action and the planning processes. The consultation strategy (Engaging Enfield) and good practice guide set the overall framework and guidance within which staff operate when undertaking consultation and engagement activities. We have developed an online register of planned consultation activities and are improving the range of consultations available on the Web.
Our main methods of consultation include: • Presentations to stakeholders at area forums and scrutiny panels • An annual residents’ survey conducted by Ipsos MORI; • A regular programme of Citizen Panel consultation; • On-line consultation via the Enfield Council web-site; • Triennial BVPI surveys (General, Tenants, Planning, Libraries and Revenues and Benefits) • Service specific customer feedback mechanisms, as well as conferences, surveys and focus groups
The policies consulted include all major policies, which includes the budget.
Policy and decision making
Enfield Council has an agreed Constitution which details how the Council operates, how decisions are made and the procedures that are to be followed to ensure that these are efficient, transparent and accountable to local people. The Executive is responsible for most decisions. The Executive is made up of the Leader and a Cabinet appointed by the Council. Major decisions are published in advance in the Executive’s Forward Plan, and will generally be discussed in a meeting open to the public. All decisions must be in line with the Council’s overall policies and budget and to this end comments must be received from Finance and Legal staff before any decision is taken. Any decisions the Executive wishes to take outside the budget or policy framework must be referred to Council as a whole to decide. Scrutiny panels and the Overview and Scrutiny Committee monitor and challenge the work of the Executive. A “call-in” procedure allows Scrutiny to review Executive decisions before they are implemented, thus presenting challenge and the opportunity for a decision to be reconsidered.
The Constitution itself is subject to ongoing review by the Constitution Review Group, consisting of leading members of both political parties.
Compliance
Enfield Council has a duty to ensure that it acts in accordance with the law and various regulations in the performance of its functions. It has developed policies and procedures for its officers to ensure that, as far as is possible, all officers understand their responsibilities both to the Council and to the public. The Constitution contains two key documents, Financial Regulations and the Contract Procedure Rules, which are available to all officers via the Council’s Intranet. The Constitution is available to the public on the Council’s website.
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These documents outline the procedures that must be complied with when dealing with financial matters and when engaging in procurement of any kind. They also need to be considered in light of the decision making processes which are also contained in the Constitution, in particular the process for Key decisions. In addition to review functions such as internal audit it is the responsibility of all officers to ensure compliance with this framework of control.
The Audit Committee receives reports on compliance from Internal Audit through its normal business and is charged with considering these matters Risk Management.
In 2005 the Council adopted an updated Risk Management Strategy. This document shows the role both Members and Officers have in the identification and minimisation of risk. Significant corporate risks are recorded in a Risk Register and are then subject to a quarterly review. Departmental / Service Centre registers hold details of all other risks .
Risk Management
The Risk Management Working Group, chaired by the Chief Executive, leads risk management. The Group produces an annual statement of key risks and opportunities facing the Council. Risk assessments are undertaken with service managers on a rolling programme basis. These risk assessments and action plans are an integral part of service planning to ensure that they are fully embedded in assessing the risks to service delivery. The assessments are framed in such a way as to consider controls, shortcomings, and action plans for improvement. The Action Plans are monitored at service centre level by managers and the Risk Manager and corporately by the Working Group and the Audit Committee. A leading consultant in risk management has provided risk management training to Members.
All service plans have been drawn up in a way that ensures that risks to service delivery are considered as a part of the planning process, this supports the overall risk management control.
Economic, effective and efficient use of resources.
Significant improvements have been embedded in the Council’s budgetary control process, as noted by the Audit Commission and the IDEA inspection, these will ensure that financial resources are used to their best advantage and decisions can be based on sound information.
The Council’s medium term financial planning and budget priorities are driven by the aims and objectives set out in the Improvement Plan. In this way the Council can ensure that resources are allocated to deliver the corporate priorities.
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The priorities stated in the improvement plan are reflected in the Departmental Plans and the Service Centre Plans all of which are underpinned by financial plans.
The Council has adopted the Best Value Accounting Code of Practice (BVCOP). This facilitates the comparison of costs with those of other Councils.
The Council uses financial information published by CIPFA together with performance data to produce comparisons of:
• Budgeted expenditure. • Unit costs, and • Performance information.
The costs and performance information for Enfield is compared with those of other Outer London Boroughs and with the CIPFA family and plays a key part in the Council’s overall programme to deliver Value for Money services
The data links costs with performance and is used to identify services that appear to compare less well in Value for Money terms and prioritise a list of services requiring more detailed reviews.
In addition many services use other benchmarking and comparative techniques. Best value reviews and inspections as well as internal/external audit reports are used to identify and highlight value for money opportunities.
Financial Management
Responsibility for ensuring that an effective system of internal financial control is maintained and operated rests with the Section 151 Officer (the Director of Finance and Corporate Resources). The systems of internal financial control provide reasonable though not absolute assurance that assets are safeguarded, that transactions are authorised and properly recorded, and that material errors or irregularities are either prevented or would be detected within a timely period.
Internal financial control is based on a framework of management information, financial regulations and administrative procedures, which include the segregation of duties, management supervision and a documented system of delegation and accountability. Ongoing development and maintenance of the various processes may be the responsibility of other managers within the Council, but subject to overall management and approval by the Director of Finance and Corporate Resources. In particular, the process in 2005/06 included:
The setting of an annual revenue budget, a 3 year revenue plan and a 4 year capital programme within the context of a medium term financial plan. Towards the end of 2005/6 a revised medium term financial plan was
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approved that included 5 year revenue and capital programmes, commencing 2006/7 .
Monthly monitoring and reporting to cabinet of actual income and expenditure and projections to year end against the annual revenue budget.
Monthly monitoring of the progress and cost of projects in the capital programme and quarterly reporting to Cabinet. Capital monitors are also regularly reported to Lead Members.
Setting of financial and performance targets, including the prudential indicators which are monitored monthly and reported to the Director of Finance and Corporate Resources. They also form a part of the quarterly capital report to Cabinet.
Identification of key budget risks in service areas, and the allocation of finance staff resources to the areas of highest risk.
Concentration of effort on management of sundry debtors has borne fruit with a substantial reduction in year end debtor balances.
Monthly meetings at Director level to review budgets have continued to further strengthen the monitoring process.
The production of a finance manual during the year and publication on the intranet has also strengthened the finance function throughout the authority.
Internal Audit
The Internal Audit function reports directly to the Director of Finance and Corporate Resources and the Council has a well established Audit Committee, which receives reports on the work of Internal Audit.
To ensure that the Head of Internal Audit enjoys full independence there are monthly Monitoring Officer meetings where he can raise his concerns and he has access to the Audit Committee.
It is the responsibility of internal audit to provide assurance and advice on the internal control system of the Council to the Corporate Management Board and Members. Internal Audit reviews and appraises the adequacy, reliability and effectiveness of internal control within systems and recommends improvement. It also supports management in developing systems, providing advice on matters pertaining to risk and control. The controls created by management are evaluated to ensure:
Council objectives are being achieved; Economic and efficient use of resources; Compliance with policies, procedures, laws and regulations; The safeguarding of Council assets; and The integrity and reliability of information and data
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Internal Audit also has responsibility for investigating all reported financial irregularities and these are reported to the Monitoring Officer and to the Audit Committee at the appropriate time. In all cases action is taken which can include the reference to the police and or disciplinary action.
In 2005/6 the internal audit division participated in the rewriting and of the Councils Contract Procedure Rules that were approved by Council at it’s February meeting. Internal Audit have also been involved in the subsequent training relating to those rules for all Council officers involved in procurement.
Furthermore it will also be a key contributor to the on going review of these rules that will take place on an annual basis.
The Housing benefit fraud investigation team has also made significant progress during the year and is now achieving results which are comparable with the best performing teams in London.
Performance Management
The Council has a well defined performance management framework and clear targets that are published in the Best Value Performance Plan. The Council measures its performance against a range of national and local performance indicators and monitors all indicators on a quarterly basis at Cabinet, the Corporate Management Board and Best Value Cabinet Sub Committee.
The monthly and quarterly monitoring and reporting on performance has been reviewed to deliver a more focussed approach to dealing with lower performing indicators.
Monthly monitoring of high risk and key priority indicators is carried out by departmental management teams and submitted to the Corporate Management Board for discussion and challenge. Improvements have been made to the Council’s target setting processes, by developing a formal protocol for the setting and challenging of targets.
Reports are also submitted regularly to Star Chamber on the position with respect to key performance indicators and proposals for improvement.
The Council’s service centre planning process is an effective management tool that integrates risk management. It links service centre objectives to the departmental and corporate objectives within the Improvement Plan. A new appraisal scheme is now in place that links individuals’ performance and objectives into the service planning process.
The Council now provides performance guidance cards for Cabinet Members and publishes benchmarking data for national comparisons. Inter Authority benchmarking information is also used for service performance and cost comparison.
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The Council carries out at least one cross cutting best value review each year; however smaller scale internal reviews take place throughout the Council as part of the Council’s Value for Money initiatives.
As stated elsewhere in this statement revenue budget performance is reported on a monthly basis to Cabinet.
4. REVIEW OF EFFECTIVENESS
The Council has responsibility for conducting, at least annually, a review of the effectiveness of the system of internal control. This review is informed by the work of the internal auditors.
The Audit Committee receive periodic updates from internal audit on the assurance which can be placed against various systems and processes during the year, along with an annual assessment at the year end
Based on the work undertaken by them during the year, internal audit considers whether positive steps are being taken in all those areas where a Risk category 1 finding has been identified during an audit review. A risk category 1 finding is deemed to be the highest level of risk identified.
Furthermore the Audit Committee also consider reports on any Risk Category 1 finding as a part of its work for the year.
• The work of managers within the Council. This work is completed as a part of the service centre management. It supports the work of the departmental management teams in so far as they review all risks within the department.
• The external auditors in their annual audit letter and other reports. The annual audit letter is considered by the Audit Committee as a part of its normal work. and presented to Cabinet by the District Auditor .
• Comments by other review agencies and Inspectors, all inspection reports are reviewed by members.
5. SIGNIFICANT INTERNAL CONTROL ISSUES
Attached in a schedule to this document is a summary of the Internal Control Issues raised in last year’s statement and the action taken with respect to them.
Furthermore the Internal Control Issues identified this year have been included along with proposed action to be taken to remedy them.
The control issues identified have arisen from the various reviews that have taken place throughout the year and these will include the following:
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Internal Audit Risk category 1 findings Corporate Risk Register External Audit reviews.
An interim report on progress relating to these issues will be submitted to the Audit Committee at its meeting in January 2007.
We are satisfied that the action plans prepared for each of the above matters will address the need for improvements that have been identified during the year and we will review their implementation and operation as a part of the process for the next statement.
Signatures
………………………………………………. Leader
………………………………………………..Chief Executive
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Significant Internal Control issues
2004/5 Internal Control Issues Action taken Key financial systems are being Work progressing on these documents. identified and documented jointly with the Audit Commission. This will further improve the position concerning key reconciliations that are critical to the Council’s control environment. The development of schemes of New Contract Procedure Rules delegation for specific functions at the introduced and new schemes of operational level will improve the delegation drawn up accordingly control of activities undertaken pursuant to our statutory obligations. Consideration of the establishment of The matter has been kept under review a central debt collection team will be as a part of the overall debt review undertaken during the year to further policy. improve the position. Officers are working towards merging the operations when it is most beneficial to the Council The development of a central New procurement function now procurement function within the established and new Contract Council will promote the use of Procedure Rules introduced. central contracts in order to generate savings and improve compliance with Contract Procedure Rules. Action plans for areas where, Action plans agreed for all Risk following an Internal Audit review, category 1 audit findings and action has assurance could not be given. These been taken to remedy the findings. areas are: Council Tax computer and systems, Matters reported to Audit Committee First Housing, review of server failure September 2005. Client Monies Leaving care grants Moorefield Family centre On/Off street parking Catering, Cleaning and Transport Civic building cleaning contract Novell network infrastructure SAP financials Telecommunications Systems
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2005/6 Internal Control issues Proposed Action Internal Audit reviews Housing Benefits Overpayments Action plans agreed with managers Housing Voids responsible and being progressed. Final Millfield Arts Centre position will be reported to Audit City learning centre Committee in September 2006 Social Services Invoicing and Collection SAP HR Payroll system.
Corporate risk register The Council has agreed to establish an Decent homes standard. ALMO and work is underway to submit a bid for funding to the Government.
Position with respect to CRB checks is Vulnerability of clients in care, failure being dealt with by the Head of HR and to carry out CRB checks. procedures are being put in place to safeguard the Council.
Project manager appointed to create Business Continuity. coherent Business Continuity plan for the Council. Structure to be in place by late 2006. External Audit reviews
Develop and embed initiatives to Value for money Board set up to steer demonstrate further value for money initiatives through to implementation. in services.
Enhance focus on housing, The Council has developed action plans regeneration and social care for in response to these inspections and adults. reviews.
Implement the action plan that was Action plan has now been agreed and is produced by the Audit Commission being implemented. following its review of the SEN transport contract award.
Establish and implement plans to See above actions. deliver the Arms Length Management Organisation and the Decent Homes standard.
Capital asset disposals. Audit Commission review currently taking place.
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MATRIX SHOWING INTERNAL CONTROL ELEMENTS OF THE CONTROL ENVIRONMENT Element of Internal How defined in How monitored Outcomes Control Statement of Internal Control Establishing and Community Regular reports to External review, monitoring Strategy, Corporate reports to members Authority’s B.V Performance Management Board by those bodies, Objectives plan, and Cabinet including Audit Improvement plan, Commission Budget Action plans to address weaknesses. Policy and decision Constitution Scheme of Call in procedure, making delegated decision Non compliance making reported to audit Forward Plan committee Compliance Financial Internal Audit All decision reports regulations Decision reports contain appropriate Contract Procedure include Financial financial and legal Rules Legal and property comments. This Decision Reports implications means that all decisions are taken on the basis of complete information. Risk Management Local Code of Risk management Risks are reduced Corporate Working Group. Governance All service centres Annual report to Risk management have risk Audit Committee. Strategy assessment Major projects are now risk assessed. Internal audit now addresses the risks in various centres. Economic Service Centre Regular reports to Improved VFM. effectiveness, use plans CMB and Cabinet. of resources Department Plans Service delivery. Financial plans Options appraisal process. Financial Clearly defined Audit committee Action plans from Management framework of receive reports on external audit. internal Control critical items. Also closely External audit monitored by process. Internal audit and matters are reported to Audit Committee. Internal Audit Annual Audit Plan Reports to Audit Audit Committee Anti Fraud strategy Committee on monitor areas of Page 124 Appendix 2
MATRIX SHOWING INTERNAL CONTROL ELEMENTS OF THE CONTROL ENVIRONMENT performance of non compliance, Internal Audit e.g. Risk category 1 division. audit reports.
Performance Service Centre Regular monitoring Performance management management by Departmental indicators Management published annually. teams. CMB receive Improvement in reports, Star key areas. Chamber monitor PI’s.
Page 125 Agenda Item 7
MUNICIPAL YEAR 2006/2007 REPORT NO. 29
Agenda – Part: Item: 7 MEETING TITLE AND DATE: Audit Committee Subject: Internal Audit out turn report for June 29 th 2006 2005/6 and the assurance statement.
REPORT OF: Wards: All Assistant Director of Finance and Corporate Resources, Audit and Cabinet Member consulted: Risk Management.
Contact officer and telephone number: Ian Sadler Ext. 4644
1. EXECUTIVE SUMMARY
1.1 This report deals with two main issues, it summarises the performance and effectiveness of the Internal Audit Division for the year 2005/6. It also contains an opinion on the internal control environment, which is based on the internal audit work which has been carried out during that year.
1.2 The performance and effectiveness of the Internal Audit Division is measured by using a number of key indicators which compare the planned activity to the actual activity, these include the amount of time spent on the individual heads of activity with the amount of time that was planned, the number of reports pro duced and the percentage of recommendations to improve controls that were implemented. In addition to these quantitive measures quality indicators are also included.
1.3 The opinion on the internal control environment is based on the internal audit work carried out during that year using the reports and agreed action plans that have been produced. It is a requirement of the CIPFA Code of Practice for Internal Audit that such a statement is prepared.
1.4 This work forms a part of the overall control environment of the Council and supports the Statement of Internal Control.
2. RECOMMENDATIONS
2.1 That members note the performance of the Internal Audit Division as described in the report.
2.2 That members note the opinion provided on the internal control environment contained within the report.
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3. BACKGROUND
Performance and effectiveness of the Internal Audit division
3.1. The Internal Audit Division plans and carries out its duties in accordance with appropriate professional standards and records the amount of time it spends on each activity.
3.2 The table below shows the number of days planned and spent against various activities for 2005/6 and the number of days planned for 2006/7.
2005/06 2005/06 2006/07 GROSS DAYS AVAILABLE PLAN ACTUAL PLAN ALLOCATION 4698 4698 4698 Less vacancies 150 135 GROSS 4548 4698 4563 STATUTORY AUDITS including Compliance audits, Establishment audits, Systems reviews, Contract audits, Computer environment 1391 1539 1646
Financial Consultancy and Advice, inc. Best Value 258 339 178 Fraud and Irregularities inc. Housing Benefit Management 905 860 883 Best Value 90 8 Core and Client 729 740 40 Risk Management 192 2174 203 2150 700 2020 Productive Days 3565 3689 219 3666 Support Days 983 1009 897 GROSS 4548 4698 4563
3.3 The table shows that 150 additional days were available during the year because of the lack of vacancies during the year. The time spent on productive audit work was 3689 days against a planned 3595 days and increase of 124 days and the non productive days increased by 26 days.
3.4 Overall 78% of the total time available was spent on productive audit activities which was in line with the planned rate. This is comparable with the performance of other local authorities internal audit divisions as evidenced by benchmarking studies.
3.5 The remaining 22% of our time was spent on support days. Contained within this allocation are items such as training, annual leave, sickness and other time which is not spent Page 127
directly on audit activity. It should be noted however that a number of staff have during the year undertaken training courses leading to professional qualifications which will further improve the quality of the audit work being undertaken.
3.6 During the year 148 internal audit reports were produced which includes follow up reports. In addition to this work six other consultancy projects were undertaken where internal audit input was required in order to ensure that secure procedures were put in place. This consultancy work does not always lead to the production of a report but can nevertheless be time consuming.
A summary of the reports produced and the individual level of assurance that could be given on each piece of work is attached at appendix 1 to this report.
3.7 The distribution of time within the activities varied between tasks in accordance with the risks identified but within overall terms the planned activities were achieved, and all key systems were reviewed.
3.8 From our follow up work we have been able to establish that All risk category1 findings have either been implemented or are in the process of being implemented. 89% of the recommendations contained in the all the other reports have been implemented, with the remainder, in the process of being implemented. Our follow up process will ensure that these remaining recommendations have been implemented.
Quality measures
3.9 A satisfaction questionnaire is produced at the end of each audit and the results form those returned are as follows; Very good/ Good 81% Adequate 18.3% Poor 0.7%
3.10 The Internal Audit Division is ISO 9001/2000 quality accredited, and has been since 1995. During 2005/6 the Division was reviewed by external quality consultants as a part of the on going quality process. It should also be noted that the whole division of Internal Audit and Risk Management Division was reviewed and re accredited in June 2006.
Opinion on the Internal Control Environment.
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3.11 The Accounts and Audit regulations 2003,as amended, have established requirements relating to the systems of internal control within local authorities and the need to produce a Statement of Internal Control in addition to the annual accounts of the Council.
3.12 The Internal Audit Division undertakes an independent review of the systems of internal control with the objective of providing assurance on the control environment detailed within the Statement of Internal Control.
3.13 Consequently the work of the Internal Audit Division was planned and undertaken to review the controls within the Council’s major systems.
3.14 As a result of the audit work undertaken a reasonable level of assurance can be given that the systems of Internal Control are operating to a satisfactory standard. The exceptions to this are the risk category 1 reports which are identified in appendix 1 to this report. Risk category 1 reports are those which have identified weaknesses in the highest category and consequently no assurance can be given on the particular systems under review.
3.15 The risk category 1 findings in themselves clearly show key weaknesses and reference is made to them within the Statement of Internal Control as items to be dealt with during the current year.
3.16 The types of internal audit report produced are shown below:
Compliance audits are carried out on service centres and they review compliance with controls in the area of procurement, income, paying people, budgetary control and control of assets.
Systems audits are reviews of the controls operating within any given system. The reviews highlight any weakness in controls which exist in those systems as they are operated.
Establishment audits Are those audits which we carry out in Council establishments primarily schools but they also include residential establishments.
3.17 An opinion has been formed in respect of each of the audits carried out on the level of control assurance which is based on the number and severity of findings contained in report. The position with respect to each audit report is shown in Page 129
the attached schedule.
3.18 The purpose of an efficient internal control environment is that managers and the Council can be assured that systems that have been put in place can be relied upon to identify problems around the delivery of service centre and Council objectives. There are always risks associated with delivery of service objectives. Procedures and clearly identified controls within these procedures will identify these risks and incorporate risk reduction proposals. Our system of risk categorisation is based on the degree to which the internal control environment has been debased so that the potential achievement of objectives cannot be known or remedied without the implementation of our agreed management action plans. At its simplest level a risk category 1 finding will be applied to a significant financial or other internal system where:
a) no documented procedures are in place and therefore no information is in place for management to rely on ; or,
b) documented procedures are in place but not being followed.
Lesser risk categories than 1 will be applied to less significant systems or where remedies are not an immediate requirement to the success of the control environment.
The opinion given on each system tested will be one of, Full assurance, substantial assurance, limited assurance or nil assurance.
Full assurance will indicate that there were very few findings of control weaknesses from the audit, and those that were identified would have been of lesser significance.
Substantial assurance is one stage down from this and will reflect that slightly more findings were noted and also possibly at a higher risk level.
Limited assurance shows that there was a higher level of findings of control weaknesses and at a greater risk level than was acceptable. Action is needed here to remedy the problems before they get out of hand.
Nil assurance here is the most worrying of all since it usually means that a risk category 1 finding has been Page 130
identified and the matter requires urgent action to remedy the problem.
3.19 Each audit report when issued is produced with an agreed action plan which is designed to remedy the control weaknesses found and to improve the level of assurance by removing those weaknesses.
3.20 For those audits which contain a risk category 1 finding, and therefore a nil assurance, a separate report will be submitted to the September meeting of this committee where an individual consideration of those reports and their associated action plans will take place. At that meeting the remedial action that has been taken will be considered to ensure that the control weaknesses identified have now been remedied and the level of assurance can be re-evaluated.
4. ALTERNATIVE OPTIONS CONSIDERED
There are no other options which can be considered as these matters need to be reported to the Audit Committee.
5. REASONS FOR RECOMMENDATIONS
These items are being brought to the attention of the Audit Committee in line with the requirements of the accounts and Audit regulations 2003 , as amended.
6. COMMENTS OF THE DIRECTOR OF FINANCE AND CORPORATE RESOURCES AND OTHER DEPARTMENTS
6.1 Financial Implications There are no specific financial implications relating to this report. Any financial implications that may arise from the audit reports are such that they will be dealt with as part of the action plans of those reports.
6.2 Legal Implications
The Accounts and Audit regulations 2003,as amended, issued pursuant to the Audit Commission act 1998, have established requirements related to systems of internal control and the review and reporting of those systems. The authority should conduct a review at least once a year. Page 131
The report has been completed in accordance with those regulations . The main purpose of this legislation is to provide for greater accountability, transparency and openness in the provision of information and providing for improved access to accounts by electors, and to encourage consistent standards by requiring proper accounting practices to be followed , and by encouraging authorities to take corporate responsibility for their decisions.
This report forms a part of that reporting process and although there may be separate legal implications pursuant to each of the individual audit reports contained in this report those implications will be considered when any action is taken.
7. PUTTING ENFIELD FIRST
The actions contained in this report will promote excellent services.
Background Papers
Page 132
This page is intentionally left blank Page 133 REPORTS ISSUED 2005/06 APPENDIX 1
Risk Category Assurance Audit Name 1 2 3/4 Rating
COMMUNITY, HOUSING & ADULT SOCIAL SERVICES
SYSTEMS AUDIT FIN02003/2005 NNDR - COMPUTER & SYSTEMS 9 4 SUBSTANTIAL FIN02025/2005/03 HOUSING BENEFITS- OVERPAYMENTS 2 11 NIL HOU02002/2004 LEASEHOLDER RECHARGES 7 14 SUBSTANTIAL SOC02022/2005 GRANTS 8 7 SUBSTANTIAL SOC02023/2005 Older People Intermediate Care Team (Hospital Social Work) 1 4 FULL CHSS02003/2006 HOUSING ASSISTANCE 4 2 FULL CHSS02023/2006 DIRECT PAYMENTS 2 2 FULL CHSS02024/2006 HOME MEALS 7 7 SUBSTANTIAL CHSS02027/2006 CLIENTS MONIES 6 SUBSTANTIAL CHSS02081/2006 HOUSING BENEFITS-APPEALS AND COMPLAINTS 2 3 FULL CHSS02081/2006/01 HOUSING BENEFITS-NEW CLAIMS PROCESSING 4 1 FULL CHSS02081/2006/02 HOUSING BENEFITS-SECURITY OF ADMIN 5 1 FULL CHSS02081/2006/03 HOUSING BENEFITS-COUNTER FRAUD 10 7 SUBSTANTIAL CHSS04004/2006 ASSIST - CARE MANAGEMENT IT 7 2 SUBSTANTIAL CHSS05013/2006 PARTNERING CHSS05014/2006 DOVER AND WALMER HOUSES 11 LIMITED CHSS06004/2006 HOUSING VOIDS 1 9 3 NIL CHSS06004/2006/01 HOUSING VOIDS 2 5 2 NIL
ESTABLISHMENT AUDIT CHSS03003/2006 WILLIAM PREYE DAY CENTRE 4 2 FULL CHSS03007/2006 REARDON COURT 3 2 FULL CHSS03013/2006 CARTERHATCH SUPPORTED TENANCIES 9 3 SUBSTANTIAL
EDUCATION CHILDREN'S SERVICES & LEISURE
COMPLIANCE AUDIT ECSL01007/2006 SECONDARY TUITION CENTRE 2 13 FULL Page 134 REPORTS ISSUED 2005/06 APPENDIX 1
Risk Category Assurance Audit Name 1 2 3/4 Rating SYSTEMS AUDIT EDU04001/2005 PUPIL DATABASE 3 8 FULL ECSL05013/2006 DURANTS SCHOOL - CONTRACT REVIEW SPECIAL REVIEW ECSL05015/2006 CITY LEARNING CENTRES 1 2 NIL ECSL02002/2006 SCHOOL SPORT GRANT CLAIMS SPECIAL REVIEW ECSL02021/2006 MILLFIELD ARTS CENTRE 1 14 14 NIL ECSL02034/2006 SECTION 17 PAYMENTS 6 5 SUBSTANTIAL ECSL02033/2006 LEAVING CARE GRANTS 1 5 FULL ECSL02011/2006 RECOUPMENT 3 1 FULL ECSL02055/2006 SURE START 22 3 LIMITED ECSL06001/2006/01a LSC AUDIT - ST ANNES ECSL06001/2006/01b LSC AUDIT - ALBANY ECSL06001/2006/01c LSC AUDIT - LATYMER ECSL06001/2006/01d LSC AUDIT - SOUTHGATE ECSL06001/2006/01e LSC AUDIT - CHACE ECSL06001/2006/01f LSC AUDIT - ENFIELD COUNTY ECSL06001/2006/02a PENSION CONTRIBUTION REVIEWS - ALBANY SPECIAL REVIEW ECSL06001/2006/02b PENSION CONTRIBUTION REVIEWS - ENFIELD GRAMMAR SPECIAL REVIEW ECSL06001/2006/10 UNPAID INVOICES INVESTIGATION 4 EDU06005/2005/07 RECOUPMENT RECOVERY ECSL06001/2006/06 SIMS REVIEW - ENFIELD GRAMMAR
ESTABLISHMENT AUDIT EDU03073/2005 ST ANNES 25 11 LIMITED ECSL03006/2006 BUSH HILL PARK 6 7 SUBSTANTIAL ECSL03013/2006 CHURCHFIELD 5 9 FULL ECSL03019/2006 EVERSLEY 2 9 FULL ECSL03020/2006 FIRS FARM 10 11 SUBSTANTIAL ECSL03021/2006 FLEECEFIELD 1 12 FULL ECSL03022/2006 FORTY HILL CE 15 12 LIMITED ECSL03023/2006 FREEZYWATER ST GEORGE CE 22 10 LIMITED ECSL03024/2006 GALLIARD 3 11 FULL ECSL03025/2006 GARFIELD 10 11 SUBSTANTIAL ECSL03027/2006 GRANGE PARK 4 6 FULL ECSL03028/2006 HADLEY WOOD 10 12 SUBSTANTIAL ECSL03033/2006 HIGHFIELD PRIMARY 9 16 SUBSTANTIAL ECSL03035/2006 HOUNDSFIELD 5 14 FULL ECSL03036/2006 KEY MEADOWS PRIMARY 5 10 FULL ECSL03041/2006 OUR LADY OF LOURDES 9 8 SUBSTANTIAL ECSL03047/2006 ST ANDREWS ENFIELD 6 11 SUBSTANTIAL ECSL03054/2006 ST MARYS 5 11 FULL ECSL03056/2006 ST MICHAELS 7 FULL ECSL03058/2006 ST MONICAS 3 15 FULL ECSL03060/2006 STARKS FIELD PRIMARY 2 13 FULL ECSL03061/2006 SUFFOLKS 13 14 LIMITED Page 135 REPORTS ISSUED 2005/06 APPENDIX 1
Risk Category Assurance Audit Name 1 2 3/4 Rating ECSL03062/2006 TOTTENHALL INFANT 3 9 FULL ECSL03063/2006 WALKER 4 13 FULL ECSL03153/2006 OAKTREE 9 8 SUBSTANTIAL ECSL03155/2006 WAVERLEY 2 9 FULL ECSL03301/2006 ENFIELD NORTH LIBRARY GROUP 7 8 SUBSTANTIAL ECSL03404/2006 CROYLAND 11 7 LIMITED ECSL03501/2006 BRIMSDOWN CHILDCARE CENTRE 1 FULL
ENVIRONMENT STREET SCENE & PARKS
COMPLIANCE AUDIT ENV01014/2005 CATERING TRANSPORT AND CLEANING SERVICES* 2 9 4 ESSP01007/2006 PEST CONTROL 2 1 FULL
SYSTEMS AUDIT ESSP02011/2006 CATERING 6 2 SUBSTANTIAL ESSP02041/2006 ROADS ADOPTION SECTION 38 & 278 9 1 SUBSTANTIAL ESSP02043/2006 BUILDING CONTROL 7 2 SUBSTANTIAL ESSP05002/2006 CURRENT CONTRACT (VERTICAL) AUDITS 3 FULL
FINANCE & CORPORATE RESOURCES
COMPLIANCE AUDIT FICR01015/2006 OFFICE SUPPORT SERVICES 12 LIMITED Page 136 REPORTS ISSUED 2005/06 APPENDIX 1
Risk Category Assurance Audit Name 1 2 3/4 Rating SYSTEMS AUDIT COR05015/2005 MINOR CONTRACTS 1 2 FULL COR05016/2005 PROPERTY DISPOSALS 5 1 FULL FIN02038/2005 CORPORATE PURCHASING CARDS 21 LIMITED FIN04011/2005 SAP FINANCIALS APPLICATION REVIEW* 4 10 2 FICR04001/2006 SAP FINANCIALS - EXTENDED FOLLOW-UP Follow-up FICR04004/2006 SAP HR APPLICATION REVIEW 1 7 NIL FICR02108/2006 CASHIERS RECONCILIATION 1 5 FULL FICR02148/2006 CAR LOANS 11 5 LIMITED FICR02201/2006 LEGAL SERVICES 4 2 FULL FICR02202/2006 MAYORS FUND ACCOUNTS N/A FICR02211/2006 CAPITAL ACCOUNTING 3 FULL FICR05010/2006 RESPONSIVE REPAIRS 12 5 LIMITED ECSL05011/2006 SERVICE CONTRACTS 10 2 SUBSTANTIAL FICR06001/2006/02 CHEQUE PRODUCTION VISIT (CFH) FICR02149/2006 SALARY OVERPAYMENTS 5 FICR02121/2006 CENTRAL RECOVERY AND COLLECTION 5 3
* Reports issued in this financial year but risk category 1 findings d ealt with last year. Page 137 REPORTS IN DRAFT / UNDER DISCUSSION APPENDIX 1
Audit Name
COMMUNITY HOUSING & ADULT SOCIAL SERVICES
CHSS02001/2006 HOUSING RENT ACCOUNTS RECONCILATION CHSS02013/2006 HOUSING ASSESSMENT TEAM CHSS02041/2006 ASSESSMENTS CHSS02042/2006 INVOICING & COLLECTION CHSS02071/2006 NNDR - COMPUTER & SYSTEMS CHSS02076/2006 COUNCIL TAX - COMPUTER & SYSTEMS
EDUCATION CHILDREN'S SERVICES & LEISURE
ECSL02041/2006 CAPITAL GRANT CLAIMS
ENVIRONMENT STREET SCENE & PARKS
ESSP02002/2006 HIGHWAYS MAINTENANCE ESSP02021/2006 ON / OFF STREET PARKING
FINANCE & CORPORATE RESOURCES
FICR02101/2006 CORPORATE BUDGETARY CONTROL FICR02102/2006 CASH / BANK RECONCILIATIONS FICR02105/2006 PENSION INVESTMENT FUND FICR02107/2006 BACS / APS CONTROL FICR02123/2006 FMS BUDGETARY CONTROL FICR02142/2006 PAYROLL - STARTERS + LEAVERS FICR02143/2006 PAYROLL - DEDUCTIONS & VARIATIONS TO PAY Page 138 ADDITIONAL WORK CARRIED OUT APPENDIX 1
Audit Name
COUNCIL WIDE ACTIVITY
COUN00002/2006 CONTRACT PROCEDURE RULES COUN00004/2006 OBJECTIONS TO COUNCIL ACCOUNTS
COMMUNITY HOUSING & ADULT SOCIAL SERVICES
CHSS06002/2006 REVENUES AND BENEFIT REPLACEMENT(Pericles) CHSS06001/2006/01 iWORLD / FIRST HOUSING REPLACEMENT PROJECT
EDUCATION CHILDREN'S SERVICES & LEISURE
ECSL06001/2006/08 FINANCIAL MANAGEMENT STANDARDS IN SCHOOLS
FINANCE & CORPORATE RESOURCES
FICR06001/2006/02 CHEQUE PRODUCTION. Page 139 Agenda Item 8
MUNICIPAL YEAR 2006/2007 REPORT NO. 30
Agenda – Part: 1 Item: 8 Committee Subject: Audit Committee – 29 th June 2006 Review of Terms of Reference of the Audit Committee REPORT OF: Director of Finance and Wards: ALL Corporate Resources Cabinet Member consulted: n/a Co ntact officer and telephone number: John Austin – 020 8379 4094 Bill Somerville – 020 8379 4605
1. EXECUTIVE SUMMARY
1.1 The Audit Committee received a report [no 200 26th October ‘05] in response to a recommendation of the Audit Commission’s Ethical Governance Audit to review the terms of reference of the Standards Committee and consider whether it should take on a wider and more pro-active role in the Council. Given the close relationshi p between the terms of reference of the Standards and Audit Committees, it is felt appropriate to consider both roles together.
1.2 The Audit Committee deferred consideration of the report until after the May Council elections.
1.3 The report was considered by the Standards Committee on the 21 st March 06, and their views are shown in 3.2.
1.4 An opportunity has been taken to incorporate recent advice from CIPFA on Audit Committees.
2. RECOMMENDATIONS
The Committee are asked to:
2.1 note the respective actual and proposed terms of reference as set out in Appendices A and B and, given the comments from the Ethical Governance Audit, suggest any changes they would wish to make.
2.2 Note the advice from CIPFA on terms of reference for Audit Committees.
2.3 comment on the current arrangement whereby Cabinet considers and monitors the Council’s Complaints and Ombudsman cases (see paragraph 3.4). - 1 - Page 140
3. BACKGROUND
3.1 Early in 2005, the Audit Commission undertook an Ethical Governance Audit to assess whether the Council’s arrangements for maintaining high standards of ethical behaviour are robust and comply with legislative requirements. This has previously been reported in detail to both the Audit and Standards Committees, plus Cabinet and Council.
3.2 The Standards Committee considered the Ethical Governance Audit recommendations at its meeting on the 21 st March ‘06 and agreed that its own Terms of Reference should only be added to “if the functions were necessary and appropriate for the Standards Committee to deal with”. In practice, therefore, the Standards Committee did not propose to seek to any transfer of responsibilities from the Audit Committee itself.
3.3 It is best practice that the Committee’s terms of reference are reviewed as circumstances change. Since the last review CIPFA have issued guidance on proposed terms of reference and the Accounts and Audit Regulations 2006. These have been incorporated into the suggested amendments.
3.4 Two of the matters referred to in the Ethical Governance Audit are currently within the remit of Cabinet, namely
• Corporate Complaints • Ombudsman Enquiries
Do the Committee wish to express a view about any change to this arrangement?
4. ALTERNATIVE OPTIONS CONSIDERED
To not address this matter would result in one of the recommendations of the Ethical Governance Audit remaining outstanding; nor would a periodic review be “best practice”.
5. REASONS FOR RECOMMENDATIONS
To implement a recommendation from the Ethical Governance Audit and to review the terms of reference of the Audit Committee on an ongoing basis.
6. COMMENTS OF THE DIRECTOR OF FINANCE AND CORPORATE RESOURCES AND OTHER DEPARTMENTS
6.1 Financial Implications
There are no financial implications arising from this report.
- 2 - Page 141
6.2 Legal Implications
The Audit Commission undertook the review to assess if the Council is complying with Part III of the Local Government Act 2000. There is also an ethics component in the CPA for 2005.
The recommendations in this report are intended to address a recommendation in the recent Ethical Governance Audit
7. PUTTING ENFIELD FIRST
Aim 5 – Supporting the delivery of excellent services
Background Papers
Audit Commission Ethical Governance Audit CIPFA publication “Audit Committees – Practical Guidance for Local Authorities”. Accounts and Audit (Amendment)(England) Regulations 2006
- 3 - Page 142
APPENDIX A
Audit Committee
COMPOSITION:
The Audit Committee is composed of seven Members (4 majority party and 3 minority party) with the Chairman and Vice Chairman being appointed at full Council. Membership to be drawn from the non-executive element of the Council and by law remain politically balanced.
QUORUM:
The quorum for the Committee is 3 Members.
PURPOSE:
The Council has established an Audit Committee whose primary purpose is to demonstrate best practice for corporate governance and to enable the Council to demonstrate its fiduciary responsibilities in preventing fraud and corruption, and arranging proper stewardship of public funds.
The Committee will meet four times per year, with dates included in the Council calendar. Further meetings can be arranged on an ad hoc basis as appropriate.
The Committee will operate within the requirements of the Access to Information Act but will at times have to consider certain ‘exempt’ issues in private session.
The Committee will report directly to full Council.
TERMS OF REFERENCE
Currently the Committee are asked to consider and/or approve items (a) – (s). Proposed changes are shown in the second column.
Current Proposed amendment (a) A summary of Internal Audit activity (actual (i) be satisfied that the Council’s and proposed) and the level of assurance assurance statement, including the it can give over the Council’s corporate statement on Internal Control, governance arrangements. properly reflect the risk environment and any actions required to improve it. (ii) Approve a summary of proposed internal audit activity, and monitor. (iii) a report from internal audit to support the Statement of Internal Control.
- 4 - Page 143
(iv) an opinion from internal audit on the level of assurance that the Committee can attach to the S.I.C. (b) A summary of Internal Audit reports awaiting response from Directors. (c) The Audit Commission’s Annual Letter (d) Specific Internal Audit reports agreed between the Chairman and the Director of Resources or the Chief Executive. (e) Specific Audit Commission reports agreed with the District Auditor. (f) Reports dealing with the management and New wording: To receive an annual performance of the Audit and Risk report on the effectiveness of the Management Division as the providers of system of internal audit Internal Audit Services. (g) A report from Internal Audit on agreed recommendations not implemented within a reasonable timescale. (h) To comment on the scope and depth of external audit work and to ensure it gives value for money. (i) To maintain an overview of the Council’s Constitution in respect of contract procedure rules and financial regulations. (j) Any matters referred to it from the Monitoring Officer’s meetings. (k) To review any issue referred to it by the Chief Executive or a Director, or any Council body for determination. (l) To monitor the effective development and To consider the effectiveness of the operation of risk management and Council’s Risk Management corporate governance in the Council. arrangements, the control environment, corporate governance and associated anti-fraud and anti-corruption arrangements. (m) To consider reports waiving contract procedure rules. (n) To monitor council policies on ‘Raising To be deleted. Incorporated into (l) Concerns at Work’ and the ‘Anti fraud and above. corruption strategy’. (o) To monitor the effectiveness of the internal To be deleted . Incorporated into work control systems. on S.I.C. (p) To commission work from internal audit. (q) To approve the Council’s annual Statement of Accounts. (r) To consider the Audit Commission’s Report on the Statement of Accounts [SAS 610] (s) Adopt Enfield’s Council Tax base.
- 5 - Page 144
APPENDIX B
Standards Committee
TERMS OF REFERENCE
Terms of reference for the Standards Committee:-
(a) to promote and maintain high standards of conduct by Councillors, Co- opted Members and Church and Parent Governor representatives;
(b) to assist Councillors, Co-opted Members and Church and Parent Governor representatives to observe the Members Code of Conduct;
(c) to advise the Council on the adoption or revision of the Members Code of Conduct;
(d) to monitor the operation of the Members Code of Conduct;
(e) to advise, train or arrange to train Councillors, Co-opted Members and Church and Parent Governor representatives on matters relating to the Members Code of Conduct;
(f) to grant dispensations to Councillors, Co-opted Members and Church and Parent Governor representatives from requirements relating to interests set out in the Members Code of Conduct;
(g) to deal with any reports from a case tribunal or interim case tribunal and any report from the Monitoring Officer on any matter which is referred to him or her;
(h) to discharge such other functions either general or specific as the Council may from time to time allocate to the Committee;
(i) to receive reports from the statutory officers under the Council’s whistleblowing policy.
- 6 - Page 145 Agenda Item 9 Audit and Inspection Plan
April 2006
Audit and Inspection Plan
London Borough of Enfield
Audit 2006/2007 Page 146
External audit is an essential element in the process of accountability for public money and makes an important contribution to the stewardship of public resources and the corporate governance of public services. Audit in the public sector is underpinned by three fundamental principles: x auditors are appointed independently from the bodies being audited; x the scope of auditors' work is extended to cover not only the audit of financial statements but also value for money and the conduct of public business; and x auditors may report aspects of their work widely to the public and other key stakeholders. The duties and powers of auditors appointed by the Audit Commission are set out in the Audit Commission Act 1998 and the Local Government Act 1999 and the Commission's statutory Code of Audit Practice. Under the Code of Audit Practice, appointed auditors are also required to comply with the current professional standards issued by the independent Auditing Practices Board. Appointed auditors act quite separately from the Commission and in meeting their statutory responsibilities are required to exercise their professional judgement independently of both the Commission and the audited body.
Status of our reports to the Council The Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit Commission explains the respective responsibilities of auditors and of the audited body. Reports prepared by appointed auditors are addressed to members or officers. They are prepared for the sole use of the audited body. Auditors accept no responsibility to: x any member or officer in their individual capacity; or x any third party. Copies of this report If you require further copies of this report, or a copy in large print, in Braille, on tape, or in a language other than English, please call 0845 056 0566.
© Audit Commission 2006 For further information on the work of the Commission please contact: Audit Commission, 1st Floor, Millbank Tower, Millbank, London SW1P 4HQ Tel: 020 7828 1212 Fax: 020 7976 6187 Textphone (minicom): 020 7630 0421 www.audit-commission.gov.uk Page 147 Audit and Inspection Plan Ň Contents 3
Contents
Introduction 4 Our responsibilities 4
The fee 5
CPA and inspections 6
Summary of key audit risks 7 Value for money conclusion 7 Use of resources judgement 8 Performance information 9 Best value performance plan 9 Financial statements 9 Whole of government accounts 11
Certification of claims and returns 12
Voluntary improvement work 13
Other information 14 Outputs from the audit and inspection plan 14 The team 14
Future audit plans 15
Appendix 1 – Audit and inspection fee 16 Specific audit risk factors 16 Assumptions 17 Specific actions the Council could take to reduce its audit fees 17 Process for agreeing any changes in audit fees 18
Appendix 2 – Criteria to inform the auditor’s conclusion on proper arrangements for securing economy, efficiency and effectiveness in the use of resources 19
Appendix 3 – Planned outputs 21
Appendix 4 - The Audit Commission’s requirements in respect of independence and objectivity 23
London Borough of Enfield Page 148 4 Audit and Inspection Plan Ň Introduction
Introduction 1 This plan sets out the audit and inspection work that we propose to undertake in 2006/07. The plan has been drawn up from our risk-based approach to audit planning and the requirements of the Comprehensive Performance Assessment (CPA) – the harder test. It reflects: x our responsibilities under the Code of Audit Practice (the Code); x audit and inspection work specified by the Audit Commission for 2006/07; x your local risks and improvement priorities; and x current national risks relevant to your local circumstances. 2 Your Relationship Manager will continue to help ensure further integration and co-ordination with the work of other inspectorates.
Our responsibilities 3 In carrying out our audit and inspection duties we have to comply with the statutory requirements governing them, and in particular: x the Audit Commission Act 1998 and the Code with regard to audit; and x the Local Government Act 1999 with regard to best value inspection and audit. 4 The Code defines auditors' responsibilities in relation to: x the financial statements of audited bodies; and x audited bodies' arrangements for securing economy, efficiency and effectiveness in their use of resources. Auditors are now required to draw a substantive conclusion regarding the Council's arrangements for ensuring value for money in its use of resources. We will give the first such conclusion by 30 September 2006 as part of the 2005/06 audit.
London Borough of Enfield Page 149 Audit and Inspection Plan Ň The fee 5
The fee 5 For 2006/07, the Audit Commission has changed its fee scale structure and details are set out in the Commission’s draft work programme and fee scales 2006/07. Audit fees are based on a number of variables, including the type, size, location and complexity of the audited body and the national and local risks. 6 Inspection fees are based on the actual number of days included in the plan for each programmed activity. 7 The fee estimate for the audit work planned for the London Borough of Enfield (the Council) for 2006/07 is £433,000. The fee estimate for inspection work planned for 2006/07 is £76,000. The total audit and inspection fee of £509,000 compares to £509,000 for 2005/06. 8 In addition, we estimate that we will charge approximately £120,000 for the certification of claims and returns. 9 The audit and inspection fees include all work identified in this plan unless specifically excluded. Further details are provided in Appendix 1 which includes specific audit risk factors, the assumptions made when determining the audit fee, specific actions the Council could take to reduce its audit fees and the process for agreeing any additional fees. 10 Changes to the plan and the fee may be necessary if our audit risk assessment changes during the course of the audit. This is particularly relevant to work related to: x the opinion on the 2006/07 accounts, since we have yet to audit the accounts for 2005/06 and detailed financial reporting requirements for 2006/07 are not yet known; and x work on selected performance indicators, since we have yet to assess your overall arrangements for securing the quality of this data and then to undertake a formal risk assessment. 11 We will advise you formally if any changes to the fee become necessary.
London Borough of Enfield Page 150 6 Audit and Inspection Plan Ň CPA and inspections
CPA and inspections 12 We have applied the principles set out in the new CPA framework - CPA: the harder test - reflecting the key strengths and weaknesses in the Council's performance, having regard to the findings of CPA 2005. Strengths included: x good achievements in some of its shared priorities, such as community safety, the streetscene, environmental health, healthier communities and children and young people; x effective community leadership and partnership working; and x good member-officer relationships, effective financial management and a culture of open debate to resolve issues; 13 Key challenges included: x improving consistency in performance management, including promoting customer access in setting service standards and developing more robust targets; x continuing the focus on improvement in less well performing services; and x for housing, establishing the arms length management organisation and developing a strategy to meet the Decent Homes Standard. 14 In response, our proposed inspection focus covers the activity set out in table 1 below.
Table 1 Summary of inspection activity
Inspection activity Reason/impact Relationship manager role To act as the Commission’s primary point of contact with the authority and the interface at the local level between the Commission and the other inspectorates, Government Office and other key stakeholders. Direction of travel statement To provide focus for continuous improvement and to include in CPA scorecard. Housing indicative ALMO To focus on the services the Council intends to inspection delegate to an ALMO. Customer access inspection To focus on customer access and user focus in service provision (partly funded from the inspection deferred as part of the 2004/05 plan).
London Borough of Enfield Page 151 Audit and Inspection Plan Ň Summary of key audit risks 7
Summary of key audit risks 15 This section summarises our assessment and the planned response to the key audit risks which may have an impact on our objectives to: x provide an opinion on your financial statements; x provide a conclusion on your use of resources; x provide a scored judgment on the use of resources to feed into the CPA process; x undertake audit work in relation to specified performance indicators to support the service assessment element of CPA; and x provide a report on the Council’s best value performance plan (BVPP). 16 In assessing risk, we: x review comparative performance information and key Council papers and reports: x apply our cumulative knowledge and experience; and x discuss issues with Council officers. 17 Our planned work takes into account information from other regulators, where available. Where risks are identified that are not mitigated by information from other regulators, or your own risk management processes, including Internal Audit, we will perform work as appropriate to enable us to provide a conclusion on your arrangements.
Value for money conclusion 18 The Code of Audit Practice requires us to issue a conclusion on whether you have proper arrangements in place for securing economy, efficiency and effectiveness in the use of your resources (the value for money conclusion). The Audit Commission has developed relevant criteria for auditors to apply in reaching our value for money conclusion as required under the Code of Audit Practice. These criteria are listed in Appendix 2. In meeting this responsibility, we will review evidence that is relevant to the Council’s corporate performance management and financial management arrangements. We will give the first such conclusion by the end of September 2006 as part our audit of the 2005/06 accounts. This may influence our risk assessment for similar work to be carried out as part of the 2006/07 and we will keep you informed of any changes to this plan that may become necessary.
London Borough of Enfield Page 152 8 Audit and Inspection Plan Ň Summary of key audit risks
Use of resources judgement 19 In addition to the value for money conclusion described above, the Audit Commission requires auditors to make more qualitative assessments of the effectiveness of those arrangements in the form of a series of use of resources judgements. The key lines of enquiry (KLOEs) issued in June 2005 are being updated in the spring of 2006 following a post implementation review of the assessment. Our fee estimate for 2006/07 assumes that the KLOEs will be broadly similar to those used in 2005/06. If this changes, we will discuss with you the implications, including any impact on the fee. 20 These judgements are also used by the Commission as the basis for its overall use of resources judgement for the annual CPA. 21 Using our cumulative knowledge and experience, including the results of previous work and other regulators’ work, we have identified the following areas of audit risk to be addressed.
Table 2 Summary of use of resources audit risks
Audit risk Response Investigations into issues raised by We will carry out an overview of your the public have indicated that the arrangements for asset disposal. Council may be at risk of not demonstrating compliance with best practice when disposing of assets. This puts the Council at risk of legal challenge and of not maximising its income. Work undertaken in 2004/05 on We will carry out an overview of your special educational needs (SEN) arrangements for contract letting and transport highlighted contract waiver procedures. letting and the waiver of standing orders as a risk for the Council. Failure to comply with proper procedures in this area could result in a failure to obtain the best price for goods and services and/or legal challenge. There is a considerable generic We will undertake a survey ('your risk from computer viruses and business at risk') which will help you to hacking associated with increased gauge your staff's awareness of risks reliance on IT systems across all associated with IT and highlight areas sectors. where improvement is required.
London Borough of Enfield Page 153 Audit and Inspection Plan Ň Summary of key audit risks 9
Performance information 22 Auditors are required to undertake audit work in relation to specified performance indicators to support the service assessment element of CPA. This work will be risk based and will link in part to our review of the Council’s overall arrangements to secure data quality as required for our value for money conclusion. Our work will include a short review of data quality arrangements and an analytical review of indicators to inform our risk assessment, followed by a detailed audit of selected indicators. Our fee estimate includes an element for this work on the basis that we will assess the Council as low-to-medium risk in relation to its performance indicators. 23 This risk assessment may change depending on our assessment of your overall arrangements. When we have finalised our risk assessment, we will update our plan including any impact on the fee quoted above.
Best value performance plan 24 We are required to consider and report on whether or not you have complied with legislation and statutory guidance in respect of the preparation and publication of your BVPP.
Financial statements 25 We will carry out our audit of the 2006/07 financial statements and comply with the International Standards on Auditing (UK and Ireland). 26 We are also required to review whether the Statement on Internal Control (SIC) has been presented in accordance with relevant requirements and to report if it does not meet these requirements or if the statement is misleading or inconsistent with our knowledge. 27 On the basis of our preliminary work to date, we have identified the following audit risks.
London Borough of Enfield Page 154 10 Audit and Inspection Plan Ň Summary of key audit risks
Table 3 Summary of opinion risks
Opinion risks Response We require a high standard of We will: presentation of accounting and x monitor the implementation of supporting information when closedown procedures; undertaking the audit. In particular, x liaise with your officers during the we look to use analytical preparatory period, providing techniques to effect as efficient an assistance where appropriate; audit as possible. Failure to provide suitable x issue schedules of key audit issues information could prolong the audit and discuss working paper standards unnecessarily, result in additional prior to the closedown process; and audit costs or contribute to a x undertake testing to form an opinion qualified opinion or delay the on the Council’s draft statements. planned early opinion. Full compliance is required in the We will review the Council's 2006/07 accounts with the latest arrangements for securing compliance as Statement of Recommended part of our interim work and consider any Practice (SORP) and pension fund further implications when undertaking our SORP. 2006/07 detailed opinion planning. We will provide information on specific issues which receive an audit focus and officers have an opportunity to attend an April 2006 seminar we are hosting in London on the latest technical matters. ISA 315 requires auditors to gain This will entail documentation and testing full understanding of the key of these systems. We will look to place controls within the material systems maximum reliance on Internal Audit for from which the financial statements this work. are derived. The accounts are free from material Our testing of material systems will misstatement whether caused by include assessing the Council's fraud or other irregularity or error. vulnerability to fraud. Tests will be carried out where weaknesses are found or inherent risks apply. As happened in 2004/05, there is a We will note the action taken by the risk that the accounts submitted for Council in the preparation of the 2005/06 audit may not be prepared on the accounts and make appropriate basis of the latest available outturn recommendations for the 2006/07 information on grants receivable accounts closedown process. from Government departments.
London Borough of Enfield Page 155 Audit and Inspection Plan Ň Summary of key audit risks 11
Opinion risks Response The implementation of new The Council has identified this as a risk systems such as the Housing and is taking steps to validate the transfer Benefits system present risks to the of data and maintain an adequate audit accuracy of information produced. trail. We will review the Council's work and consider whether any residual risk arises for the 2006/07 accounts.
28 Our fee estimate for 2006/07 is based on the assumption that the current standard of working papers will be maintained and that Internal Audit will complete their planned work on key information systems to the agreed quality and by the agreed date and that the accounts will be prepared and fully supported by working papers. 29 We have yet to undertake the audit of the 2005/06 financial statements and our 2006/07 financial statements audit planning will continue as the year progresses. This will take account of: x the 2005/06 opinion audit; x our documentation and initial testing of material information systems; x our assessment of the 2006/07 closedown arrangements; and x any changes in financial reporting requirements. 30 When we have finalised our risk assessment in respect of your financial statements, we will update our plan in advance of the audit detailing our specific approach, including any impact on the fee quoted above.
Whole of government accounts 31 The government is introducing whole of government accounts (WGA) in order to produce consolidated accounts for the whole public sector. WGA will include the accounts of local authorities and WGA data returns will be required to be audited. The Audit Commission is currently discussing the scope of the likely audit work with stakeholders. The fee for this work is not included in this plan and we will discuss this with the Director of Finance and Corporate Resources when further details are available.
London Borough of Enfield Page 156 12 Audit and Inspection Plan Ň Certification of claims and returns
Certification of claims and returns 32 We will continue to certify the Council’s claims and returns: x claims for £50,000 or below will not be subject to certification; x claims between £50,001 and £100,000 will be subject to a reduced, light touch, certification audit; and x claims over £100,000 have an audit approach relevant to the auditor’s assessment of the control environment and management preparation of claims. A robust control environment would lead to a reduced audit approach for these claims. 33 Charges for this work are based on skill-related fees scales set out in the Audit Commission’s work programme and fee scales 2006/07. Based on this, and on the assumption that the level of grant work will remain unchanged we estimate that the fees for grant certification work will be around £120,000.
London Borough of Enfield Page 157 Audit and Inspection Plan Ň Voluntary improvement work 13
Voluntary improvement work 34 We have currently not identified any areas for voluntary improvement work to be undertaken at the Council.
London Borough of Enfield Page 158 14 Audit and Inspection Plan Ň Other information
Other information
Outputs from the audit and inspection plan 35 The expected outputs from our planned audit and inspection work are listed in Appendix 3.
The team
Table 4
Name Title Mike Haworth-Maden Relationship Manager and District Auditor Carol Mounfield Audit Manager Garry Gerrish Support Audit Manager Claire Bryce-Smith Area Performance Lead Damian O'Neill and Louise Audit Team Leaders Ajewole
36 We are not aware of any relationships that may affect the independence and objectivity of the team, and which are required to be disclosed under auditing and ethical standards. 37 We comply with the ethical standards promulgated by the Auditing Practices Board and with the Commission’s requirements in respect of independence and objectivity as set out at Appendix 4.
London Borough of Enfield Page 159 Audit and Inspection Plan Ň Future audit plans 15
Future audit plans 38 As part of our planning process, we have taken the opportunity to look at potential issues for future years’ programmes. Key areas identified include: x on-going work to improve poorer performing services and tackle higher cost services; x implementation of the ALMO; and x evolution of local area agreements. 39 We will discuss these in more detail as the audit year progresses.
London Borough of Enfield Page 160 16 Audit and Inspection Plan Ň Appendix 1 – Audit and inspection fee
Appendix 1 – Audit and inspection fee
Table 5
Fee estimate Plan 2006/07 Plan 2005/06 £000 £000 Audit Accounts 306 283 Use of resources 127 108 Total audit fee 433 393 Inspection and relationship 76 116 management Total audit and inspection fee 509 509 Certification of grants and 120,000 125,000 returns
1 The total audit fee compared to the indicative fee banding equates to 3 per cent above/below mid-point. 2 The fee (plus VAT) will be charged in 12 equal instalments from May 2006 to April 2007. 3 The fee above includes all work contained in this plan except: x any work required in relation to the whole of government accounts (discussed in paragraph 31).
Specific audit risk factors 4 In setting the audit fee, we have taken account of the following specific risk factors: x the volume of correspondence from members of the public, together with the need to consider the related issues raised.
London Borough of Enfield Page 161 Audit and Inspection Plan Ň Appendix 1 – Audit and inspection fee 17
Assumptions 5 In setting the audit fee, we have assumed: x you will inform us of significant developments impacting on our audit; x Internal Audit meets the appropriate professional standards; x Internal Audit undertakes appropriate work on all material information systems that provide figures in the financial statements sufficient that we can place reliance for the purposes of our audit, recognising the shift in requirements introduced by the International Standards on Auditing; x officers will provide good quality working papers and records to support the financial statements; x officers will provide requested information within agreed timescales; x officers will provide prompt responses to draft reports; and x the KLOEs for our use of resources judgement will be broadly similar to those used in 2005/06. 6 Where these requirements are not met or our assumptions change, we will be required to undertake additional work which is likely to result in an increased audit fee. 7 Changes to the plan will be agreed with you. These may be required if: x new risks emerge; x additional work is required of us by the Audit Commission or other regulators; and x there are any changes to financial reporting requirements, professional auditing standards or legislation which results in additional audit work.
Specific actions the Council could take to reduce its audit fees 8 The Audit Commission requires its auditors to inform a council of specific actions it could take to reduce its audit fees. We have identified the following actions the Council could take: x provide a complete electronic file of cross-referenced financial statements working papers; and x further develop the quality assurance process for the final accounts, including reviewing the draft financial statements before they are submitted to audit.
London Borough of Enfield Page 162 18 Audit and Inspection Plan Ň Appendix 1 – Audit and inspection fee
Process for agreeing any changes in audit fees 9 If we need to amend the fees during the course of our work we will firstly discuss this with the Chief Executive. We will then prepare a report outlining the reasons why the fee needs to change for discussion with the Audit Committee.
London Borough of Enfield Page 163 Audit and Inspection Plan Ň Appendix 2 – Criteria to inform the auditor’s conclusion on proper arrangements for securing economy, efficiency and effectiveness in the use of resources 19 Appendix 2 – Criteria to inform the auditor’s conclusion on proper arrangements for securing economy, efficiency and effectiveness in the use of resources Arrangements for establishing strategic and operational objectives and for determining policy and making decisions 1 The body has put in place arrangements for setting, reviewing and implementing its strategic and operational objectives. Arrangements for ensuring that services meet the needs of users and taxpayers, and for engaging with the wider community 2 The body has put in place channels of communication with service users and other stakeholders including partners, and there are monitoring arrangements to ensure that key messages about services are taken into account. Arrangements for monitoring and reviewing performance, including arrangements to ensure data quality 3 The body has put in place arrangements for monitoring and scrutiny of performance, to identify potential variances against strategic objectives, standards and targets, for taking action where necessary, and reporting to members. 4 The body has put in place arrangements to monitor the quality of its published performance information, and to report the results to members. Arrangements for ensuring compliance with established policies, procedures, laws and regulations 5 The body has put in place arrangements to maintain a sound system of internal control. Arrangements for identifying, evaluating and managing operational and financial risks and opportunities, including those arising from involvement in partnerships and joint working 6 The body has put in place arrangements to manage its significant business risks.
London Borough of Enfield Page 164 20 Audit and Inspection Plan Ň Appendix 2 – Criteria to inform the auditor’s conclusion on proper arrangements for securing economy, efficiency and effectiveness in the use of resources Arrangements for ensuring compliance with the general duty of best value 7 The body has put in place arrangements to manage and improve value for money. Arrangements for managing its financial and other resources, including arrangements to safeguard the financial standing of the audited body 8 The body has put in place a medium-term financial strategy, budgets and a capital programme that are soundly based and designed to deliver its strategic priorities. 9 The body has put in place arrangements to ensure that its spending matches its available resources. 10 The body has put in place arrangements for managing performance against budgets. 11 The body has put in place arrangements for the management of its asset base. Arrangements for ensuring that the audited body’s affairs are managed in accordance with proper standards of conduct, and to prevent and detect fraud and corruption 12 The body has put in place arrangements that are designed to promote and ensure probity and propriety in the conduct of its business.
London Borough of Enfield Page 165 Audit and Inspection Plan Ň Appendix 3 – Planned outputs 21
Appendix 3 – Planned outputs 1 Our reports will be discussed and agreed with the appropriate officers before being issued to the Audit Committee.
Table 6
Planned output Start date Draft due date Key contact Planning Audit and February 2006 March 2006 Chief Executive Inspection Plan* Inspection Indicative TBA TBA Director of Housing ALMO** and Adult Services Customer TBA TBA Assistant Chief Services** Executive Direction of October 2006 December 2006 Chief Executive Travel** Use of resources Use of Resources May 2006 October 2006 Chief Executive Assessment VFM Conclusion April 2006 September 2007 Chief Executive BVPP Report July 2006 December 2006 Assistant Chief Executive Report on July 2006 December 2006 Assistant Chief Selected PIs (if Executive applicable) Asset Disposals TBA TBA TBC Contracts TBA TBA TBC Your Business at TBA TBA TBC Risk
London Borough of Enfield Page 166 22 Audit and Inspection Plan Ň Appendix 3 – Planned outputs
Planned output Start date Draft due date Key contact Opinion Interim Audit Dec 2006 May 2007 Director of Finance Memorandum and Corporate (if appropriate) Resources ISA 260 Report July 2007 September 2007 Director of Finance on Financial and Corporate Statements to Resources those Charged Audit Committee with Governance Opinion on July 2007 September 2007 Director of Finance Financial and Corporate Statements and Resources Pension Fund Final Accounts July 2007 October 2007 Director of Finance Memorandum and Corporate Resources Overall Relationship October 2007 December 2007 Chief Executive Manager Annual Letter** Grant Claims Grant Claims October 2007 January 2008 Various Certificates Report January 2008 February 2008 Director of Finance and Corporate Resources
* To be revisited during the year to reflect outcome of 2005/06 opinion work and 2006/07 interim visit. ** These are public reports.
London Borough of Enfield Page 167 Audit and Inspection Plan Ň Appendix 4 - The Audit Commission’s requirements in respect of independence and objectivity 23
Appendix 4 - The Audit Commission’s requirements in respect of independence and objectivity 1 Auditors appointed by the Audit Commission are subject to the Code of Audit Practice (the Code) which includes the requirement to comply with ISAs (UKI) when auditing the financial statements. Professional standards requires auditors to communicate to those charged with governance, at least annually, all relationships that may bear on the firm’s independence and the objectivity of the audit engagement partner and audit staff. The standards also place requirements on auditors in relation to integrity, objectivity and independence. 2 The ISA (UKI) defines ‘those charged with governance’ as ‘those persons entrusted with the supervision, control and direction of an entity’. In your case the appropriate addressee of communications from the auditor to those charged with governance is the Audit Committee. The auditor reserves the right, however, to communicate directly with the Council on matters which are considered to be of sufficient importance. 3 Auditors are required by the Code to: x carry out their work with independence and objectivity; x exercise their professional judgement and act independently of both the Commission and the audited body; x maintain an objective attitude at all times and not act in any way that might give rise to, or be perceived to give rise to, a conflict of interest; and x resist any improper attempt to influence their judgement in the conduct of the audit. 4 In addition, the Code specifies that auditors should not carry out work for an audited body that does not relate directly to the discharge of the auditors’ functions under the Code. If the Council invites us to carry out risk-based work in a particular area, which cannot otherwise be justified to support our audit conclusions, it will be clearly differentiated as work carried out under section 35 of the Audit Commission Act 1998. 5 The Code also states that the Commission issues guidance under its powers to appoint auditors and to determine their terms of appointment. The Standing Guidance for Auditors includes several references to arrangements designed to support and reinforce the requirements relating to independence, which auditors must comply with. These are as follows: x any staff involved on Commission work who wish to engage in political activity should obtain prior approval from the Partner or Regional Director; x audit staff are expected not to accept appointments as lay school inspectors;
London Borough of Enfield Page 168 24 Audit and Inspection Plan Ň Appendix 4 - The Audit Commission’s requirements in respect of independence and objectivity
x firms are expected not to risk damaging working relationships by bidding for work within an audited body’s area in direct competition with the body’s own staff without having discussed and agreed a local protocol with the body concerned; x auditors are expected to comply with the Commission’s statements on firms not providing personal financial or tax advice to certain senior individuals at their audited bodies, auditors’ conflicts of interest in relation to PFI procurement at audited bodies, and disposal of consultancy practices and auditors’ independence; x auditors appointed by the Commission should not accept engagements which involve commenting on the performance of other Commission auditors on Commission work without first consulting the Commission; x auditors are expected to comply with the Commission’s policy for both the District Auditor/Partner and the second in command (Senior Manager/ Manager) to be changed on each audit at least once every five years with effect from 1 April 2003 (subject to agreed transitional arrangements); x audit suppliers are required to obtain the Commission’s written approval prior to changing any District Auditor or Audit Partner/Director in respect of each audited body; and x the Commission must be notified of any change of second in command within one month of making the change. Where a new Partner/Director or second in command has not previously undertaken audits under the Audit Commission Act 1998 or has not previously worked for the audit supplier, the audit supplier is required to provide brief details of the individual’s relevant qualifications, skills and experience.
London Borough of Enfield Page 169 Agenda Item 10
MUNICIPAL YEAR 2006/2007 REPORT NO. 31
Agenda – Part: 1 Item: 10 MEETING TITLE AND DATE: Audit Committee Subject:ACCOUNTS & AUDIT 29 th June 2006 (AMENDMENT) (ENGLAND) REGULATIONS 2006. SI 2006. No.564 REPORT OF: Wards: Director of Finance & Corporate Resources Cabinet Member consulted:
Contact officer and telephone number: Bill Somerville 020 8379 4605 e-mail: [email protected]
1. EXECUTIVE SUMMARY
This report identifies the significant changes to the Accounts and Audit Regulations 2003 brought in by the Accounts and Audit (Amendment) (England) Regulations 2006, with effect from the 1 st April 2006.
This Committee is responsible for overseeing the effective implementation of “corporate governance” which is informed, in part, by these Regulations.
2. RECOMMENDATIONS
That the Committee note the amended Regulations and adopt the changed emphasis to its role.
3. BACKGROUND
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3.1 The purpose of Accounts and Audit Regulations
The aims of the Regulations are to set the rules on the keeping of local authority accounts, to reduce unnecessary bureaucracy and improve local authority corporate governance and accountability, transparency and openness in the provision of information. Other proposals aim to bring authorities up to date with best professional practice in financial management and internal audit, and to promote corporate responsibility. Others will promote a more timely, open and transparent accounting process, including bringing forward the date for the approval of the annual accounts.
3.2 There is a long history of legislation that sets out the rules for keeping local authority accounts and associated matters. These rules were co- ordinated in the Accounts and Audit Regulations 1996. In order to encourage up-to-date practices in internal audit and corporate responsibility, the Accounts and Audit Regulations 2003 were issued.
3.3 The Accounts and Audit (Amendment) (England) Regulations 2006 make changes to the 2003 Regulations (as amended in 2004).
3.4 The significant amendments are designed to
Reg. 4: the findings of the reviews of the system of internal control shall be considered by a committee – or by members meeting as a whole, and following that consideration, shall approve a Statement of Internal Control, prepared in accordance with proper practices in relation to internal control. “Proper practices” in the 2003 Regulations have had their meaning extended and clarified to “proper practices in relation to accounts” (normally defined by CIPFA on behalf of Government) or “proper practices in relation to internal control” (also defined by CIPFA).
Reg. 6: requires the Council to annually conduct a review of the effectiveness of its system of internal audit and for the findings of the review to be considered by the Committee – as part of the consideration of the system of internal control. We are awaiting guidance from the government/CIPFA how the Council might actually do this. Options include (1) placing reliance on the current internal audit annual report, but with a greater emphasis on the feedback from managers whose services have been audited;(2) a self-assessment showing compliance with CIPFA’s “Code of Practice for Internal Audit in Local Government:; and, appraisals by the external auditor.
Reg. 7 A requirement to provide a note (in the Statement of Accounts) that the Dedicated Schools Grant has been
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deployed in accordance with the Regulations in the School Standards and Framework Act 1998.
4. ALTERNATIVE OPTIONS CONSIDERED
There are none. The Council is bound to implement the Accounts and Audit (Amendment) (England) Regulations 2006.
5. REASONS FOR RECOMMENDATIONS
To comply with the law.
6. COMMENTS OF THE DIRECTOR OF FINANCE AND CORPORATE RESOURCES AND OTHER DEPARTMENTS
6.1 Financial Implications
There are no financial implications.
6.2 Legal Implications
The Regulations the subject of this report amend the Accounts and Audit Regulations 2003, which were made under section 27of the Audit Commission Act 1998. A key aim of the amendments is to strengthen governance and accountability.
7. PUTTING ENFIELD FIRST
The implementation of the Accounts and Audit (Amendment) (England) Regulations 2006 will strengthen the corporate governance framework within which Excellent Services are delivered.
Background Papers
Accounts and Audit Regulations 2003 Accounts and Audit (Amendment) Regulations 2004 Accounts and Audit (Amendment) (England) Regulations 2006.
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This page is intentionally left blank Page 173 Agenda Item 11
MUNICIPAL YEAR 2006/07 REPORT NO . 32
Agenda – Part:1 Item: 11 MEETING TITLE AND DATE: Audit Committee Subject: 29 th June 2006 Investigations Outturn Report
REPORT OF: Wards: Director of Finance and Corporate Resources
Cabinet Member consulted: n/a
Contact officer and telephone number: Bill Somerville (Assistant Director of Resources Audit & Risk Management) Ext 4605 Derryck McCready (Head of Finance) Ext 4641
1 EXECUTIVE SUMMARY 1.1 This reports is an overview of the key areas of activity in 2005/06 for housing benefit and internal audit investigations. It also gives an overview of the developments for 2006/07 as part of the evolution of the services.
2 RECOMMENDATIONS 2.1 It is recommended that: • The Committee notes the progress made in investigations and the contribution to counter fraud and corporate governance across the Council.
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3 RESULTS IN 2005/06 HOUSING BENEFIT INVESTIGATION TEAM 3.1 The performance of the team continues to improve across the board: • The number of investigations started in 2005/06 was 1102 - an increase of 12.0%; • 261 interviews under caution were carried out – an increase of 12.0%; • 140 successful sanctions and prosecutions – an increase of 44.3% • 11 fraud awareness sessions have been delivered to over 200 frontline staff. 3.2 The results of the local joint working with the DWP has improved again – 22 results for the investigator assigned to the Council team which included 6 prosecutions. INTERNAL AUDIT INVESTIGATION TEAM 3.3 In April 2005, a new case management system went live for the audit investigation team. The system supports the management of cases and the production of meaningful statistical information: • 156 investigations were concluded; • Positive action was taken in 88 cases; • 21 fraud awareness sessions were delivered to over 630 staff within environment, democratic services and student awards. 4 2006/07 DEVELOPMENTS 4.1 The Housing Benefit and Internal Audit Investigation teams have been included in the ISO:9000 accreditation of the Audit and Risk Management Division. HOUSING BENEFIT INVESTIGATION TEAM 4.2 With 24 results so far and 42 more cases in progress the team is well on the way to its 172 target for 2006/07; a minimum of 135 is required to retain a score of ‘4’ under the Comprehensive Performance Assessment scoring. 4.3 Two experienced team leaders have been appointed to vacant posts to add to the management capacity of the team and help ensure that the quality and performance of the output continues to improve. 4.4 Joint working with the DWP will continue to develop: • The 2006/07 fraud partnership agreement signed with Department of Works & Pensions before the start of the year for the first time; the 2005/06 agreement was signed retrospectively; • An additional officer has been assigned part-time and 7 sanctions and 2 prosecutions were achieved in the first quarter with two further cases prepared; 4.5 The Housing Benefit Investigation Manager will be participating in a working group at the Department of Works & Pensions looking at best practice for joint working. This is a direct result of the work that has gone on since October 2002. The performance of the Council team with its DWP counterparts is seen as an example of best practice from which others may learn. 4.6 16 fraud awareness sessions are planned for frontline staff for 2006/07.
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INTERNAL AUDIT INVESTIGATION TEAM 4.7 The police officer assigned to the Council will begin on 10 th July as part of the joint initiative. The police officer is known to the Council; she led on the recent planning case. 4.8 Preparations have begun for the 2007 National Fraud Initiative that will cover a number of new areas; the additional resource implications will have to be managed within existing resources as the teams handle the additional data matches. 4.9 Fraud awareness is planned for Housing and Education as part of the rolling programme of staff across the Council. 5 ALTERNATIVE OPTIONS CONSIDERED 5.1 This is a progress report – no alternatives were considered. 6 REASONS FOR RECOMMENDATIONS 6.1 To keep the Committee informed of the progress of Housing Benefit and Internal Audit Investigation Teams. 7 COMMENTS OF THE DIRECTOR OF FINANCE AND CORPORATE RESOURCES AND OTHER DEPARTMENTS 7.1 Financial Implications This is a progress report for strategies already in place and all proposals are to be undertaken within the resources provided for this purpose. 7.2 Legal Implications This is a progress report for strategies already in place and the legal implications have already been considered when implementing the strategies. 8 PUTTING ENFIELD FIRST 8.1 The risk management and counter fraud strategies are key strategies underlying the objectives of Putting Enfield First :- • A safer Enfield • Economically Successful • Improving the way we work • Excellent services
BACKGROUND PAPERS Working Papers
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Housing Benefits Investigation Team Progress
Sanctions and prosecutions against targets 2004/05 2005/06 2006/07 2006/07 Actual Actual Target to date Results 31/3/06 RESULTS Cautions 21 37 50 3 Administrative Penalties 22 48 50 9 Successful Prosecutions 54 55 72 12 Total Successful Cases 97 140 172 24
Cases in Court 32 20 Cautions & Ad. Penalties pursued 11 9 Cases referred for prosecution 6 13 Cases to conclude - Investigations complete 49 42
Biannual National Fraud Initiative 2005 NFI NFI NFI NFI 2003 2003 2005 2005 Actual Overpa- Actual Overpa- Results yment 31/3/06 yment RESULTS Cautions 7 10843 10 7218 Administrative Penalties 5 4763 12 30723 Successful Prosecutions 30 293774 5 29563 Total Successful Cases 42 309380 27 67504
Summons only 5 14228 Cases to conclude - Investigations complete 15 174094 Outstanding Cases 29 Total Overpayment 323608 241598
- 4 - Timetable of meetings 2006- 2007 Core Work 29.06.06 14.09.06 28.11.06 9.01.07 13.3.07 Annual Statement of Accounts Audit Commission's Report SAS610 on Statement of Accounts Tax Base
Statement of Internal Interim Control SIC Departmental Assurance Statements Audit Commission's Audit and Inspection Plan Internal Audit Annual Plan Risk Category 1 Reports/
Risk Management Page 177 H.B Investigations incorp. Benefits Fraud Inspections Internal Audit Investigations WHICH TOPIC inc: Local Code of Corp.Gov/ FOR THIS Corp.Risk Register/E mail & MEETING? Internet Monitoring/NF Initiative Waivers of Contract Procedure Rules/Pt 2 Audit Commission's Annual Letter Agenda Item12 Letter of Representation Page 178