Welsh Government Consolidated Accounts 2015-2016 Annual Report

Overview from Each year, just before completing the Welsh Government Civil Service the serious and sobering task of to working in a more collaborative the Permanent signing the Welsh Government’s way, building consensus across Secretary Annual Accounts, I like to take some divides to deliver for Wales. time to reflect on the financial year Throughout the year, the Welsh just gone - what has been achieved Government also put much thought and what could have been done and energy into preparing for the better - it’s an opportunity I value implementation of two pieces of enormously. unique Welsh legislation – the As I write this year, its just a few Well‑being of Future Generations weeks after the outcome of the EU Act and the Welsh Language Referendum, when questions about Standards - both of which will what fast action needs to be taken change the way the Welsh to ensure Wales is fully involved in Government and wider public Derek Jones the forthcoming negotiations are services in Wales work, now and burning, both inside and outside in the future. This is an important of Government – it doesn’t feel opportunity to take a fresh look quite right to spend time looking at ways of working, to improve back. But I do want to pause for a customer service, and to increase moment because while there are the quality and the long-term gaze many uncertainties and challenges of the advice put to Ministers. ahead, 2015-16 has itself been a And with the demands of the future very important year for the Welsh firmly in mind, including a tough Government. financial outlook coupled with Not least, the Government of the taking on new responsibilities, I have 4th Assembly reached the end of a been working to make sure that the five year term, with – as reported in Civil Service itself is as agile, flexible, the last Programme for Government capable, affordable – and as diverse Annual Report published in June and fair - as it can be. 2015 – more than 95% of the Lastly, I announced in April my Cabinet’s commitments delivered intention to stand down from the or on track for delivery, and 28 role of Permanent Secretary at the pieces of legislation on the statute turn of this calendar year; so this will book. In May 2016, after an eventful be my last Annual Accounts. I am beginning to the new 5th Assembly extremely proud to have led the Civil term, the Welsh Government’s First Service through some very exciting Minister Carwyn Jones announced times, and have had the pleasure of his new team of Cabinet Secretaries working with talented, committed and Ministers. Now developing a and ambitious colleagues. I wish programme of government focused WG 27957 everyone the best of luck for the © Crown copyright 2016, on building a united, connected and future. Welsh Government sustainable Wales, the First Minister gov.wales has committed both Ministers and Derek

2 Welsh Government Consolidated Accounts 2015-16 Annual Report

Contents

Annual Report Permanent Secretary’s overview 2 The Welsh Government at a glance 4

Accountability Report Statement of Accounting Officer’s responsibilities 19 Governance Statement 20 Remuneration and staff report 33 Losses statement 45 Summary of Resource Outturn 46 Certificate and Report of the Auditor General for Wales 48

Financial Report Financial Statements 51 Notes to the Accounts 55 Appendix A – Accounting Policies 73 Appendix B – Glossary 82

Government of Wales Act 2006 Accounts of the Welsh Government are prepared pursuant to Section 131 of the Government of Wales Act 2006 for the year to 31 March 2016, together with the Certificate and Report of the Auditor General for Wales thereon. Laid before the Assembly on 19 August 2016 pursuant to the Government of Wales Act Section 131

Welsh Government Consolidated Accounts 2015-16 3 Annual Report Annual Report The Welsh Government at a glance

Overview The Welsh Government is the Led by the First Minister, the Welsh devolved government for Wales and Government makes decisions and has responsibility for a wide range of is responsible for delivery in the matters which affect people’s lives. areas devolved to it, as set out in the Government of Wales Act 2006 The Welsh Government was and 2014. This involves developing formally created in 2007 under the and implementing policies; setting Government of Wales Act, which up and directing delivery and established a division of functions governance; proposing Welsh between the National Assembly Laws (Assembly Bills); and making for Wales (the legislature) and the subordinate legislation, such as Welsh Assembly Government (the regulations and statutory guidance. executive). The Wales Act 2014 has It also directly funds Welsh since legally changed the name to Government Sponsored Bodies. the Welsh Government.

Programme for The Programme for Government • Growth and Jobs was the Welsh Government’s plan Government • Health and Health Services for action for the 4th Assembly and the final annual report was • Educational Attainment published in June 2015. The • Supporting Children, Families report showed the progress made and Deprived Communities in the delivery of the Cabinet’s In May this year, the new Cabinet commitments and was aligned was formed with a new programme to the First Minister’s four key which will focus on taking Wales priorities: forward due for publication in September 2016.

In his statement to the Assembly at the start of the current term, the First Minister said:

“This will be an open, inclusive, and transparent administration, ready to work with others where it is in the national interest. A critical 5 years lie ahead. My relentless focus, and that of my Cabinet and Ministers, will be on driving improvement in our economy and the vital public services that the people of Wales rely on every day”

4 Welsh Government Consolidated Accounts 2015-16 Annual Report

The Cabinet During the financial year 2015‑16 there were no changes to Cabinet the Cabinet consisted of eight responsibilities during the 2015-16 Ministers and four Deputy Minister financial year: posts, plus the Counsel General and

Rt. Hon Carwyn Jones First Minister Leighton Andrews Minister for Public Services Mark Drakeford Minister for Health and Social Services Lesley Griffiths Minister for Communities and Tackling Poverty Edwina Hart MBE CStJ Minister for Economy, Science and Transport Jane Hutt Minister for Finance and Government Business Huw Lewis Minister for Education and Skills Carl Sargeant Minister for Natural Resources Rebecca Evans Deputy Minister for Farming and Food Vaughan Gething Deputy Minister for Health Julie James Deputy Minister for Skills and Technology Ken Skates Deputy Minister for Culture, Sport and Tourism Theodore Huckle Counsel General

5 Annual Report

Following the election in May, 2016, Carwyn Jones was reappointed as First Minister of Wales and he announced his new Cabinet and Ministers.

Rt. Hon Carwyn Jones First Minister Jane Hutt Leader of the House and Chief Whip Mark Drakeford Cabinet Secretary for Finance and Local Government Vaughan Gething Cabinet Secretary for Health, Well-being and Sport Lesley Griffiths Cabinet Secretary for Environment and Rural Affairs Carl Sargeant Cabinet Secretary for Communities and Children Ken Skates Cabinet Secretary for Economy and Infastructure Kirsty Williams Cabinet Secretary for Education Alun Davies Minister for Lifelong Learning and Welsh Language Rebecca Evans Minister for Social Services and Public Health Julie James Minister for Skills and Science Mick Antoniw Counsel General

6 Welsh Government Consolidated Accounts 2015-16 Annual Report

What the The level of funding available on 25 November 2015. Overall the Welsh Government for devolved public expenditure budget increases in cash terms in in Wales is set through UK each year of the settlement. By spends Government Spending Reviews. This 2019-20 it will be approximately 4 is a Treasury-led process to allocate per cent higher than in this year, resources across all UK Government with an increase of a little under Departments and Devolved £400m in revenue and £200m in Administrations. Adjustments to the capital. level of funding for Wales – negative However, as shown in the graph, or positive – are determined through after taking inflation into account, the Barnett Formula. the Budget will decline by 3.6 per The Welsh Government’s Budget cent in real terms, representing a from 2016-17 to 2019-20 was set reduction of approximately £432 by the UK Government in its recent million. The settlement therefore Spending Review, which concluded remains exceptionally challenging.

Budget - Real Terms (2015-2016 prices)

17 Actual Forecast

16 £billions 15

14 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

Welsh Government Consolidated Accounts 2015-16 7 Annual Report

Expenditure in Expenditure is £13.5 billion which Social Services. A further £0.5 billion 2015-16 is net of £1.8 billion income. is funding from the European The majority of this income – Union. £1.1 billion is funding from the The net expenditure as authorised National Insurance for Health and by Welsh Ministers, is shown below:

Health and Social Services £5.5bn

Natural Resources £0.4bn

Communities and Tackling Poverty £0.7bn

Central Services and Administration £0.3bn

Economy, Science and Transport £1.3bn

Education and Skills £1.8bn

Local Government £3.5bn

8 Welsh Government Consolidated Accounts 2015-16 Annual Report

Welsh Government Given the extent of devolved Fund for Wales LLP, WG Holdco Ltd Accounting responsibilities, the Welsh and Careers Choices). Whilst the Government Accounts for 2015- Welsh Government funds the Welsh Boundaries 2015-16 16 cover the Welsh Government NHS Trusts, Welsh Government core (the Welsh Government Sponsored Bodies and Commissioner itself) and the Welsh Government Bodies they are not consolidated Group (consolidation with Welsh into the Welsh Government NHS Local Health Boards, Finance accounts. Wales, Regeneration Investment

Organisations not included in the account boundaries

Included in the consolidated accounts

Welsh Welsh Local NHS Authorities Trusts Welsh Welsh NHS Subsidiaries Government Local Core Health Boards

Welsh Commissioner Government Bodies Sponsored Bodies

Welsh Government Consolidated Accounts 2015-16 9 Annual Report

Delivering for In June 2015, the Welsh ‘St David’s Day Process’, begun Ministers Government’s last Programme following the result of the Scottish for Government Annual Report Referendum in summer 2014, was published setting out the was published. A draft Wales Bill Government’s achievements across followed, and throughout the four themes: educational attainment; year the Welsh Government civil growth and jobs; health and health service has been in close contact services; and supporting children, with Whitehall counterparts on the families and deprived communities. content of the Bill. During a pause As the remainder of the year in the process, in March 2016 the running up to the 5th Assembly Welsh Government published its elections unfolded, the organisation own alternative Bill, setting out the maintained its focus on delivering Welsh Government’s conclusions the final stages of the Government’s on how to make a reserved powers Programme. model work for Wales. And on 7 June 2016, the UK Government A critical part of this work was the introduced a revised Wales Bill into completion of the Government’s Parliament; discussions on the detail legislative programme. Starting the of the Bill are continuing. financial year with 17 Acts on the statute book, during the year a In contrast to work on the long- further ten Bills received Royal Assent term future of the UK constitution, to become Acts of the Assembly, emergency situations inevitably arise. including the Well-being of Future While work to support the steel Generations Act (Wales) Act 2015. industry in Wales has been in hand July 2015 saw the introduction into for some time, towards the end of the Assembly of the first Welsh tax this financial year the situation in the legislation – the Tax Collection and Welsh steel industry reached crisis Management (Wales) Bill. The Bill point, with the future of the TATA received Royal Assent in April 2016, Steel works in Port Talbot in doubt. and will establish the Welsh Revenue In April 2016, the First Minister Authority, which will be responsible committed to the Welsh Government for collecting and managing doing whatever it can within its devolved taxes, and places duties on powers and resources to support the Welsh tax payers. Further legislation industry in Wales. is due later in 2016. Indeed, 2015 -16 was punctuated by important developments in the Devolution settlement for Wales. Just before the start of the year, the outcome of the UK Government’s

10 Welsh Government Consolidated Accounts 2015-16 Annual Report

During the last financial year, the following Bills received Royal Assent, becoming Acts of the Assembly:

Well-being of Future Generations (Wales) Act 2015

Violence against Women, Domestic Abuse and Sexual Violence (Wales) Act 2015

Planning (Wales) Act 2015

Qualifications Wales Act 2015

Local Government (Wales) Act 2015

Renting Homes (Wales) Act 2016

Regulation and Inspection of Social Care (Wales) Act 2016

Environment (Wales) Act 2016

Historic Environment (Wales) Act 2016

Nurse Staffing Levels (Wales) Act 2016

Welsh Government Consolidated Accounts 2015-16 11 Annual Report

Well-being of Coming into effect from April 2016, help people understand the Future Generations the Act provides a framework for requirements of the Act and how the way in which the objectives it will support more effective Goals and of the next Welsh Government delivery programme will be delivered and Principles • revising key business processes also of the wider public service. and guidance to ensure that Work is in hand to this effect, they support implementation including: of the Act • adopting a common business • improving policy capacity and planning system which enables skills to enable colleagues more effective joint planning and to provide better support to working in support of the well- Ministers and to put the focus being goals on impact and effectiveness of • undertaking awareness interventions aimed at addressing and engagement activity to the big challenges.

A globally responsible A prosperous Wales Wales

A Wales of vibrant culture A resilient and thriving Wales Welsh Language

A Wales of cohesive A healthier communities Wales

A more equal Wales

Implementing the In March 2016, the first tranche of as the way colleagues work with Welsh Language the new Welsh Language Standards each other. for the organisation came into AEG W R EL M S Standards force. Y H C Over the past year improvements have been made to the way the organisation interacts with citizens and other organisations as well

12 Welsh Government Consolidated Accounts 2015-16 Annual Report

The Civil Service The civil service is the non-political and the Director General for the administration that supports Welsh Health and Social Services Group Government ministers. The core (also Chief Executive of NHS Wales). strengths of the civil service The smaller number of groups provide a solid foundation for the is more economical, provides organisation – political neutrality; clearer direction and enables efficient administration; good more collaborative working on governance, sound management Government priorities. Each Head of public funds. of Group also has a number of corporate responsibilities for leading In September 2015 I introduced and developing the organisation as some significant changes to the a whole. management structure of the organisation. Staff now work within Over £15 million of staff resource one of four Groups – headed by has been realigned across the the Permanent Secretary, two organisation to support Ministerial Deputy Permanent Secretaries, priorities. Overview of Group Structure

Derek Jones, Permanent Secretary

Office of the First Minister and Cabinet • Welsh Treasury • Governance and Performance • Legal Services • Constitutional Affairs and Inter- Owen Evans • Local Government Governmental Relations Deputy Permanent • Communities & Tackling Poverty • Corporate Services • Housing & Regeneration • Finance Secretary, Education and • Education Directorate • Wales European Funding Office Public Services Group • Office of the Chief Digital Officer • Office of the First Minister • Care and Social Services Inspectorate Wales • Healthcare Inspectorate Wales • Welsh language • Operations Directorate

Andrew Goodall • NHS Delivery & Performance As part of the restructuring • Workforce & Organisational Development work the Welsh Government Director General, Health • NHS Finance and Social Services Group, • Digital, Change & Innovation Board was also refreshed Chief Executive NHS Wales • Mental Health & NHS Governance with the organisation’s • Social Services & Innovation HR Director and Finance • Chief Medical Officer Director becoming full • Chief Nursing Officer members of the Board • Knowledge & Analytical Services and members representing employee engagement and James Price • Agriculture, Food & Marine equality and diversity were Deputy Permanent • Environment & Sustainable Development also added. • Chief Veterinary Officer Secretary, Economy, • Economic Strategy Skills and Natural • Sectors and Business More details on the Board • Transport can be found on page 22. Resources • Planning • Skills, Higher Education & Lifelong Learning • Finance & Operations • Chief Scientific Adviser • Tourism, Heritage & Sport • National Procurement Service & Value Wales

Welsh Government Consolidated Accounts 2015-16 13 Annual Report

Preparing for Preparing for the Future is the Welsh effectiveness of our grants practice. the Future Government’s business improvement This is building on the work of the programme with the primary aim of Grants Improvement Project with developing a Welsh Government civil a focus on making improvements service that better meets the needs within the new Group structures. of Ministers and provides excellent The Flexible and Productive leadership of Welsh public services. Working workstream has Commencing in February 2015, the undertaken a range of activities programme identified ways for the to lay the foundations to enable organisation to be agile, flexible, more agile working. In July 2016 capable and affordable. this resulted in the start of a 6 The programme is supported by four month pilot at the Merthyr office workstreams: with staff exploring different ways of working including spaces, work- The Leadership and Capability styles and the introduction of new Workstream has been focussed on communication tools. developing the leadership capability and the skills and support needed The Commercial Governance across the organisation. workstream is looking at new approaches to procurement and The Business and Common payment alongside strengthening Corporate Services Improvement our contract management skills and workstream, is focusing on capability. Commercial Governance developing an effective and efficient is an important area for the Welsh model for providing common Government which currently spends services across the organisation half-a-billion pounds annually on to make them more streamlined, goods and services. In the first efficient and responsive to Ministers half of last year, the workstream and business needs. One area reported over £7m of procurement that is currently being examined savings. is improving the efficiency and

Reducing Creating more capacity to meet provided to Ministers. Ongoing work Complexity the challenges ahead by reducing for the next financial year includes a unnecessary complexity has Public Policy Institute for Wales study continued to be a theme. This year on the organisation’s approach to there was a focus on improving how impact assessments, aligned to the e-mail is used, on record keeping well-being goals. and improving how advice is

14 Welsh Government Consolidated Accounts 2015-16 Annual Report

Welsh At the end of the financial year, Government North Wales the Welsh Government civil service had 5,169 full time equivalent staff 518 staff, a fall of over 300 staff during the year.

Homeworkers 53 Mid Wales Outside Wales 18 447

South West Wales 472 South East Wales 1,218

Cardiff 2,443

Welsh Government As at April 2016 there are The strategy provides the potential offices to reduce to a total of 24 properties, 30 properties estimated gross savings of £3.46m and annual running cost savings of £2.52m. Capital receipts from freehold disposals are estimated at between £6.25m and £7.8m.

with 23 offices and7 non‑office sites compared to 2010 when there were NW 75 properties with 65 offices and10 non-office sites. MW The 2015-20 Location Strategy published London this financial year continues to position SWW SEW the estate across 5 geographical areas in Cardiff Wales, and a small but important office in London.

Welsh Government Consolidated Accounts 2015-16 15 Annual Report

Sustainability The organisation continues recycling rates and reduction in the reporting to improve its environmental amount of waste we produce. performance by taking a pro- In 2015/16 the five year Carbon active approach, working closely Management Strategy and with technical specialists in order associated action plan for the to meet Government targets and organisation was concluded. enhance energy, water and waste During 2016/17 a new strategy management. will be created that will ensure the In 2015/16 carbon emissions were estate operates in an increasingly reduced by a significant 18% on the sustainable and efficient manner. previous year. The 2020 emissions Further details on greenhouse target of 30% has been exceeded gas emissions, waste produced by reaching a 45% carbon saving and water consumption on the on the 2010/11 baseline. There has Administrative Estate are shown also been a year on year increase in below:

Greenhouse Gas Emissions 2011-12 2012-13 2013-14 2014-15 2015-16 Non-Financial Total Gross Emissions 10.7 10.4 9.2 8.4 6.9 Indicators Gross Emissions Scope 1 (Gas) 1.9 1.9 1.5 1.3 1.1 (‘000 tCO e) 2 Gross Emissions Scope 2 8.8 8.5 7.7 7.1 5.8 (Electricity) Related Energy Electricity 16.0 15.9 14.2 13.4 11.8 Consumption (GWh) Gas 8.6 10.2 8.4 7.1 5.8 Financial Expenditure on Energy 2.0 2.3 2.3 2.1 2.1 Indicators CRC Allowances (2012 onwards) 0.18 0.10 0.11 0.16 0.27 (£million) Expenditure on official - - 4.3 4.5 4.7 business travel

Waste 2011-12 2012-13 2013-14 2014-15 2015-16 Non-Financial Total Waste (tonnes) 665 609 583 500 498 Indicators Hazardous Waste Total 1 1 - - - (tonnes) Non-Hazardous Landfill 268 202 184 127 112 Waste Reused/ 448 365 361 314 322 Recycled Composted (food) 76 42 38 59 64

Water 2011-12 2012-13 2013-14 2014-15 2015-16 Non-Financial Indicators (cu.m/person/yr) 10 8 10 8 8

16 Welsh Government Consolidated Accounts 2015-16 Annual Report

Developing The organisation continues to provide A ‘Women as Leaders’ programme Welsh Government staff with 5 days of learning and was designed for women at development each year. A new Executive band level to support the staff 2015-18 learning and development pledge of... strategy was developed, aligned to 50:50 equal organisational priorities and including gender balance new courses for managers. in the Senior In 2015-16... Civil Service by 2020 training courses 403 have been delivered Development programmes were introduced for individuals with protected characteristics, working with our 4 diversity networks.

with 4320 delegates The organisation re-confirmed across Welsh Government offices. its silver Investors in People Opportunities for e-learning were accreditation. The approach to increased with modules including learning and development recorded ‘Unconscious Bias’ and ‘Attendance the biggest improvement across the Management’. areas assessed. 174 colleagues applied for Welsh “An extremely comprehensive, language training in 2015-16 and extensive and easily accessible exams took place in June. This is offering of learning, training and supplemented with ‘Coffi a Chlonc’ development opportunities is drop-in sessions, mentoring, intensive available to all employees”. classes for proficiency level and IiP assessment report, e-learning for complete beginners. June 2015

Becoming a Creating a fairer organisation for fairer place to work everyone who works here has been one of this year’s priorities. The Welsh Government was ranked the ​ 17th top UK employer in the Stonewall Workplace Equality Index, a rise of 17 places on last year’s index. We were voted the

2nd top Government organisation in the UK and

4th top employer in Wales.​ PRISM, the sexual orientation and gender identity staff network, took Stonewall’s Best Performing Network Award.

Welsh Government Consolidated Accounts 2015-16 17 Annual Report

Listening and Involving staff and listening to 71% of staff responded with a responding to their feedback has been key positive employee engagement score to the organisations business of 62% which has held steady since feedback improvement approach, with the last survey. Results were above an ongoing programme of the Civil Service average in nine out engagement opportunities. of the ten survey themes. The People Survey provides the The lowest scoring area was in opportunity for staff to provide leadership and managing change. feedback on what it’s like to work Whilst that is to be expected to in the Welsh Government Civil some degree given the amount Service. Held in January this time, of business improvement and the results have identified where development work underway, the organisation is doing well and addressing this will be an important the areas in need of action to focus for the year ahead. ensure continual improvement.

Overview of 898 Freedom of administrative Information requests performance received with 766 (85%) responded to within the statutory deadline.

99,319 28,713 telephone calls invoices paid with a total value were received by the First Point of Contact Centre. of £1,827m and The organisation operates a 96% customer complaints procedure were paid within 10 days which the Public Services Ombudsman for Wales has approved and urged all other public service providers in Wales to adopt within their organisations. Information relating to complaints about all public service providers is 432 grants schemes published by the Ombudsman in his administered totalling Annual Report and the number of £13.6billion complaints about the organisation which led to an investigation is consistently low each year.

18 Welsh Government Consolidated Accounts 2015-16 Accountability ReportAnnual 2015-2016 Report Accountability Report Statement of Accounting Officer’s Responsibilities

Under Section 131 of the Government applicable accounting standards, of Wales Act 2006, the Welsh as set out in the FReM, have been Ministers are required to prepare followed and disclose and explain the annual consolidated resource any material departures in the accounts for the Welsh Government accounts; and prepare the accounts on in accordance with directions given a going concern basis. by HM Treasury. The Treasury Under Section 133(2) of the directions require the detailing of the Government of Wales Act 2006 resources acquired, held, or disposed the PAO is able to designate other of during the period. members of the Welsh Government The consolidated resource accounts staff as Additional Accounting Officers. are prepared on an accruals basis The PAO also designates the Chief and must give a true and fair view Executive of the NHS as Accounting of the state of affairs of the Welsh Officer of the National Health Service Government and the other entities in Wales. The work of the Local within the group at the end of the Health Boards in Wales is governed period and of their net expenditure by separate authority and the Chief and cash flows for the financial Executives of each of the Local Health period. Boards are appointed as Accountable Officers by the Chief Executive of the The Principal Accounting Officer NHS in Wales. These appointments (PAO) for the Welsh Ministers do not detract from the PAO’s has responsibility for the overall overall responsibility for the Welsh organisation, management and Government accounts. staffing of the Welsh Government. This includes responsibility for Welsh The responsibilities of an Accounting Government-wide systems in finance Officer, including responsibility for the and other matters, where these are propriety and regularity of the public appropriate, and for the management finances for which the Accounting of the Welsh Government’s net Officer is answerable, for keeping cash requirement. The PAO is also proper records, for safeguarding the responsible for preparing and signing Welsh Government’s assets and for the Welsh Government’s consolidated taking reasonable steps to prevent and resource account. detect fraud and other irregularities, are set out in the Welsh Government In preparing the accounts, the Accounting Officers’ Memorandum, PAO is required to comply with the issued by the Treasury. The relationship Financial Reporting Manual (FReM) between the PAO of the Welsh and, in particular, to: observe the Government and other Accounting relevant accounting and disclosure Officers, as described above, and their requirements and apply suitable respective responsibilities, are set out accounting policies on a consistent in written agreements between the basis; make judgements and estimates officials concerned. on a reasonable basis; state whether

Welsh Government Consolidated Accounts 2015-16 19 Accountability Report 2015-16

Governance Statement

Introduction As Principal Accounting Officer through a number of “Arms Length I am responsible for ensuring Bodies” (ALBs), including Welsh high standards of probity in the Government Sponsored Bodies management of public funds. (WGSBs), subsidiary companies In discharging this duty, I am and other government-funded responsible for maintaining a sound public bodies. Accounting Officers system of internal control that (or Chief Executives) appointed supports the achievement of the to each body are responsible for Welsh Government’s policies, aims their organisation’s management of and objectives, facilitates the effective public finances and are required to exercise of the functions of Welsh sign a governance statement which Ministers and which includes effective is published in their body’s annual arrangements for the management accounts. The relationship with the of risk. Welsh Government is defined in an appropriate form of written document The Welsh Government delivers for each body. its aims and objectives in part

The Governance The governance framework comprises of risk management, designed Framework the systems, processes, culture to identify and prioritise the risks and values by which the Welsh to the achievement of the Welsh Government is directed and controlled Government’s policies, aims and and the activities through which it objectives, to evaluate the likelihood accounts to the National Assembly for and impact of those risks being Wales and engages with stakeholders. realised and then to manage It enables the organisation to monitor them efficiently, effectively and the achievement of its policies, aims economically. and objectives and whether value for The governance framework has money has been obtained. been developed to comply with The system of internal control is a good governance and is supported significant part of the governance by Managing Welsh Public Money framework and is designed to manage which sets out the principles for risk to a reasonable level. From dealing with resources in Welsh public 1 July 2015, a new “Common Control sector organisations. This publication Framework” was implemented to was updated and the new edition support a major internal reorganisation of Managing Welsh Public Money of the Welsh Government from published in January 2016. While the seven Departments into four Groups; update made no material changes this more robust framework operates to the principles underpinning the consistently across all parts of the management of Welsh public money, Welsh Government. the new edition is better presented and organised to be more readable The governance framework and and accessible and also sets out the internal control system are also Welsh context more clearly. supported by an on-going process

20 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

The Board I am supported by the Welsh the Remuneration Committee) Government Board, which consists and one executive sub-committee of both Non-Executive and Executive (the Operations Committee). members. The Board takes the key I have met regularly with Board strategic decisions about how the members on a bilateral basis and Welsh Government Civil Service is with the Non-Executive Directors developed to support the Cabinet collectively on a monthly basis. and Ministers and ensures that we One of the Non-Executive Directors deliver what Ministers expect. provided a report as part of my I chaired the Board throughout the annual performance review, year, which met nine times in the which incorporated comments year to set direction and monitor the from representatives from the Board organisation’s performance. It has as well as external contributions. taken particular responsibility for The First Minister also contributed assessing and mitigating the highest to the review of my performance level corporate risks, supporting me as Permanent Secretary. All the in my role as Principal Accounting Board Members took part in an Officer. In particular, I am advised exercise at the end of the year by two non-executive led Board to assess the Board’s performance Sub-Committees (the Audit & since the reorganisation in Risk Assurance Committee and July 2015.

Board Membership From 1 April to 30 June 2015 The Lead Non-Executive Director (NED) was Elan Clos-Stephens and and Attendance Up to 30 June, the Board the Board members were: Membership reflected the internal structure of the Welsh Government.

Name Attendance Sir Adrian Webb (NED) 2/2 Andrew Goodall (Director General) 2/2 David Richards (Director) 2/2 Sir Derek Jones 2/2 Elan Clos-Stephens (NED) 1/2 Gareth Jones (Director General) 2/2 James Price (Director General) 2/2 James Turner (NED) 2/2 Jeff Godfrey (Director) 2/2 June Milligan (Director General) 2/2 Michael Hearty (Director General) 2/2 Owen Evans (Director General) 1/2

Welsh Government Consolidated Accounts 2015-16 21 Accountability Report 2015-16

From 1 July 2015 to 31 March 2016 to provide me with robust advice and support. Elan Clos-Stephens From 1 July, the new Board formed remained the lead NED and the and the membership was refined Board membership now is: over the remainder of the year,

Name Attendance Sir Adrian Webb (NED) 7/7 Andrew Goodall (Director General) 7/7 Ann Keane (NED) 2/2 David Richards (Director) 6/7 Sir Derek Jones 7/7 Elan Clos-Stephens (NED) 7/7 Gawain Evans (Director) 3/5 Gillian Baranski (Director) 6/6 James Price (Deputy PS) 6/7 James Turner (NED) 7/7 Jeff Godfrey (Director) 4/7 Natalie Pearson (Deputy Director) 6/6 Owen Evans (Deputy PS) 7/7 Peter Kennedy (Director) 6/6 Sioned Evans (Deputy Director) 3/3

Board At its meeting on 4 March 2016, of performance. The overall Self-Assessment the Board engaged in a workshop view was that the new Board to consider its performance since was working effectively and of Performance the reorganisation of the Welsh delivering the appropriate support Government from 1 July 2015, and oversight to the Permanent supported by a structured evaluation Secretary.

Board Sub I was supported by the Corporate throughout the year. CGCs also Committee: Governance Committee (CGC) operated at Department-level until up to June 2015 and, following June, becoming ARCs operating Audit & Risk the reorganisation in July, this at Group-level thereafter. Oversight Committee became the Audit of governance was strengthened and Risk Committee (ARC). and made more effective by The Committee was chaired by bringing the Chairs of the new a Non-Executive Director and Group ARCs onto the Welsh advised me in my capacity as Government ARC from July. Principal Accounting Officer

22 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

Board Sub The Board’s second sub- and all SCS personal cases. Committee: committee is the Remuneration A Non-Executive Director chaired Sub-Committee, which has been the Committee and I attended. Remuneration responsible for Senior Civil Service The Remuneration Committee does (SCS) pay and conditions, senior not set my own pay which is dealt succession planning and recruitment, with by the Cabinet Office.

The Senior During the first quarter of the year, cross‑government working. Leadership Team I was supported by a leadership From 1 July I have, therefore, been team of six Directors General, supported by a leadership team of each leading a Welsh Government two Deputy Permanent Secretaries department. I designated these and a Director General, each leading officials as “Additional Accounting a Welsh Government Group. Officers” (AAOs) to give them These officials remain as Additional personal responsibility and Accounting Officers (AAOs) and accountability for the proper and I have also designated a number of regular use of public finances specific Directors as AAOs to further and for the achievement of value strengthen corporate governance for money. I then introduced and accountability arrangements, management changes to create both for the use of public funds and a more economical civil service in accounting to the Public Accounts structure and to facilitate Committee.

Board Sub The Operations Committee (formerly focus. The Committee provides Committee: the “Operations Group”) supports advice on, and oversight and me and senior leaders with the management of, the running of Operations internal running of the organisation Welsh Government operations and on an operational level, allowing is constituted as the third, and final, the Board to maintain its strategic of the Board’s sub-committees.

Business Group The Business Group continues to organisation. Meetings are chaired focus on sharing information to by the Director of Governance and ensure that all Directors are aware attended by staff at Director level of the current issues from across the and above.

Welsh Government Consolidated Accounts 2015-16 23 Accountability Report 2015-16

Whistle Blowing Using the UK Public Accounts and one investigation is currently Committee’s report into ongoing. The founded concerns Whistleblowing as a guide, we were about process and procedure reviewed and strengthened our in two discrete staff teams without whistleblowing arrangements in the broader implications for the wider year. The Chair of the Trade Union Welsh Government. Appropriate Side has now been appointed to our remedial actions have been taken in Whistleblowing Panel and the Panel response. will be reporting to the Board twice The External Assurance Panel a year. All cases are considered by addresses concerns raised by the Panel and agreed action is taken external individuals, providing as swiftly as possible. Great care is a consistent, proportionate and taken to maintain confidentiality for appropriate response to their those involved. concerns about how Welsh The Whistleblowing and Civil Service Government funding has been Code policy, which was updated in handled by our delivery partners the year, explains what staff need and the beneficiaries of our grant to do if they suspect a colleague schemes. The Panel provides of wrongdoing. Information is advice to officials and identifies published on the Intranet and a any systemic issues which need programme of awareness raising to be addressed. Nine cases were has been undertaken. considered by the Panel in the year. Eight cases were investigated and Four cases were reported to the closed as unfounded. One case was Panel in the year, covering a range referred to the Police and remains a of different concerns. One case live investigation. was unfounded, two founded

Principal Accounting As Principal Accounting Officer, in his management letter and other Officer’s Annual I have responsibility for reviewing reports. I have been advised on the effectiveness of the governance the effectiveness of the system of Review of framework including the system of internal control by the Board and Effectiveness internal control. I take assurance the Audit and Risk Committee; from a wide spectrum of activities their advice has informed my review and my review of the effectiveness and all of the key improvements are of the system of internal control is outlined in this statement. informed by the work of Internal Led by the First Minister and Audit and those Welsh Government the Cabinet and other Ministers officials with responsibility for the which he appointed, the Welsh development and maintenance of Government’s responsibilities cover the internal control framework. key areas of public life. A wide range I also take assurance from of internal controls are in place to management responses to issues provide for the sound stewardship identified by the External Auditor of resources. From my review of (the Auditor General for Wales) the effectiveness of the governance

24 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

framework, I am satisfied that risk This year, I have been particularly has been generally well managed pleased with the progress made and that our systems of internal in meeting our diversity objectives. control continue to improve.

Internal Audit The Welsh Government Internal working protocol underpins the Audit Service operates to Public approach taken and quarterly Sector Internal Audit Standards. liaison meetings have been held The Internal Audit Service was to share information and agree subject to a five-yearly independent joint assignments. External Quality Assessment in The Welsh Government’s European the year. This was carried out by Funds Audit Team (EFAT) submitted the Institute of Internal Auditors an “Unqualified Opinion” on the and I can report the Service was four Structural Funds Operational found to be compliant with those Programmes in December 2015 in Standards. Internal Audit undertook their Annual Control Report and a full programme of work in the year Opinion for that year. This report based upon an analysis of the major has since been accepted by risks facing the organisation. The European Commission auditors. Head of Internal Audit submitted regular reports to the Corporate Based on its work over this reporting Governance Committees and period, in the Chair’s Annual Report then Audit & Risk Committees on for 2015/16, the Audit & Risk progress in implementing this audit Committee provided reasonable plan and I met regularly with her assurance on the adequacy of through the year to discuss audit audit arrangements for the Welsh matters. Government and on the assurances provided to the Principal Accounting The Head of Internal Audit, Officer in respect of governance, in her Annual Assurance report, risk management and control. provided me with “reasonable assurance” on the operation of In addition, Departmental Corporate the framework of governance, Governance Committees, succeeded control and risk management within by Group Audit & Risk Committees, the Welsh Government. This was met during the year to advise supported by the provision of the senior leadership team. I am “reasonable” assurances by each satisfied these committees operated of the Senior Leaders in respect of effectively and provided good their Groups. The Internal Audit support in monitoring and reviewing Service co‑ordinates its work with risk, control and governance that of the Wales Audit Office. processes. I also required the senior Co-ordination of audit plans leaders to complete an internal has progressed significantly this control questionnaire and a personal year with planned assignments Statement of Assurance to provide and special investigations being me with their assessment of the successfully undertaken. A joint effectiveness of their Group’s frameworks of internal control.

Welsh Government Consolidated Accounts 2015-16 25 Accountability Report 2015-16

Internal Control The positive assurances I have Fraud in Concessionary received provide me with confidence Bus Passes that the Welsh Government has, In early 2016, two Directors of in general, well designed and a north Wales bus company were sound frameworks of governance convicted of fraudulently claiming and internal control. However, around £900,000 in concessionary some matters arising in the year travel payments, which are funded showed that staff are not all by the Welsh Government, but fully aware of, or do not always administered by Welsh local comply properly with, corporate authorities in accordance with policies and procedures within the relevant legislation. The fraud the framework of internal control. highlighted the need to improve the I will address these issues through controls and oversight operated by the coming year by continuing to local authorities. My officials have revise and simplify procedures; taken steps to improve our capability making guidance simpler and more to counter fraud more readily and accessible; clarifying delegations effectively. We are working with and authorities; and continuing Local Authorities to assist them with a programme of face-to-face in their duty to identify fraud to governance training across the prevent its recurrence. organisation. Procurement Practice Information Technology In response to some poor Despite the low level of reported procurement practices, steps are data losses, I became aware in the being taken to revise delegated year of risks to the resilience of authorities for taking procurement Welsh Government information decisions so that procurement technology systems following professionals are involved in, and a systems resilience review. As a sanction, procurement decisions consequence, I have asked the within a stronger, more robust Director of Corporate Services commercial governance regime. to establish a formal programme to improve the resilience of our IT systems and key business applications, improve our ability to respond to IT recovery situations and inform the development and readiness to move to identified solutions that better meet our future needs.

26 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

Analytical Models the Auditor General for Wales issued As last year, I asked Senior Leaders his report on the Wales Life Sciences to provide me with assurance in Investment Fund. In both cases, respect of their assessment of the Welsh Government has already the reliability and robustness of implemented various improvements the analytical models on which to processes, procedures and they rely to make critical business guidance to strengthen governance decisions. I have been assured that and control in the relevant areas, the analytical models used by the but also recognises there are wider Welsh Government are sound and aspects of governance that require are subject to adequate validation further attention, in particular: and review. Nevertheless, an audit • greater clarity about standards of arrangements in year identified of ethical conduct required of improvements required in the quality organisations funded by the assurance of analytical models. Welsh Government; Legacy Issues • greater clarity about oversight In addition to the issues identified of, and governance relationship in year, two long-running matters between, the Welsh Government reached their conclusion during and “arms length bodies” acting 2015/16: the AGW published his on its behalf; report and then the PAC heard • better, more transparent evidence and published its own management of perceived report into the Regeneration conflicts of interest. Investment Fund for Wales and

Welsh Government Consolidated Accounts 2015-16 27 Accountability Report 2015-16

Information As Principal Accounting Officer, the Standard but do not require Governance I am responsible for ensuring formal certification; for reasons that appropriate arrangements of cost effectiveness, a decision are in place to comply with the was taken not to maintain formal core set of mandatory minimum certification from this time. measures to protect information in However, the Welsh Government’s Government Departments which corporate IT systems and associated require me to assess our risk and security polices continue to be ensure appropriate mitigation compliant with the requirements strategies are in place. of the Standard and are aligned with recommended practice and Where third parties handle procedures. This was confirmed information for which the Welsh by the programme of audit work Government is legally responsible, carried out by Internal Audit, it is important that advice and the positive conclusion of an guidance is provided to them inspection of our cryptographic about how that information must handling arrangements by the be handled. Information assurance Communications Electronics Security clauses are included as standard in Group (the UK National Technical requirement specifications by means Authority for Information Assurance) of a Security Aspects Letter. We and by the positive assurance also verify that those who process I have received from the Welsh our sensitive information meet the Government Senior Information “Cyber Essentials” standard. Responsible Owner (SIRO). Up to July 2015, the Welsh I am pleased to report there have Government maintained its been no data loss incidents reported formal certification to ISO 27001, to the Information Commissioner’s the international standard for Office in the year. Minor incidents information security management. not needing to be reported are set EC regulations require the Welsh out below. Government to be compliant with

Summary of Other Protected Personal Data Related Incidents Incidents deemed by the Data Controller not to fall within the criteria for reporting to the ICO but recorded centrally are set out in the table below Type Nature of incident 2015-16 I Loss of inadequately protected electronic equipment, devices or paper documents from secured 5 Government premises II Loss of inadequately protected electronic equipment, devices or paper documents from outside 1 secured Government premises III Insecure disposal of inadequately protected electronic equipment, devices or paper documents - IV Unauthorised disclosure 33* V Other 3

* Last year there were 18 equivalent incidents. These are immaterial breaches where data has been “lost”, for example, sent to the wrong person, but the “loss” has been contained and the data shared no further. Most losses were via email and represent only a tiny proportion of the 345,000 external emails we sent each month.

28 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

Local Accountability A considerable proportion of their own borrowing capacity. the expenditure of the Welsh Similar arrangements apply to Government is distributed to Welsh the provision for police and Local Authorities and NHS Wales crime commissioners who are to deliver policy objectives relating funded through a mix of RSG and to health, social care and public redistributed non-domestics rates services. The Director General of from the Welsh Government and the Health and Social Services Group Police Grant from the Home Office, within the Welsh Government is also from specific grants and from Chief Executive of NHS Wales. council tax. Other authorities are Local Authorities funded through arrangements such The Welsh Government provides as levies and precepts. grant funding for local authorities Each authority is accountable in Wales, which include unitary, for how it uses the funding in fire and rescue, national park delivering the functions for which authorities, and police and crime it is responsible. Unitary authorities commissioners. The largest single have an appointed officer under component of grant funding is section 151 of the Local Government the Revenue Support Grant paid Act 1972 who has statutory to unitary authorities which may duties to ensure there is proper be used for any purpose those administration of financial affairs. authorities choose in delivering In addition to the production, audit the services for which they are and publication of annual financial responsible. Revenue Support Grant accounts, authorities are held to is distributed on the basis of a account by their scrutiny functions formula which reflects the factors and they are also subject to annual that drive authorities’ need to spend improvement audits conducted to deliver a wide range of services, by the Auditor General for Wales including education and social care. covering value for money as well as The Welsh Government also governance and capacity matters. provides funding to authorities In respect of funding provided through grants that can be used for specific purposes, individual only for the specific purposes for grant terms and conditions are the which they are provided. In addition, responsibility of the relevant policy unitary authorities receive some departments. It is a requirement that specific grants from UK Government these terms and conditions have Departments for non-devolved due regard to the Grant Centre of functions, income from nationally- Excellence Minimum Standards for set non-domestic rates distributed Grant Funding. Adherence to these by the Welsh Government, from standards should ensure compliance locally-set council tax and from with the Welsh Government’s fees, charges and other income. governance and financial Unitary authorities also receive arrangements, relevant law, policy Welsh Government grants for capital and good practice. With regard spending, which is supplemented by to funding provided by the

Welsh Government Consolidated Accounts 2015-16 29 Accountability Report 2015-16

Local Accountability UK Government in respect of In his Governance Statement for (continued) non devolved functions, the 2015/16, the NHS Chief Executive arrangements for accountability has reported that all Local Health will be agreed between the Local Boards (LHBs) and NHS trusts have Authorities and the relevant UK declared their assessment within Government Department. their respective Annual Governance Statements that generally sound Under the Local Government systems of internal control were Support and Intervention Protocol, in place to support the delivery of no Local Authorities were offered their policy aims and objectives new support packages and four for 2015/16. All three NHS trusts Local Authorities were removed from have reported a conclusion of “special measures” with regards no significant governance issues to their education services. Thus, within their Annual Governance at the end of 2015/16, no Local Statements. Five of the seven Authorities were classed as being in LHBs have concluded that there “special measures”. Improvement are no significant internal control and Support Conferences, including or governance issues. The two representatives from the WAO, exceptions are as follows. Betsi Estyn, CSSIW and the WLGA, Cadwaladr University Health Board continue to be held regularly to has concluded that, whilst there discuss where early additional has been evidence of progress support could be offered to support in improving internal control and Local Authority improvement. governance during 2015/16, there Health remain a number of significant issues Funding is provided to Local Health which have been identified and Boards (LHBs) to commission and account for the Board entering into, provide Hospital and Community and remaining in, special measures Health Services and to meet the during the year. Powys Local Health costs of drugs prescribed by GPs for Board has highlighted weaknesses in their resident populations. Funding their control arrangements and non- is also provided to cover the costs compliance with Standing Financial of payments to independent Instructions in respect of matters contractors (including GPs, relating to capital and estates General Dental Practitioners and expenditure. Pharmacists). Additional targeted In addition, in accordance with the funding is added to the core Welsh Government NHS Escalation allocation and used to support the and Intervention Arrangements, a achievement of Welsh Government number of NHS Wales organisations objectives. Capital funding is have been on escalated monitoring provided to LHBs to support the arrangements in the 2015/16 All Wales Capital Programme financial year, being Abertawe Bro and other Welsh Government Morganwwg University Health discretionary capital funding is Board, Cardiff and Vale University also provided to support locally Health Board, Hywel Dda University identified priorities. Health Board and Welsh Ambulance Services NHS Trust.

30 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

Risk Profile The risk profile of the Welsh into from time to time to support Government is extensive and businesses in Wales. varied, as would be expected In addition to contingent risks, the from the broad range of different Welsh Government carries a number activities in which the Welsh of long-term risks where the risk Government is involved. It carries arises from uncertainties involved a number of contingent risks in the eventual outcome or cost to (high impact but highly unlikely the Welsh Government, such as to be realised) which arise from Student Loans and the “Help to its regulatory responsibilities, for Buy” scheme. On a day-to-day example its responsibilities in the basis, operational risks arise, in event of an outbreak of human general, from challenges of ensuring or animal disease in Wales, its sufficient capacity and capability responsibility for the Welsh transport to advise on and to deliver the key infrastructure and its obligations policy objectives of the First Minister under the guarantees that it enters and his Cabinet.

Capacity to The Welsh Government’s risk necessary in order to achieve its Handle Risk management policy is based on objectives, principally, those that HM Treasury’s “Orange Book” cannot be managed at Group level guidance for managing risk and and those of a corporate nature has the key objective of ensuring which could have an impact across that there is a consistent process the whole organisation. in place for measuring, controlling, Corporate risks have been monitoring and reporting risk across reviewed regularly by the Board the organisation. I have been clear through the year and have been that managing risk effectively should discussed periodically at the not lead the Welsh Government Corporate Governance/Audit & to be unduly risk averse and, in Risk Committee. Mitigating risk pursuit of its objectives, the Welsh is a management responsibility Government must be prepared to and each Director General/Deputy take risks which have been properly Permanent Secretary was responsible assessed, evaluated and managed for managing risk and opportunity to encourage more effective at the Department, and then exploitation of opportunities as Group level in respect of their key they arise, whilst accepting that objectives. Department, and then some failures may occur. Group, risks were reviewed regularly Corporately, the Board is responsible by senior management teams and for overseeing the implementation by the Departmental Corporate of the risk management policy and Governance Committees, who were process and for oversight of the key succeeded by Group Audit & Risk risks facing the Welsh Government Committees. This oversight was that might prevent or hinder the underpinned by risk registers at each organisation from achieving its level of organisation within each strategic objectives, or may be Department and Group.

Welsh Government Consolidated Accounts 2015-16 31 Accountability Report 2015-16

Ministerial Direction My accountability requires me standard, I am expected to advise to ensure that public money is the relevant Minister and seek their expended in a manner consistent formal direction to continue on that with the principles of regularity, course of action. During the period propriety and value for money. covered by these accounts and their If I, or my officials, are directed signing, no Ministerial Directions to undertake a course of action have been issued by Welsh that we believe does not meet this Ministers.

Conclusion The system of internal control has the governance framework and been in place in the organisation am satisfied that the organisation for the year ending 31 March 2016 has maintained a sound system of and up to the date of approval of internal control during this time, the Annual Report and Consolidated that action is being taken to further Accounts. It accords with HM improve internal controls and to Treasury guidance. I have reviewed tackle weaknesses where they have the evidence provided to me by been identified. my review of the effectiveness of

Sir Derek Jones KCB Permanent Secretary and Principal Accounting Officer

Date: 3 August 2016

32 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

Remuneration and Staff Report 2015-2016

Remuneration Policy The remuneration of senior civil The Review Body also advises on the servants is set at UK Government pay and pensions of Ministers where level following independent advice pay is determined by the Ministerial from the Review Body on Senior and Other Salaries Act 1975. Salaries. The Welsh Government Further information about the work has delegated responsibility for the of the Review Body can be found at remuneration of non-SCS staff. www.ome.uk.com

Service Contracts The Constitutional Reform and appointments, which are open- Governance Act 2010, requires Civil ended. Early termination, other than Service appointments to be made for misconduct, would result in the on merit on the basis of fair and individual receiving compensation open competition. The Recruitment as set out in the Civil Service Principles published by the Civil Compensation Scheme. Service Commission specify the Further information about circumstances when appointments the work of the Civil Service may be made otherwise. Commission can be found at Unless otherwise stated below, the www.civilservicecommission. officials covered by this report hold org.uk

Welsh Government In line with the ‘Transparency of b) the number of senior posts within Annual Pay Policy senior remuneration in the devolved the body with a remuneration Welsh public sector’ principles package of more than £100,000 Statement published on 7 December 2015 the in bands of £5,000 Welsh Government will publish a c) the approach to internal talent pay policy statement on its website. management The Pay Policy Statement will d) the approach to performance cover the Welsh Government’s related pay definition of both “senior posts” and “lowest-paid employees” e) the approach to providing and the relationship between the support for lower paid staff remuneration of senior posts and f) the highest and lowest pay that of the lowest-paid employees. points It will also cover: g) the severance policies a) demonstrable evidence of operated and how and in what affordability and value for money circumstances these can be varied.

Remuneration This section is subject to audit and The following sections provide (including salary) and is covered by the Auditor General’s details of the remuneration and audit opinion, with the exception of pension interests of the Ministers pension entitlements sickness absence data. and the most senior management (i.e. Board members).

Welsh Government Consolidated Accounts 2015-16 33 Accountability Report 2015-16

Remuneration The remuneration of the First Ministerial salaries include their Minister and his Cabinet team, salaries and entitlements (including who served during the year, is noted pension entitlements) as Assembly below. These costs are reflected Members. Benefits in kind related to in the accounts of the National Assembly Members responsibilities Assembly for Wales Commission are not included in the table below. and not the Welsh Government.

Single total figure of remuneration

Ministers Salary Salary Pension Pension Total Total 2015-16 2014-15 benefits benefits (to nearest (to nearest (to nearest (to nearest £1000) £1000) £1000)1 £1000)1 2015-16 2014-15 2015-16 2014-15 £ £ £ £ £ £ Rt. Hon Carwyn Jones, 132,965 132,427 59,000 46,000 192,000 178,000 First Minister Leighton Andrews, Welsh Minister 95,149 52,299 44,000 16,000 139,000 68,000 (from 12/09/14) Edwina Hart MBE CStJ, 95,149 94,611 46,000 29,000 141,000 124,000 Welsh Minister Lesley Griffiths, 95,149 94,611 42,000 34,000 137,000 129,000 Welsh Minister Jane Hutt, 95,149 94,611 47,000 28,000 142,000 123,000 Welsh Minister Carl Sargeant, 95,149 94,611 42,000 33,000 137,000 127,000 Welsh Minister Huw Lewis, 95,149 94,611 44,000 32,000 139,000 127,000 Welsh Minister Mark Drakeford, 95,149 94,611 40,000 37,000 135,000 132,000 Welsh Minister Theodore Huckle, 96,340 95,801 40,000 37,000 136,000 133,000 Counsel General Rebecca Evans, Deputy Welsh Minister 80,027 57,907 33,000 26,000 113,000 84,000 (from 09/07/14 ) Julie James, Deputy Welsh Minister 80,027 43,940 33,000 17,000 113,000 61,000 (from 12/09/14) Vaughan Gething, 80,027 79,489 35,000 29,000 115,000 108,000 Deputy Welsh Minister Ken Skates, 80,027 79,489 28,000 26,000 108,000 105,000 Deputy Welsh Minister

1 Pension benefits are calculated on a formula basis which can create year on year variations

34 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

Ministers Accrued Real increase CETV CETV Real increase in Pension at in pension and at 31/03/16 at 31/03/15 CETV pension age as related lump at 31/03/16 and sum at pension related lump sum age £000 £000 £000 £000 £000 Rt. Hon Carwyn Jones, 45-50 2.5-5 495 440 26 First Minister Leighton Andrews, 35-40 2.5-5 560 505 30 Welsh Minister Edwina Hart MBE CStJ, 40-45 2.5-5 635 575 31 Welsh Minister Lesley Griffiths, 20-25 2.5-5 325 280 26 Welsh Minister Jane Hutt, 45-50 2.5-5 815 783 40 Welsh Minister Carl Sargeant, 20-25 2.5-5 256 222 17 Welsh Minister Huw Lewis, 30-35 2.5-5 387 344 23 Welsh Minister Mark Drakeford, 10-15 0-2.5 167 124 30 Welsh Minister Theodore Huckle, 10-15 2.5-5 144 110 21 Counsel General Rebecca Evans, 5-10 0-2.5 68 50 8 Deputy Welsh Minister Julie James, 5-10 0-2.5 119 86 22 Deputy Welsh Minister Vaughan Gething, 15-20 0-2.5 136 114 11 Deputy Welsh Minister Ken Skates, 5-10 0-2.5 54 39 8 Deputy Welsh Minister

The factors used to calculate the CETV were reviewed by the scheme actuary in 2015, so the table of factors used to calculate the CETV in 2015 are not the same as those used to calculate the CETV in 2016.

Welsh Government Consolidated Accounts 2015-16 35 Accountability Report 2015-16

Single total figure The Financial Reporting Manual tax purposes. As a result the figures of remuneration (FReM) requires that all central can be influenced by other factors Government Departments such as an individual deciding to include a Single Total Figure make additional contributions of Remuneration along with or valuation factors that impact a prior year comparative within the pension scheme as a whole the remuneration report. Total and are, therefore, not always a remuneration includes salary, bonus true representation of the actual payments and benefits in kind, plus amounts of pension paid or earned the addition of a pension benefit by an individual in any one year. figure. Pension benefits have been Nevertheless, this methodology calculated using the methodology applies to all government used to derive pension values for departments including NHS bodies.

Single total figure of remuneration – Senior officials of the Welsh Government

Salary Salary Pension Pension Total Total 2015-16 2014-15 benefits benefits (to nearest (to nearest (to nearest (to nearest £1000) £1000) £1000)3 £1000)3 2015-16 2014-15 2015-16 2014-15 £000 £000 £000 £000 £000 £000

Sir Derek Jones KCB, 160-165 160-165 50-55 30-35 215-220 195-200 Permanent Secretary

160-165 Andrew Goodall,1 (full year Director General 195-200 * 50-55 195-200 210-215 equivalent (from 08/06/2014) 195-200) Owen Evans, Deputy Permanent 135-140 130-135 50-55 50-55 185-190 180-185 Secretary previously Director General James Price, Deputy Permanent 135-140 130-135 60-65 25-30 195-200 160-165 Secretary previously Director General

David Richards, 100-105 95-100 10-15 30-35 110 -115 130-135 Director of Governance

Jeff Godfrey, 105-110 105-110 40-45 10-15 150-155 115 -120 Director Legal Services

Natalie Pearson, 45-50 Head of Engagement (full year - 15-20 - 60-65 - and Communication equivalent (from 01/09/2015 ) 75-80) Gillian Baranski, 55-60 Equality and Diversity (full year - 5-10 - 65-70 - Champion equivalent) (from 01/09/2015) 95-100) 25-30 Sioned Evans, (full year Chair of Operations Group - 10-15 - 35-40 - equivalent (from 01/12/2015) 75-80)

36 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

Salary Salary Pension Pension Total Total 2015-16 2014-15 benefits benefits (to nearest (to nearest (to nearest (to nearest £1000) £1000) £1000)3 £1000)3 2015-16 2014-15 2015-16 2014-15 £000 £000 £000 £000 £000 £000 50-55 Peter Kennedy, (full year Director of HR - 15-20 - 70-75 - equivalent (from 01/09/2015) 90-95) 35-40 Gawain Evans, (full year Director of Finance - 50-55 - 90-95 - equivalent (from 20/10/2015) 85-90) 65-70 June Milligan, (full year Director General 130-135 25-30 35-40 95-100 170-175 equivalent (to 30/09/2015) 135-140) 85-90 Michael Hearty,2 (full year Director General 140-145 25-30 30-35 115 -120 165-170 equivalent (to 30/09/2015) 155-160) 65-70 Gareth Jones, (full year Director General 130-135 25-30 30-35 95-100 165-170 equivalent (to 30/09/2015) 135-140)

Elan Closs Stephens, 10-15 10-15 - - 10-15 10-15 Non-Executive Director

James Turner, 10-15 10-15 - - 10-15 10-15 Non-Executive Director

Sir Adrian Webb, 25-30 15-20 - - 25-30 10-15 Non-Executive Director

5-10 Ann Keane, (full year Non-Executive Director - - - 5-10 - equivalent (from 01/01/2016) 10-15)

1 Andrew Goodall is seconded from Aneurin Bevan University Health Board. Pension Benefit has been excluded because the arithmetic calculation (£280-285,000) is not indicative of the benefit received. He temporarily opted out of the pension scheme on 31/12/15. 2 Michael Hearty’s salary includes £14,669 taxable multiple workplace costs. 3 Sir Adrian Webb’s salary includes additional fees of £13,965 for commissioned work within the Welsh Government. Details of Board level individual exits which are required to be disclosed are shown within the exit packages section on Page 44.

Welsh Government Consolidated Accounts 2015-16 37 Accountability Report 2015-16

Senior Officials Accrued Real increase CETV CETV Real increase Pension at pension in pension and at 31/03/16 at 31/03/15 in CETV age as at 31/03/16 related lump sum and related lump at pension age sum £000 £000 £000 £000 £000 75-80 2.5-5 Sir Derek Jones KCB, plus lump sum of plus lump sum of 1,714 1,700 57 Permanent Secretary 235-240 7.5 -10 55-60 12.5-15 Andrew Goodall, plus lump sum of plus lump sum of 698 629 61 Director General 125-130 5 -7.5 Owen Evans, Deputy Permanent 15-20 2.5-5 186 140 19 Secretary James Price, Deputy Permanent 40-45 2.5-5 521 440 23 Secretary 45-50 0-2.5 David Richards, plus lump sum of plus lump sum of 1,078 1,092 11 Director of Governance 140-145 0-2.5 40-45 0-2.5 Jeff Godfrey, plus lump sum of plus lump sum of 923 818 39 Director Legal Services 125-130 5 -7.5 Natalie Pearson, 20-25 0-2.5 Head of Engagement plus lump sum of plus lump sum of 448 420 12 and Communication 70-75 0-2.5 Gillian Baranski, Equality and Diversity 15-20 0-2.5 341 313 9 Champion Sioned Evans, 15-20 0-2.5 Chair of Operations plus lump sum of plus lump sum of 275 259 6 Group 45-50 0-2.5 25-30 0-2.5 Peter Kennedy, plus lump sum of plus lump sum of 483 438 14 Director of HR 75-80 2.5-5 25-30 2.5-5 Gawain Evans, plus lump sum of plus lump sum of 532 469 44 Director of Finance 85-90 7.5 -10 55-60 0-2.5 June Milligan,1 plus lump sum of plus lump sum of 1,213 1,130 24 Director General 175-180 2.5-5 55-60 0-2.5 Michael Hearty,1 plus lump sum of plus lump sum of 1,168 1,090 24 Director General 165-170 2.5-5 60-65 0-2.5 Gareth Jones,1 plus lump sum of plus lump sum of 1,339 1,253 27 Director General 180-185 2.5-5

1 Figures are as at leaving date.

38 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

Salary ‘Salary’ includes gross salary; Senior Civil Servants within the overtime; reserved rights to Welsh Government are contractually London weighting or London entitled to be considered for allowances; recruitment and a performance related variable retention allowances; private office payment. Any payments made allowances and any other allowance are paid at the end of July each to the extent that it is subject to year, but no payments were made. UK taxation. It is the role of the Senior Civil Service Remuneration Committee This report is based on payments to apply the UK senior pay policy made by the Welsh Government and approve any awards, assessing with the exception of Ministers as the relevant contributions and noted above. performance of Senior Civil Servants during the year.

Benefits in kind The monetary value of benefits in emolument, is disclosed to the kind covers any benefits provided nearest £100. Benefits in kind by the employer and treated by HM assessed were nil. Revenue and Customs as a taxable

Pay multiples Reporting bodies are required to is due to the increase in average disclose the relationship between salaries. Based on the Permanent the remuneration of the highest- Secretary’s banded remuneration the paid director in their organisation ratio is 4.7(2014-15: 4.8). In 2015-16 and the median remuneration of and 2014-15 no employees received the organisation’s workforce. remuneration in excess of the highest paid director. The banded remuneration of the highest paid director in the Welsh Total remuneration includes salary, Government in the financial year non-consolidated performance- 2015-16 was £195,000-200,000 related pay and benefits in kind. (2014-15: £195,000-200,000). It does not include employer This was 5.8 times (2014-15: 5.9) pension contributions and the the median remuneration of the cash equivalent transfer value of workforce, which was £34,750 pensions. (2014-15: £33,900). The reduction

Welsh Government Consolidated Accounts 2015-16 39 Accountability Report 2015-16

Cash Equivalent A Cash Equivalent Transfer Value senior capacity to which disclosure Transfer Values (CETV) is the actuarially assessed applies. capitalised value of the pension The figures include the value of scheme benefits accrued by a any pension benefit in another member at a particular point in scheme or arrangement which the time. The benefits valued are the member has transferred to the Civil member’s accrued benefits and Service pension arrangements. any contingent spouse’s pension They also include any additional payable from the scheme. A CETV pension benefit accrued to the is a payment made by a pension member as a result of their buying scheme or arrangement to secure additional pension benefits at their pension benefits in another pension own cost. CETVs are worked out in scheme or arrangement when accordance with the Occupational the member leaves a scheme and Pension Schemes (Transfer Values) chooses to transfer the benefits (Amendment) Regulations 2008 and accrued in their former scheme. do not take account of any actual The pension figures shown relate to or potential reduction to benefits the benefits that the individual has resulting from Lifetime Allowance accrued as a consequence of their Tax which may be due when total membership of the pension pension benefits are taken. scheme, not just their service in a

Real increase in CETV This reflects the increase in CETV (including the value of any benefits that is funded by the employer. transferred from another pension It does not include the increase in scheme or arrangement) and uses accrued pension due to inflation, common market valuation factors contributions paid by the employee for the start and end of the period.

Staff Numbers The average number of full-time and special advisers) during the and Costs equivalent persons employed period is as follows: (including senior management

Permanently Other staff Special Total Total employed Advisers 2015-16 2014-15 staff Total 72,207 1,969 9 74,185 72,992 Of which: Welsh Government 5.011 273 9 5,293 5,556 Local Health Boards 66,408 1,696 - 68,104 66,557 Subsidiaries 788 - - 788 879 Of the Welsh Government total: Regulatory & delivery bodies 676 Tribunals 30

40 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

Gender Breakdown of Welsh Government staff

Male Female Board members 67% 33% Senior Civil Service 57% 43% All Staff 42% 58%

Staff costs

Permanently Other staff Year ended Year ended employed 31 March 2016 31 March 2015 staff Total Total £m £m £m £m Welsh Government Salaries 204 5 209 212 Social Security Costs 18 - 18 18 Other Pension Costs 49 - 49 50 Total 271 5 276 280 :Recoveries from secondments (1) - (1) (1) Net staff costs 270 5 275 279 Consolidated Salaries 2,626 134 2,760 2,662 Social Security Costs 198 - 198 193 Other Pension Costs 343 - 343 337 Total 3,167 134 3,301 3,192 :Recoveries from secondments (1) - (1) (1) Net staff costs 3,166 134 3,300 3,191

Salaries include gross salaries, social security costs, and have been performance bonuses payable, included within the figures above. reserved rights to London The social security and pension costs Weighting or London allowances, for temporary and seconded staff early retirement costs, relocation under the core figures for other staff costs, recruitment and retention have been included in salaries as allowances, and private office they are invoiced on a gross basis. allowances. Salaries of Welsh Ministers are paid Special advisors were paid a total of by the National Assembly for Wales £620,225 (2014-15 - £592,938) for Commission and are reflected in the year, inclusive of pension and those accounts.

Welsh Government Consolidated Accounts 2015-16 41 Accountability Report 2015-16

Pensions Civil Service pension benefits are pensionable earnings during his provided through the Civil Service period of scheme membership. pension arrangements. From 30 July At the end of the scheme year 2007, civil servants may be in one (31 March) the member’s earned of four defined benefit schemes: pension account is credited with either a ‘final salary’ scheme 2.3% of their pensionable earnings (Classic, Premium or Classic Plus); in that scheme year and the accrued or a ‘whole career’ scheme (Nuvos). pension is uprated in line with These statutory arrangements are Pensions Increase legislation. In all unfunded with the cost of benefits cases members may opt to give up met by monies voted by Parliament (commute) pension for a lump sum each year. Pensions payable under up to the limits set by the Finance Classic, Premium, Classic Plus Act 2004. and Nuvos are increased annually The partnership pension account is in line with Pensions Increase a stakeholder pension arrangement. legislation. Members joining from The employer makes a basic 1 October 2002 may opt for either contribution of between 3% and the appropriate defined benefit 12.5% (depending on the age of the arrangement or a ‘money purchase’ member) into a stakeholder pension stakeholder pension with an product chosen by the employee employer contribution (partnership from a panel of three providers. pension account). The employee does not have to Employee contributions are salary contribute but where they do make related and range between 1.5% contributions, the employer will and 3.9% of pensionable earnings match these up to a limit of 3% of for Classic and 3.5% and 5.9% for pensionable salary (in addition to Premium, Classic Plus and Nuvos. the employer’s basic contribution). Increases to employee contributions Employers also contribute a further applied from 1 April 2013. Benefits 0.8% of pensionable salary to cover in classic accrue at the rate of 1/80th the cost of centrally-provided risk of final pensionable earnings for benefit cover (death in service and ill each year of service. In addition, health retirement). a lump sum equivalent to three The accrued pension quoted is the years’ initial pension is payable on pension the member is entitled to retirement. For Premium, benefits receive when they reach pension accrue at the rate of 1/60th of age, or immediately on ceasing to final pensionable earnings for each be an active member of the scheme year of service. Unlike Classic, if they are already at or over pension there is no automatic lump sum, age. Pension age is 60 for members Classic Plus is essentially a hybrid of Classic, Premium and Classic Plus with benefits in respect of service and 65 for members of Nuvos. before 1 October 2002 calculated broadly as per Classic and benefits Further details about the Civil from October 2002 calculated as Service pension arrangements in Premium. In Nuvos a member can be found at the website builds up a pension based on his www.civilservice.gov.uk/my- civil-service/pensions

42 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

Employees of the Welsh employee contributions up to Government belong to the Principal 3 per cent of earnings. In addition, Civil Service Pension Scheme, with employer contributions of £6,792, the exception of a small number 0.5 per cent of pensionable pay, of staff who have elected to retain were payable to the PCSPS to cover membership of other public sector the cost of the future provision schemes. of lump sum benefits on death in service and ill health retirement of The Principal Civil Service Pension these employees. Scheme (PCSPS) is an unfunded multi-employer defined benefit Contributions due to the partnership scheme but the Welsh Government pension providers at the balance is unable to identify its share of the sheet date were £nil (2014-15: nil). underlying assets and liabilities. Contributions prepaid at the date were £nil (2014-15: £nil). For 2015-16, employers contributions of £39,831,454 7 individuals retired early on were payable to the PCSPS ill‑health grounds; the total (2014-15: £36,800,571) at one additional accrued pension liabilities of four rates in the range 20.0 to in the year amounted to £20,749. 24.5 per cent (2014-15: 16.7 to 24.3) A small number of former Welsh of pensionable earnings based on Development Agency employees salary bands. The Scheme Actuary elected to retain their existing reviews employer contributions terms and conditions and pension usually every four years following arrangements. They participate a full scheme valuation. The in the Local Government Pension contribution rates are set to meet Scheme, which is a multi-employer the cost of the benefits accruing funded scheme providing pension during 2015-16 to be paid when the and related benefits, which is now member retires and not the benefits on a career average basis rather than paid during this period to existing a final salary basis. The assets of the pensioners. scheme are held separately from the Employees can opt to open assets of the Welsh Government a partnership pension account, and are administered by Rhondda a stakeholder pension with an Cynon Taf County Borough Council. employer contribution. Employer’s Additional retirement benefits are contributions of £165,822 granted in accordance with the Local (2014-15: £175,308) were paid to Government (Compensation for one or more of a panel of three Premature Retirement) Regulations appointed stakeholder pension 1982 and these benefits are providers. Employer contributions provided on a pay-as-you-go basis. are age-related and range from Details of Local Health Board 8 to 14.75 per cent of pensionable Pensions are contained in their earnings. Employers also match accounts.

Welsh Government Consolidated Accounts 2015-16 43 Accountability Report 2015-16

Reporting of There was no flexible early Redundancy and other departure retirement, approved early costs have been paid in accordance Civil Service and retirement or flexible early with the provisions of the Civil other compensation severance in 2015-16 or 2014-15. Service Compensation Scheme, a statutory scheme made under schemes – exit For 2015-16 42(2014-15:132) the Superannuation Act 1972. employees have left or agreed to packages Where the department has leave between 31 March 2015 and agreed early retirements, the 31 March 2016. Compensation additional costs are met by the payments are £1,830,696 (2014-15: Welsh Government and not by £6,324,960). For each case a payback the Civil Service pension scheme. period is calculated which is then Ill-health retirement costs are met approved by the Director of HR. The by the pension scheme and are not compulsory redundancies for 2015-16 included in the table. relate to staff employed specifically for the badger-culling policy.

Number of Number of other Total number of Total number of compulsory departures exit packages by exit packages by redundancies agreed cost band cost band 2015-16 2014-15 Exit package cost band <£10,000 12 - 12 2 £10,000 - £25,000 - 6 6 29 £25,000 - £50,000 - 8 8 54 £50,000 - £100,000 - 12 12 39 £100,000 - £150,000 - 4 4 6 £150,000 - £200,000 - - - 1 £200,000+ - - - 1 Total number of exit packages by type 12 30 42 132 Total resource cost £ 41,374 1,789,322 1,830,696 6,324,960

The costs included in the table of the Welsh Government’s drive provide the total cost to the in 2015 to ensure the organisation organisation of any exit. In some is equipped to serve Ministers instances these are cash payments, against a background of continuing but in other instances costs include financial pressure. items such as early access to pension The three exits were made costs, pension costs between leaving in line with the Civil Service date and scheme retirement age. Compensation Scheme and were The table reports three board level based on a payment of 12 month’s exits. These relate to action taken salary. The individuals also received by the organisation to reduce a payment in lieu of their contractual the number of Directors General notice period (6 months). from six to three. A direct result

Compensation Payment £’000 Payment in lieu of notice £’000 Michael Hearty 140-145 70-75 June Milligan 135-140 65-70 Gareth Jones OBE 135-140 65-70

44 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

Sickness absence Sickness absence levels across the and awareness sessions, alongside Welsh Government increased during revised guidance and improved the early part of the year and as a support to encourage staff to return result a number of new measures to work earlier. Such measures were introduced to reinforce the always take time to positively impact existing attendance management absence levels but reductions policies and to make all managers were experienced in the final four and staff aware of their individual months of the year and these are and collective responsibilities. expected to continue throughout These included a range of training the following year.

Welsh Government Sickness Absence 2015-16 2014-15 2013-14 Days Lost (short term) 18,967 20,631 19,156 Days Lost (long term) 23,977 23,161 19,534 Total Days Lost (12 month period) 42,944 43,792 38,690 Total staff years 5,307 5,519 5,453 Total staff employed in period (headcount) 5,964 6,134 6,097 Total staff employed in period with no absence (headcount) 2,479 2,500 2,625 % staff with no sick leave 42% 41% 43% Average working days lost 8.1 7.9 7.1

Sir Derek Jones KCB Permanent Secretary and Principal Accounting Officer Date: 3 August 2016

Losses Statement Total reported losses were:

2015-16 2014-15 Total number of losses 152 216 Total value of losses (£000) 7,236 8,157

Details of losses over £300,000 Claims abandoned Ruthin Castle Ltd grant claim as company was sold after the grant was awarded £494,531 Fruitless payment Commercial in confidence £1,250,000

Store losses Expired drug stocks £1,075,711

Welsh Government Consolidated Accounts 2015-16 45 Accountability Report 2015-16

Summary of Resource Outturn

Budget Outturn Outturn Outturn 2015-16 2015-16 compared 2014-15 with Budget Net Net Net expenditure expenditure Variance expenditure £m £m £m £m AMBIT Health and Social Services 5,665 5,512 153 5,571 Local Government 3,474 3,472 2 3,570 Education and Skills 1,861 1,782 79 2,003 Economy, Science and Transport 1,332 1,285 47 1,174 Communities and Tackling Poverty 735 735 - 636 Natural Resources 397 394 3 419 Central Services and Administration 318 304 14 331

Total Resource and Capital requirements 13,782 13,484 298 13,704 Income 2,346 1,823 523 1,919 Gross expenditure 16,128 15,307 821 15,623

Variance explanations Health and Social Services had Central Services & Administration over £10m an under-spend of £153m which had an under-spend of £14m which arose primarily because of the primarily related to non-cash charges alignment issue between Ambit which were lower than estimated. and consolidated Budgets. Income – was lower than profiled Education and Skills had an by £523m on European funded under‑spend of £79m which related projects. These are multi-year to Student Loans model non-cash projects and profiling across fair value estimates. the years can be variable and unpredictable. Economy, Science & Transport had an under-spend of £47m which The underspend from 2015-16 related to non-cash infrastructure is carried forward to 2016-17 in charges. accordance with the budgetary rules agreed with HM Treasury.

Net Cash Requirement

Outturn Outturn 2015-16 2014-15 £m £m Authorised for issue from Welsh Consolidated Fund 13,584 13,570 Funding drawn down (13,471) (13,430) Undrawn funding 113 140

46 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

Reconciliation of outturn and Consolidated Statement of Comprehensive Net Expenditure

Outturn Outturn 2015-16 2014-15 £m £m Net Resource Outturn 13,484 13,704 Less: Capital, loans & adjustments (849) (702) Expenditure per the Consolidated Statement of Comprehensive Net 12,635 13,002 Expenditure

Reconciliation of resources to cash requirement

Budget Outturn Outturn Outturn 2015-16 2015-16 compared 2014-15 with Budget £m £m £m £m Net resource outturn 13,782 13,484 297 13,704

Depreciation (231) (223) (8) (161) Impairments 135 160 (25) (47) Movements in provisions (87) (26) (61) (102) Movements in working capital (15) 12 (27) (77) Other - 72 (72) (78) Net cash requirement 13,584 13,479 105 13,239

Sir Derek Jones KCB Permanent Secretary and Principal Accounting Officer Date: 3 August 2016

Welsh Government Consolidated Accounts 2015-16 47 Accountability Report 2015-16

The Certificate and Report of the Auditor General for Wales to the National Assembly for Wales

I certify that I have audited the Consolidated Statement of Cash financial statements of Welsh Flows, Consolidated Statement Government and the Group for the of changes in Taxpayers’ Equity year ended 31 March 2016 under and related notes. These financial the Government of Wales Act 2006. statements have been prepared These comprise the Summary of under the accounting policies set Resource Outturn, Consolidated out within them. I have also audited Statement of Comprehensive the information in the Remuneration Net Expenditure, Consolidated Report that is described in that Statement of Financial Position, report as having been audited.

Respective As explained more fully in the My responsibility is to audit, responsibilities of the Statement of Accounting Officer’s certify and report on the financial Responsibilities, the Principal statements in accordance with Principal Accounting Accounting Officer is responsible for applicable law and with International Officer and preparing the Annual Report and Standards on Auditing (UK and auditor financial statements, which includes Ireland). These standards require the Remuneration and staff report, me to comply with the Financial in accordance with the Government Reporting Council’s Ethical Standards of Wales Act 2006 and HM Treasury for Auditors. directions made there under and for I have audited the information in the ensuring the regularity of financial Remuneration and Staff Report that transactions. is described as having been audited.

Scope of the audit An audit involves obtaining evidence Welsh Government; and the of the financial about the amounts and disclosures overall presentation of the financial in the financial statements sufficient statements. statements to give reasonable assurance In addition, I am required to that the financial statements are obtain evidence sufficient to give free from material misstatement, reasonable assurance that the whether caused by fraud or error. expenditure and income have been This includes an assessment of: applied to the purposes intended by whether the accounting policies are the National Assembly for Wales and appropriate to Welsh Government the financial transactions conform to and the Group’s circumstances the authorities which govern them. and have been consistently applied and adequately disclosed; the In addition I read all the financial reasonableness of significant and non-financial information accounting estimates made by in the Annual Report to identify material inconsistencies with the

48 Welsh Government Consolidated Accounts 2015-16 Accountability Report 2015-16

audited financial statements and the audit. If I become aware of to identify any information that any apparent material misstatements is apparently materially incorrect or inconsistencies I consider the based on, or materially inconsistent implications for my certificate with, the knowledge acquired by and report. me in the course of performing

Opinion on Financial In my opinion the financial and net operating cost, for the Statements statements: year then ended • give a true and fair view of the • have been properly prepared in state of the Welsh Government accordance with HM Treasury and the Group’s affairs as at directions issued under the 31 March 2016 and of its net cash Government of Wales Act 2006. requirement, net resource outturn

Opinion on Regularity In my opinion, in all material for Wales and the financial respects, the expenditure and transactions recorded in the income in the financial statements financial statements conform to have been applied to the purposes the authorities which govern them. intended by the National Assembly

Opinion on other In my opinion: • the information in the Annual Report is consistent with the matters • the part of the Remuneration financial statements. Report to be audited has been properly prepared in accordance with HM Treasury directions made under the Government of Wales Act 2006

Matters on which I have nothing to report in respect and Staff Report to be audited I report by exception of the following matters which are not in agreement with the I report to you if, in my opinion: accounting records and returns • the Governance Statement does • information specified by not reflect compliance with HM Treasury regarding the HM Treasury guidance remuneration and other transactions is not disclosed; or • adequate accounting records have not been kept • I have not received all of the information and explanations • the financial statements and the I require for my audit. part of the Remuneration Report

Welsh Government Consolidated Accounts 2015-16 49 Accountability Report 2015-16

Report I have no observations to make on these financial statements.

Huw Vaughan Thomas Wales Audit Office Auditor General for Wales 24 Cathedral Road Cardiff Date: 16 August 2016 CF11 9L J

50 Welsh Government Consolidated Accounts 2015-16 Financial Report

Financial Report

Financial Statements Consolidated Statement of Comprehensive Net Expenditure for the year ended 31 March 2016

2015-16 2014-15 Note WG Core WG Group WG Core WG Group

£m £m £m £m Income from sale of goods and services (37) (51) (34) (34) Other operating income (1,663) (1,930) (1,794) (2,077) Total operating income 2 (1,700) (1,981) (1,828) (2,111)

Staff costs 275 3,300 279 3,191 Expenditure 3 13,956 11,067 14,166 11,227 Non-cash costs 3 198 305 119 255 Provision expense (non-cash) 3 (94) (51) 266 353 Total operating expenditure 14,335 14,621 14,830 15,026 Net expenditure for the year 12,635 12,640 13,002 12,915

Other comprehensive net expenditure Items which will not be reclassified to net operating costs: Net (gain)/loss on revaluation of property, plant 407 341 (1,683) (1,730) and equipment Actual (gain)/loss on pension scheme liabilities (11) (20) 5 17 Comprehensive net expenditure for the year 13,031 12,961 11,324 11,202

The notes on pages 55 to 81 form part of these accounts.

Welsh Government Consolidated Accounts 2015-16 51 Financial Report

Consolidated Statement of Financial Position as at 31 March 2016

As at As at As at As at 31 March 2016 31 March 2016 31 March 2015 31 March 2015 Note WG Core WG Group WG Core WG Group £m £m £m £m Non-current assets: Property, plant and equipment 4 15,233 18,086 15,645 18,374 Intangible assets 5 16 26 10 20 Financial assets 7 3,414 3,028 2,632 2,365 Trade and other receivables 9 - 220 - 93 Total non-current assets 18,663 21,360 18,287 20,852

Current assets: Assets classified as held for sale - 3 - 2 Inventories 8 192 252 216 275 Trade and other receivables 9 323 428 258 399 Cash and cash equivalents 10 143 350 213 400 Total current assets 658 1,033 687 1,076 Total assets 19,321 22,393 18,974 21,928

Current liabilities: Trade and other payables 11 (820) (1,549) (891) (1,523) Total assets less current liabilities 18,501 20,844 18,083 20,405

Non-current liabilities: Trade and other payables 11 (125) (192) (134) (212) Provisions 12 (733) (758) (707) (764) Other liabilities 14 (74) (104) (87) (135) Total non current liabilities (932) (1,054) (928) (1,111) Total assets less liabilities 17,569 19,790 17,155 19,294

Taxpayers’ equity & other Reserves: General fund 10,234 12,072 10,063 11,875 Revaluation reserve 7,335 7,718 7,092 7,419 Total equity 17,569 19,790 17,155 19,294

The notes on pages 55 to 81 form part of these accounts.

Sir Derek Jones KCB Permanent Secretary and Principal Accounting Officer Date: 3 August 2016

52 Welsh Government Consolidated Accounts 2015-16 Financial Report

Consolidated Statement of Cash Flows for the year ended 31 March 2016

Year ended Year ended 31 March 2016 31 March 2015 Note WG Core WG Group WG Core WG Group

£m £m £m £m Cash flows from operating activities: Net operating cost (12,635) (12,640) (13,002) (12,915) Non-cash transactions: 3 104 254 385 608 Income payable to Welsh Consolidated Fund - - (123) (123) Movements in working capital other than cash 15 (77) (61) 13 (12) Use of provisions 12 (77) (152) (81) (179) Net cash outflow from operating activities (12,685) (12,599) (12,808) (12,621)

Cash flows from investing activities: Purchase of property, plant and equipment (198) (383) (131) (381) Proceeds of disposal of property, plant and 2 3 2 8 equipment Purchase of intangible assets (1) (4) - (6) Purchase of development assets (15) (15) (18) (18) Proceeds of disposal of development assets 36 36 19 19 Issue of loans and investments (638) (521) (493) (424) Movement in bank loan - - - (8) Repayment of loans 89 93 77 79 Net cash outflow from investing activities (725) (791) (544) (731)

Cash flows from financing activities: From Welsh Consolidated Fund (Supply) – 13,471 13,471 13,430 13,430 current year Capital element of payments for finance leases (9) (9) (8) (8) and on balance sheet PFI contracts Net Financing 13,462 13,462 13,422 13,422 Net increase in cash and cash equivalents in the period before adjustment for receipts 52 72 70 70 and payments to the WCF Movements in non-operating receipts due to be (122) (122) 121 121 surrendered to Welsh Consolidated Fund Net increase/(decrease) in cash and cash equivalent in the period after adjustment 10 (70) (50) 191 191 for receipts and payments to the WCF Cash and cash equivalents at the beginning 10 213 400 22 209 of the period Cash and cash equivalents at the end of 10 143 350 213 400 the period

The notes on pages 55 to 81 form part of these accounts.

Welsh Government Consolidated Accounts 2015-16 53 Financial Report

Welsh Government Group: Statement of changes on Taxpayers’ Equity

General Fund Revaluation Total Reserve Reserves £m £m £m Balance at 31 March 2014 10,751 6,458 17,209 Welsh Consolidated fund – net funding 13,307 - 13,307 Net operating cost for the year (12,915) - (12,915) Revaluation gains and losses - 1,730 1,730 Transfers between Reserves 769 (769) - Other adjustments (37) - (37) Balance at 31 March 2015 11,875 7,419 19,294 Welsh Consolidated fund – net funding 13,471 - 13,471 Net operating cost for the year (12,640) - (12,640) Revaluation gains and losses - (341) (341) Transfers between Reserves (640) 640 - Other adjustments 6 - 6 Balance at 31 March 2016 12,072 7,718 19,790

Welsh Government Core: Statement of changes in Taxpayers’ Equity

General Fund Revaluation Total Reserve Reserves £m £m £m Balance at 31 March 2014 9,068 6,125 15,193 Welsh Consolidated fund – net funding 13,308 - 13,308 Net operating cost for the year (13,002) - (13,002) Revaluation gains and losses - 1,683 1,683 Transfers between Reserves 716 (716) - Other adjustments (27) - (27) Balance at 31 March 2015 10,063 7,092 17,155 Welsh Consolidated fund – net funding 13,471 - 13,471 Net operating cost for the year (12,635) - (12,635) Revaluation gains and losses - (407) (407) Transfers between Reserves (650) 650 - Other adjustments (15) - (15) Balance at 31 March 2016 10,234 7,335 17,569

The notes on pages 55 to 81 form part of these accounts.

54 Welsh Government Consolidated Accounts 2015-16 Financial Report

Notes to the Accounts

1. Statement of accounting 1.1 Accounting convention policies These accounts have been prepared The consolidated financial under the historical cost convention, statements have been prepared in modified to account for the accordance with the Government revaluation of investment property, Financial Reporting Manual (FReM). property, plant and equipment The accounting policies contained and certain financial assets and in the FReM apply International liabilities. Financial Reporting Standards (IFRS) as adapted or interpreted for the 1.2 Basis of Consolidation public sector context. Where FReM The accounts comprise a permits a choice of accounting consolidation of the Welsh policy, the accounting policy which Government, the seven Local is judged to be most appropriate to Health Boards, Finance Wales PLC, the particular circumstances of the Regeneration Investment Fund for Welsh Government for the purpose Wales LLP, WG Holdco Limited and of giving a true and fair view has Career Choices. These consolidated been selected. The particular policies companies produce and publish adopted by the Welsh Government their own annual reports and (for the reportable activity) are accounts. Subsidiary companies are described in Appendix A or as consolidated from draft accounts, footnotes to the relevant note. there being no material difference They have been applied consistently between draft and final accounts. in dealing with items that are Transactions between entities considered material to the accounts. included in the consolidation are In addition to the primary eliminated. statements prepared under IFRS, Design Commission for Wales, Hybu the FReM also requires the Welsh Cig Cymru Cyf – Meat Promotion Government to prepare additional Wales Limited, Life Sciences Hub primary statements. The summary Wales Limited, Sector Development of Outturn which shows actual Wales Partnership Limited, Welsh outturn against budget and Development Management Limited, supporting notes which reconcile Innovation Point Limited, Transport outturn to net operating cost, for Wales, International Business and resources to cash requirement. Wales Limited and Local Health Following HM Treasury’s Simplifying Board NHS Charities have not and Streamlining agenda we been consolidated because their have enhanced the format of expenditure doesn’t exceed £10m. this year’s annual report and accounts to improve the reporting of performance, demonstrate accountability and simplify the accounts.

Welsh Government Consolidated Accounts 2015-16 55 Financial Report

2. Operating Income

Year ended Year ended 31 March 2016 31 March 2015 WG Core WG Group WG Core WG Group

£m £m £m £m Income from sale of goods and services: Income from property and investments 31 34 28 28 Other 6 17 6 6 37 51 34 34

Other non-EU operating income: Inland Revenue health funding contributions 1,103 1,103 973 973 Housing Revenue Account1 - - 73 73 Student loans interest receivable 61 61 57 57 Health income 53 321 37 262 Other 19 16 17 62 Other EU operating income: European Structural Funds Programmes 182 184 388 401 Common Agricultural Policy 240 240 246 246 Other EU income 5 5 3 3 1,663 1,930 1,794 2,077 1,700 1,981 1,828 2,111

1 Local Government authorities have now exited the subsidy scheme.

56 Welsh Government Consolidated Accounts 2015-16 Financial Report

3. Expenditure Year ended Year ended 31 March 2016 31 March 2015 WG Core WG Group WG Core WG Group

£m £m £m £m Expenditure: Grants1 13,565 7,453 13,723 7,805 Goods and services1,2 369 3,557 419 3,376 Rentals under operating leases 9 44 10 32 PFI and other service concession arrangements3 13 13 14 14 13,956 11,067 14,166 11,227

Non-cash costs: Depreciation 159 298 77 210 Amortisation 3 6 4 7 Donated and government granted assets - (4) - (12) Impairments 37 6 47 61 Profit/loss on disposals 3 3 (6) (8) Pension finance (3) (3) (2) (2) Release of EU grant (1) (1) (1) (1) 198 305 119 255

Provisions (non-cash): Increase in provisions 103 146 183 270 Student loan book fair value (197) (197) 83 83 (94) (51) 266 353

Total non-cash costs 104 254 385 608

1 Expenditure on Grants and Goods and Services reflects the Ambit Resource Outturn allocation. 2 Includes £60m (2014-15:£80m) classified as capital maintenance depreciation. 3 Welsh Government Core figures only.

Audit Fees The amount payable to the and has been included within Auditor General for placing an Goods and Services disclosed above. opinion on the consolidated Also included above are fees levied financial statements of the Welsh by the Auditor General for Wales in Government for 2015-16 is respect of other accounts prepared £386,000 (2014-15: £406,357) by Welsh Ministers as follows:

Year ended Year ended 31 March 2016 31 March 2015 £ £ NHS Summarised Account 34,000 39,550 National Non Domestic Rate Account 9,950 9,950 Whole of Government Account 39,207 39,207 Welsh Consolidated Fund 16,475 16,474

Audit fees of consolidated bodies are disclosed within their individual accounts.

Welsh Government Consolidated Accounts 2015-16 57 Financial Report

4. Property, plant and equipment

Network Land Buildings Information Payments Total Assets including Technology, on account Dwellings Fixtures and assets and under Fittings construction £m £m £m £m £m £m Cost or Valuation for the year ended 31 March 2015: At 1 April 2014 15,877 377 2,067 712 432 19,465 Additions - 2 30 81 311 424 Disposals - (1) (5) (42) - (48) Transfers - - - - 3 3 Impairments (24) 1 - (1) - (24) Revaluations 2,002 7 52 1 - 2,062 Reclassified to held for sale - (1) (1) - - (2) Reclassification 97 - 136 9 (243) (1) Restated at 31 March 2015 17,952 385 2,279 760 503 21,879

Depreciation for the year ended 31 March 2015: At 1 April 2014 2,348 - 157 490 2 2,997 Charged in year 147 - 80 62 - 289 Disposals - - (4) (42) - (46) Transfers ------Impairments 5 - 5 (1) - 9 Revaluations 254 - (2) 4 - 256 Restated at 31 March 2015 2,754 - 236 513 2 3,505

Carrying amount at 15,198 385 2,043 247 501 18,374 31 March 2015

Carrying amount at 13,529 377 1,910 222 430 16,468 31 March 2014

Asset financing: for the year ended 31 March 2015: Owned 14,816 374 1,939 244 501 17,874 Finance Leased - - 12 2 - 14 On-balance sheet PFI contracts 382 11 92 1 - 486 Restated at 31 March 2015 15,198 385 2,043 247 501 18,374

58 Welsh Government Consolidated Accounts 2015-16 Financial Report

Network Land Buildings Information Payments Total Assets including Technology, on account Dwellings Fixtures and assets and under Fittings construction £m £m £m £m £m £m Cost or Valuation for the year ended 31 March 2016: At 1 April 2015 17,952 385 2,279 760 503 21,879 Additions - 8 19 45 294 366 Disposals (7) (1) (1) (38) - (47) Transfers - 1 - - (1) - Impairments (25) 1 34 (4) - 7 Revaluations (467) 8 79 - - (380) Reclassified to held for sale ------Reclassification 157 - 105 14 (285) (9) At 31 March 2016 17,610 402 2,515 777 511 21,815

Depreciation for the year ended 31 March 2016: At 1 April 2015 2,754 - 236 513 2 3,505 Charged in year 210 - 82 66 - 358 Disposals (1) - - (38) - (39) Transfers ------Impairments - - 3 - - 3 Revaluations (111) - 13 - - (98) At 31 March 2016 2,852 - 334 541 2 3,729

Carrying amount at 14,758 402 2,181 236 509 18,086 31 March 2016

Asset financing: for the year ended 31 March 2016: Owned 14,377 391 2,075 234 509 17,586 Finance Leased - - 12 1 - 13 On-balance sheet PFI contracts 381 11 94 1 - 487 At 31 March 2016 14,758 402 2,181 236 509 18,086

Core department at 14,758 35 127 29 284 15,233 31 March 2016 LHB’s and subsidiaries at - 367 2,054 207 225 2,853 31 March 2016

Core department at 15,198 26 119 34 268 15,645 31 March 2015 LHB’s and subsidiaries at - 359 1,924 213 233 2,729 31 March 2015

Welsh Government Consolidated Accounts 2015-16 59 Financial Report

4. Property, plant Most of the freehold land and 1) Properties and land managed by and equipment buildings (with exceptions noted the Department for Economy, (continued) at 1) and 2) ) were valued on Science and Natural Resources 31 March 2016 by GVA Grimley, were valued on an annual basis Chartered Surveyors, on the basis of by Jones Lang La Salle, Chartered open market value for existing use in Surveyors during the current accordance with the ‘Appraisal and year. Valuation Manual’, produced jointly 2) In intervening financial years, by the Royal Institute of Chartered between formal 5 yearly Surveyors, the Incorporated Society valuations, freehold land and of Valuers and Auctioneers and the buildings are valued using latest Institute of Revenues Rating and available indices at March in Valuation. Long leaseholds (over each financial year to provide a 100 years) are capitalised on the reasonable estimate of valuation. same basis as above. Specialised Network Assets were formally properties are valued on a revalued in 2014-15. depreciated replacement cost basis, in accordance with the ‘Appraisal and Valuation Manual’.

5. Intangible Assets

Information Technology As at As at As at As at 31 March 2016 31 March 2016 31 March 2015 31 March 2015 WG Core WG Group WG Core WG Group £m £m £m £m Cost or valuation: At 1 April 31 52 31 46 Additions 1 4 - 6 Disposals - - - (1) Reclassifications 8 8 - 1 At 31 March 40 64 31 52

Amortisation: At 1 April 21 32 17 26 Charged in year 3 6 4 7 Disposals - - - (1) At 31 March 24 38 21 32

Net Book Value at 31 March 16 26 10 20

Net Book Value at 1 April 10 20 14 20

60 Welsh Government Consolidated Accounts 2015-16 Financial Report

6. Welsh Government 6.1 Capital commitments Core Capital and other Contracted capital commitments not otherwise included within these commitments financial statements.

As at As at 31 March 2016 31 March 2015 £m £m Property, plant and equipment Network Asset & Buildings 255 273 Help to Buy & Housing 378 159 633 432

6.2 Commitments under leases 6.2.1 Commitments under operating leases Total future minimum lease payments under operating leases are given in the table below:

As at As at 31 March 2016 31 March 2015 £m £m Buildings Not later than one year 7 7 Later than one year and not later than five years 22 24 Later than five years 47 52 76 83

6.2.2 Commitments under finance leases The Welsh Government was committed to making the following minimum lease payments on its Merthyr building:

As at As at 31 March 2016 31 March 2015 £m £m Not later than one year 1 1 Later than one year and not later than five years 5 5 Later than five years 1 2 7 8 Less interest element (2) (3) 5 5

Welsh Government Consolidated Accounts 2015-16 61 Financial Report

6.3 Commitments under PFI November 2025. The private sector contracts partner maintains for 25 years Commitments for Welsh (from 2000/01) the Bute Avenue Government related PFI contracts are road network. After this time the shown below. Local Health Board PFI road will be transferred to Cardiff contract details are reported within County Council. The road is not an the accounts of the seven individual asset of the Welsh Government. Health Board accounts. The total charged in the Statement of Comprehensive Net Expenditure 6.3.1 Off-balance sheet in respect of off-balance sheet PFI Bute Avenue PFI contract transactions and the service element of on-balance sheet PFI transactions The Welsh Government is was £13,278,358 (2014-15: committed to pay £5.1m annually, £13,522,485); and the payments index linked, to the primary to which the Welsh Government is contractor associated with the committed, are as follows: Bute Avenue (PFI) project, until

As at As at 31 March 2016 31 March 2015 £m £m Not later than one year 16 13 Later than one year and not later than five years 70 72 Later than five years 82 97 168 182

6.3.2 On balance sheet The total amount charged in the Statement of Comprehensive A55 PFI contract Net Expenditure in respect of the The A55 road network is maintained service element of on-balance by contractors for a period of sheet PFI or other service concession 30 years (from 1998), after which transactions was £17m. Total future time the ownership of the A55 will obligations under on-balance sheet revert to the Welsh Government. PFI and other service concession The road is treated as an asset of arrangements are given in the table the Welsh Government and unitary below for each of the periods. payments comprise of two elements – imputed finance lease charges and service charges. As at As at Minimum Lease Payments 31 March 2016 31 March 2015 £m £m Not later than one year 11 11 Later than one year and not later than five years 48 48 Later than five years 96 108 155 167 Less interest element (27) (32) 128 135

62 Welsh Government Consolidated Accounts 2015-16 Financial Report

As at As at Service elements due in future periods 31 March 2016 31 March 2015 £m £m Not later than one year 8 5 Later than one year and not later than five years 34 36 Later than five years 33 38 75 79

6.4 Other Financial for services. The payments to Commitments which the Welsh Government is committed, analysed by The Welsh Government and the period during which the its related bodies entered into commitment expires are as non‑cancellable contracts (which follows: are not leases or PFI contracts)

As at As at 31 March 2016 31 March 2015 £m £m Not later than one year 213 255 Later than one year and not later than five years 341 522 Later than five years 9 9 563 786

This note does not contain any Welsh Government Core grant commitments as the Welsh figures only are provided in this Government does not accrue for note. Commitments related to grant funding commitments. Consolidated bodies are shown in the accounts of those bodies.

Welsh Government Consolidated Accounts 2015-16 63 Financial Report

7. Financial assets - Investments and loans

Student NHS Trusts Other Total Loans Public Financial Dividend assets Capital £m £m £m £m WG Group Balance at 31 March 2014 1,775 142 145 2,062 Additions 360 16 48 424 Loan repayments (81) - (14) (95) Capitalised interest 58 - - 58 Fair value adjustment (83) - (1) (84) Balance at 31 March 2015 2,029 158 178 2,365 Additions 394 9 118 521 Loan repayments (96) - (21) (117) Capitalised interest 60 - - 60 Fair value adjustment 198 - 1 199 Balance at 31 March 2016 2,585 167 276 3,028

WG Core At 31 March 2016 2,585 167 662 3,414 At 31 Marc0h 2015 2,029 158 445 2,632

7.1 Student Loans estimate of the value of student loans issued which will not be repaid Student loans are recorded within because of: policy reasons; death; Investments and loans at amortised disability; the age of the student or cost, representing the gross value loan; or other policies, such as the of the loans issued (Additions), partial cancellation of student loans discounted to net present value, scheme. calculated by the HE Student Loan Repayment Model (the model). Student loans are subject to credit The model’s net present value risk and interest rate risk. Details are calculation takes into account an provided in Note A.15.

64 Welsh Government Consolidated Accounts 2015-16 Financial Report

Key assumptions used within the model are:

Variable Assumption used HM Treasury long term discount rate of RPI plus 0.7%, representing the Government’s Discount rate long term cost of capital (reduced from RPI plus 2.2% following the Autumn Statement in November 2015). The Student Loan Repayment model assumes short-term RPI rates will be in line with OBR forecasts (March 2016) until 2020-21. Future RPI is then assumed to be 3.0% from 2025- RPI Inflation 26, as this is the long-term forecast, with a linear change from the 2020-21 value each year up to 2025-26. The Student Loan Repayment model assumes short-term average nominal earnings growth will be in line with OBR forecasts until 2020-21. Future earnings growth is then assumed to be 4.5% from 2025-26, as this is the long-term forecast, with a linear change from the Graduate earnings 2020-21 value each year up to 2025-26. Additionally, the UK Government made a policy decision to freeze the £21,000 repayment threshold for all post 2012 loans for 5 years from 2016 to 2021. The model assumes future graduate income distributions will be similar to those of Graduate Income past graduates and are based on historical data for the Labour Force Survey, the British Distribution Household Panel and administrative data held by the Student Loans Company. The model assumes that Bank of England base rates will be in line with OBR forecasts up to 2020-21. The base rate is assumed to equal the long term OBR forecast of 5.0% from Base rates 2025-26, with linear change from the 2020-21 value each year up to 2025-26. The base rate cap is forecast to apply intermittently until 2020-21. There are a number of other assumptions used in the modelling, but changing these to other reasonable outcomes does not have a significant impact on the value of the loan books. Many of the assumptions are independent of each other and could change at the same time.

7.2 NHS Trusts Public Dividend for liabilities and charges) less the Capital amount of any loan included in the balance sheet. The Welsh Government issues financial instruments, in particular 7.3 Other Financial Assets loans, to other public sector bodies in Wales such as NHS bodies. This Other financial assets comprise: lending occurs as part of its normal Welsh Government financial course of activities and the Welsh interests in joint ventures and Government does not undertake investments; Invest to Save loans any trading activity in these with Local Authorities; and, financial instruments. The Welsh Available-for-Sale assets held Government has taken advantage by Finance Wales. of the exemption available for Other loans were discounted short-term debtors and creditors. over their remaining life using the For issues of public dividend capital, National Loans Fund rate applicable fair value was calculated as the net to the terms of the repayment assets of the recipient body (stated (between 1.67% and 3.1%). after deducting any provisions

Welsh Government Consolidated Accounts 2015-16 65 Financial Report

8. Inventories As at As at 31 March 2016 31 March 2015 WG Core WG Group WG Core WG Group

£m £m £m £m Development Assets 161 161 186 186 Drugs 26 48 25 46 Telecommunication spares 3 3 3 3 Road salt 2 2 1 1 Other consumables - 38 1 39 192 252 216 275

9. Trade receivables, financial and other assets

As at As at 31 March 2016 31 March 2015 WG Core WG Group WG Core WG Group

£m £m £m £m Amounts falling due within one year: Trade receivables 175 243 76 194 Other tax 16 15 15 15 Prepayments and accrued income 132 170 140 163 EU accrued income - - 27 27 323 428 258 399

Amounts falling due after more than one year: Prepayments - 1 - 3 Other receivables - 219 - 90 - 220 - 93

Total trade receivables and other current assets 323 648 258 492

66 Welsh Government Consolidated Accounts 2015-16 Financial Report

10. Cash and cash equivalents As at As at 31 March 2016 31 March 2015 WG Core WG Group WG Core WG Group

£m £m £m £m Balance at 1 April 213 400 22 209 Net change in cash and cash equivalent balances (70) (50) 191 191 Balance at 31 March 143 350 213 400

The following balances were held at: Government Banking Service 142 154 210 226 Commercial banks & cash in hand 1 196 3 174 143 350 213 400

11. Trade payables and other current liabilities

As at As at 31 March 2016 31 March 2015 WG Core WG Group WG Core WG Group

£m £m £m £m Amounts falling due within one year: Taxation and social security 5 48 5 30 Trade and other payables 466 799 413 715 Deferred European Union Income 61 61 72 72 Other accruals and deferred income 276 625 265 566 Amounts payable to the Welsh Consolidated Fund 3 3 127 127 Obligations under finance leases and PFI contracts 9 13 9 13 820 1,549 891 1,523 Amounts falling due after more than one year: Obligations under finance leases and PFI contracts and 125 192 134 212 other payables 125 192 134 212

Total trade payables and other current liabilities 945 1,741 1,025 1,735

Welsh Government Consolidated Accounts 2015-16 67 Financial Report

12. Provisions for liabilities and charges As at As at 31 March 2016 31 March 2015 WG Core WG Group WG Core WG Group

£m £m £m £m Balance at 1 April 707 764 605 673 Provided in the year 103 320 189 389 Provisions not required written back - (174) (6) (106) Borrowing costs - - - (13) Provisions utilised in year (77) (152) (81) (179) Balance at 31 March 733 758 707 764

Analysis of expected timing of discounted flows: Not later than one year 81 244 101 248 Later than one year and not later than five years 178 219 295 275 Later than 5 years 474 295 311 241 Balance at 31 March 733 758 707 764

WG Core Provisions by type:

Other Health Total

£m £m £m Analysis of expected timing of discounted flows: Not later than one year 12 70 82 Later than one year and not later than five years 15 162 177 Later than 5 years - 474 474 27 706 733

(i) Other Provisions liabilities, the Skipton Fund (Hepatitis C infection claims) and This includes various potential the NHS Electronic Staff Records pension and employment liabilities system; as well as expected future in respect of previous employees re‑imbursements of the Welsh Risk and various commercially sensitive Pool. The Welsh Risk Pool (WRP) provisions which underwrite projects assists Welsh NHS bodies with with the aim of improving economic risk management and settlement growth prospects. of disputed claims for alleged (ii) Health Provisions medical or employer negligence. The Welsh Government has various The Welsh Risk Pool balance as minor health related provisions at 31 March 2016 is £682m including LHB employment (2014-15: £674m).

68 Welsh Government Consolidated Accounts 2015-16 Financial Report

13. Contingent Liabilities

Year ended Year ended 31 March 2016 31 March 2015 WG Core WG Group WG Core WG Group

£m £m £m £m Legal Claims – alleged medical/ employer negligence - 65 - 76 Potential contractual obligations under the WDA Act 1975 10 10 10 10 Other legal and contractual claims 11 11 9 10 21 86 19 96

Details on restricted and as yet un- Indemnities: The Welsh quantified potential liabilities are Government has indemnified the not shown due to their sensitivity to Secretary of State against all actions, commercial and legal confidentiality. proceedings, costs, claims and demands by third parties in respect Final claims to the European of: any damage or liability caused Commission for the 2007-2013 by or arising from the Joint Parties programmes will not be agreed Agreement regarding Arriva Trains for some years. Should the value Wales. The possibility of the liability of the Euro weaken significantly in maturing is assessed as remote. that period, the flexibility within programmes may not be sufficient The Welsh Government has to contain all potential exchange committed to indemnify Housing losses. It is not possible to put a Stock Transfer organisations likely value on this due to the range against the financial consequences of variables. of any future withdrawal of, or amendment to the VAT Mitigation Financial guarantees, Scheme. The liabilities cover eight Indemnities and Letters of organisations for £411.7 million and Comfort the period of liability varies. There The Welsh Government has entered are no current concerns regarding into the following unquantifiable the continuation of the scheme, and contingent liabilities by offering the potential of the liability maturing guarantees, indemnities or by is considered to be too remote to giving letters of comfort. None of include as a contingent liability. these is a contingent liability within The Government Indemnity Scheme the meaning of IAS 37 since the provides indemnities to enable possibility of a transfer of economic the National Library of Wales, benefit in settlement is too remote. the National Museum of Wales, Guarantees: in special circumstances and other eligible institutions to the Welsh Government acts as a borrow objects and artworks. guarantor for its sponsored bodies. The probability of these guarantees None of these guarantees are being acted on is counted as material. too remote to be included as a

Welsh Government Consolidated Accounts 2015-16 69 Financial Report

contingent liability. The value of Details on restricted and as yet these guarantees at 31 March 2016 un‑quantified potential liabilities was £46 million. are not shown due to their sensitivity to commercial and legal Letters of comfort: The Welsh confidentiality. Government has a maximum liability to underwrite at last resort, costs regarding contaminated land at the Brofiscin tip of £1 million.

14. Other liabilities Year ended Year ended 31 March 2016 31 March 2015 WG Core WG Group WG Core WG Group

£m £m £m £m Pension fund deficits 63 83 76 104 National Loans Fund (falling due after 5 years) 11 11 11 11 Finance Wales bank loans - 10 - 20 74 104 87 135

15. Movements in working capital other than cash

Year ended Year ended 31 March 2016 31 March 2015 WG Core WG Group WG Core WG Group

£m £m £m £m Increase/(decrease) in inventories 24 24 15 16 Increase/(decrease) in receivables: current (65) (29) (13) (30) non-current - (127) - (47) (Increase)/decrease in payables: current (71) 26 215 290 non-current (9) (20) (9) (11) (121) (126) 208 218 Student Loans interest (60) (60) (57) (57) Development assets movement (25) (25) (13) (13) Adjustments for accrual movement fixed assets (1) 20 (11) (33) Finance Wales – movement in loan provisions - - - (7) Other investments held as current assets - - - (6) PFI/Finance lease capital element 9 9 8 8 Other adjustment (1) (1) (1) (1) Less movement in amounts payable to the Welsh 122 122 (121) (121) Consolidated Fund and other non-operating cost balances (77) (61) 13 (12)

70 Welsh Government Consolidated Accounts 2015-16 Financial Report

16. Related Party The Welsh Government receives Next Generation Broadband. BT Transactions most of its funding from the Welsh received £56,107,618 in 2015-16. Consolidated Fund. The Minister had no involvement in the award or management of The Welsh Government funds its any contracts which BT won. Welsh Local Authorities, NHS bodies in Wales, subsidiary companies and Sir Adrian Webb (non‑executive Sponsored Bodies. These bodies director) is the Chair of the are regarded as related parties with Big Lottery Fund which which the Welsh Government has received funding in 2015-16 of had various material transactions £3,403,502 from Communities during the period. In addition, programmes. the Welsh Government has had Elan Closs Stephens a number of transactions with (non‑executive director) is also other government departments appointed by the Department for and central government bodies Culture, Media and Sport to the primarily, the Welsh Office, the S4C Authority which received Rural Payments Agency and the funding in 2015-16 of £53,064. Department for Work and Pensions. The husband of Gillian Baranski None of the Welsh Ministers, key (board member) is a partner in managerial staff or other related the legal company Geldards who parties has undertaken any material competed for a procurement transactions with the Welsh contract for Legal Services with Government during the year, except the Welsh Government. The as noted below: company was paid £4,215,859 in The wife of Leighton Andrews 2015-16 for these Legal services. (previously Minister for Public Related party transactions of the Services) was a director of Local Health Boards in Wales and BT Wales, but stood down during other subsidiary companies are the financial year. The Welsh disclosed in their own published Government has a number of accounts. contracts with BT, principally

Welsh Government Consolidated Accounts 2015-16 71 Financial Report

16.1 Results of Consolidated wholly owned companies

2015-16 2014-15 Share Capital & Share Capital & Profit/(Loss) Reserves Profit/(Loss) Reserves £m £m £m £m Finance Wales PLC (i) (1,336,066) 105,565,806 999,937 104,993,471 Regeneration Investment Fund for Wales LLP (199,315) 30,020,116 223,054 30,219,431 WGC Holdco Limited Nil 55,300,000 Nil 53,950,000 Careers Choices Dewis Gyrfa Limited (1,256,000) (14,562,000) (2,401,000) (21,147,000)

(i) Investment of 49,999 ordinary £1 shares, 25p part paid.

16.2 Associate Undertakings Partnership LLP with no significant influence. The Partnership is The Welsh Government has a currently dormant and in the 49% interest in Welsh Industrial process of being dissolved.

16.3 Other minor subsidiaries Student Loans Company and interests Limited – one share with a nominal value of £1. Joint ownership is The Welsh Government has a held with department of Business, number of other minor subsidiaries Innovation and Skills, Scottish for which no trading results are Government and Northern Ireland disclosed in these consolidated Government. The share gives the accounts. These include: Welsh Government 5% holding in - DCFW Limited - Design the company. Commission for Wales/ EADS Foundation Wales – a joint Comisiwn Dylunio Cymru interest in a company limited by - Hybu Cig Cymru Cyf/Meat guarantee. Joint ownership is held Promotion Wales Limited with Cassidian Holdings Limited and - Sector Development Wales Cardiff University. Partnership Limited Local Health Board NHS charities - Life Sciences Hub Wales Limited are not included in the consolidated accounts as the balances are not - Welsh Development Management material. Limited - International Business Wales Limited - Innovation Point Limited - Transport for Wales

72 Welsh Government Consolidated Accounts 2015-16 Financial Report

Appendix A – Accounting Policies

A.1 Property, Plant and valuation is known as the Roads Equipment Authorities’ Asset Valuation Systems (RAAVS), run by external consultants Land and buildings W.S. Atkins. External professional (including Dwellings) surveyors undertake a full valuation The Welsh Government and its of the network at intervals not related bodies capitalise freehold exceeding five years. This valuation property where it is retained for was carried out in 2014-15. Interim use by the organisation itself. The valuations use a series of standard Welsh Government capitalises costs to value the individual leasehold property where the components of the network assets original lease was for greater than and indices to revalue these on an 100 years and land & buildings annual basis. surplus to requirements. Leased The trunk road network is property, where the original lease recognised as a single infrastructure was for less than 100 years, is asset in accordance with the treated as a revenue cost. Freehold applicable guidance outlined in land and buildings and leasehold the FReM. However, it comprises land and buildings, where the four distinct elements that are original lease was for greater than accounted for differently: land; 100 years, have been restated the road pavement; structures at current cost using professional (such as bridges and culverts); valuations either every five years, and communications (such as or annually, with appropriate variable message signs). indices in intervening years for non annual valuations. The exception is The road pavement element properties of a specialised nature is valued using agreed rates held at depreciated replacement determined to identify the gross cost. The indices used for 2014-15 replacement cost of applicable were taken from the Investment types of road on the basis of new Property Databank (IPD) UK Annual construction on a green-field site. Index (2015). These rates are re-valued annually using indices to reflect current Network Assets prices. The road network is valued at Structures are valued using agreed its depreciated replacement cost rates determined to identify the in terms of the guidance in the replacement cost of applicable types Financial Reporting Manual for of structure on the basis of new specialist assets for which market construction on a green-field site valuations are not available. where these are available but special To produce this valuation requires structures, which tend to be one the use of assumptions, estimates off by their nature, are valued using and professional judgement. specific costs that are updated to The model used to produce the current prices.

Welsh Government Consolidated Accounts 2015-16 73 Financial Report

Communications are valued using re-valued replacement costs, and agreed rates determined to identify also inspected every five years to the replacement cost of applicable identify any other changes. Land is types of communications. not depreciated. Subsequent expenditure is The indexation factors applied are: capitalised where it adds to the Road Pavement and service. Expenditure that does not Structures – Baxter Index, replace or enhance service potential published quarterly by the will be expensed as a charge to the Department for Business, Statement of Comprehensive Net Innovation and Skills Expenditure. Communications – Baxter New roads are reclassified from Index, published quarterly by Assets under Construction when the the Department for Business, structural details have been provided Innovation and Skills by the Agent authority, which may be some time after the road has Land – Land indices produced opened. by Valuation Office Agenc.y Transfers of the responsibility Upwards movements in value are for maintaining sections of the taken to the revaluation reserve. road as part of the trunk road Downward movements in value network from or to the local are set off against any credit authority network are referred balance held in the revaluation to as ‘trunkings’ or ‘de-trunkings reserve until the credit is exhausted respectively. The trunking or and thereafter expensed in the de‑trunking of roads from or to local Statement of Comprehensive Net authorities is treated as a transfer Expenditure. from or to other government Information Technology and departments. Roads and structures Fixtures and Fittings de-trunked are effectively dealt with as disposals in accounting terms at Information technology and fixtures nil consideration. The associated and fittings (which include vehicles, profit or loss is processed through plant and equipment), are at the general fund. historical cost. As these asset classes have a short useful economic life, Depreciation is accounted for in reliable revaluations of these assets respect of the road pavement by could only be obtained at prohibitive reference to the service potential cost. No significant estimation assessed by condition surveys techniques are used in the valuation that are carried out over the of these asset classes. whole network as part of a rolling programme that covers every section Heritage Assets of road at least every five years. The Welsh Government holds The Structures and Communications a number of non-operational elements are depreciated using the heritage assets where the cultural, straight line method applied to the educational and historical value

74 Welsh Government Consolidated Accounts 2015-16 Financial Report

is unlikely to be fully reflected in computer model based on latest a financial value derived from a actual data on the condition of market mechanism or price. These the network referred to in the assets are of a specialist nature and non-current assets note above); reliable valuations either cannot be and obtained or could only be obtained • calculated depreciation of the at a prohibitive cost. The Welsh structures and communications. Government, therefore, does not capitalise these assets in the The annual depreciation charge for accounts. the road surface is the value of the service potential replaced through The minimum level for capitalisation the maintenance programme, plus of individual assets and grouped or minus any adjustment resulting assets is £5,000. from an annual condition survey. Structures and communications A.2 Depreciation assets are depreciated on a straight The depreciation charge for the line basis over the expected useful roads network consists of three life of the asset. elements: Depreciation is provided at rates • annual maintenance charge; calculated to write-off the value of • an estimate of the permanent intangible assets and other property, deterioration in the condition of plant and equipment assets by equal the network in the year (which instalments over their estimated has been calculated by the useful lives.

Lives are in the following ranges:

Network surface 20 to 50 years Network structures 20 to 120 years Network communication 15 years Leasehold land & buildings Remaining life Dwellings Remaining life Freehold buildings up to 60 years Information technology 3 to 10 years Intangible software assets 2 to 10 years Fixtures & fittings 3 to 20 years

Freehold Land and Assets under construction are not depreciated. Impairments of tangible fixed assets are charged to the Statement of Comprehensive Net Expenditure in the period in which they are occurred.

Welsh Government Consolidated Accounts 2015-16 75 Financial Report

A.3 Research and amounts which HMRC estimate as Development being due to the Welsh Government Research and development for the financial year are received. expenditure is charged to the Student loans values are shown net Statement of Comprehensive Net of estimated future write-offs in Expenditure in the year in which respect of the non-recovery of loans it is incurred, except where it and are reviewed annually. relates to a clearly defined project A statistical model is used to and where the benefits can estimate the total value of the loans reasonably be regarded as assured. issues. This makes a number of The expenditure deferred is limited assumptions including the amount to the value of future benefits of loans that will be taken out, the expected and is amortised through earnings levels of Welsh graduates, the Statement of Comprehensive interest rates, when loans will Net Expenditure on a systematic start to be repaid, the amount of basis over the period expected to loans that will have to be written benefit from the project. off (due to age, death or policies such as partial cancellation and A.4 Financial Assets repayment thresholds) and how Loans and Public Dividend much repayments made in the Capital future are worth in today’s money (net present value). As a substantial Loans and Public Dividend Capital asset, changes to the assumptions (PDC) issued to public bodies outside used in the modelling can have a of the consolidated boundary are large effect on the loan funding and shown at historical cost less any the non-cash adjustments valuing necessary impairment to represent the loan book. fair value. Other investments, in the form of joint ventures are shown at The carrying value is also considered fair value. to be a reasonable approximation of the fair value of student loans, Student Loans in the absence of an active market, readily observable market trends or The Welsh Government’s accounting similar arm’s length transactions. policy is to recognise an addition A valuation technique is used to to the student loan book once estimate the present value of future the Student Loans Company cash flows and an estimate of (SLC) has issued the loan to the irrecoverable amounts because of student. Student loan repayments policy decisions. are collected by the SLC and Her Majesty’s Revenue and Customs The value of new higher education (HMRC). For repayments made via (HE) loans issued is calculated the SLC, the Welsh Government using a forecasting model (the recognises the repayment when HE student loan repayment the SLC has received the cash and model) which holds data on the updated the borrower record. For demographic and behavioural repayments collected via the tax characteristics of students in order system, this is recognised when the to predict their likely repayments

76 Welsh Government Consolidated Accounts 2015-16 Financial Report of loans. The model depends on a Each year the carrying value of HE complex set of assumptions, and loans in the Accounts is compared particularly on borrowers’ earnings. with the latest outputs from the The model is long term in nature, HE student loan repayment model, but uses the latest Office for which is re-run using current Budget Responsibility (OBR) short assumptions. If there is a significant and long term forecasts for RPI, difference, a review is undertaken base rates and earnings growth. to determine the reasons for The valuation of the student loan the variance. The carrying value book is uncertain as it is highly would only be adjusted if there dependent on macroeconomic was sufficient evidence to suggest circumstances and graduate that the divergence constituted a earnings over the next 30 years, permanent reduction in the carrying as well as a number of other value. complex assumptions, for around four million borrowers. Further A.5 Inventories information on the core assumptions Development assets, comprising and a simplified model is provided land held for future development on the Department for Business, and built properties not required Innovation and Skills website http:// for own use, which are held with tinyurl.com/stepmodelguide the ultimate intention for resale, (Note: The simplified model are shown at the lower of historic is owned and updated by the cost and professional asset valuation, Department for Business, Innovation any impairment on revaluation being and Skills). written off to the SOCNE. Material The forecasting model for Wales reversals of prior year impairments contains the same main assumptions are written back to the SOCNE as England. However, there are where there is current evidence of a number of specific Wales only increased value resulting from earlier amendments that are made to year’s expenditure. reflect information and policies Other Inventories are valued at that are unique to Wales. The main the lower of replacement cost and differences are as follows: net realisable value. The Welsh • the inclusion of Welsh borrower Government does not consider there data from the SLC to be a material difference between the replacement cost and historic • the inclusion of Welsh student cost of stocks. Stocks with a finite number projections useful life are written-off at the end • the inclusion of information of their lives. relating to loans for Welsh students • partial cancellation of student loans scheme (further details http://tinyurl.com/partial- cancellation)

Welsh Government Consolidated Accounts 2015-16 77 Financial Report

A.6 Operating Income Accountability Report. The defined Operating income relates directly to benefit elements of the scheme are the operating activities of the Welsh unfunded. The Welsh Government Government and the related bodies. recognises the expected cost of these elements on a systematic and Revenue from the European rational basis over the period during Union in respect of the European which it benefits from employees’ programmes, funds and initiatives services by payments to the Principal is brought to account in line Civil Service Pension Scheme with grants payable in respect of (PCSPS) of amounts calculated on an these amounts and is shown in accruing basis. Liability for payment Note 2. The funds are paid to the of future benefits is a charge Welsh European Funding Office. on the PCSPS. In respect of the These funds are then transferred defined contribution schemes, the to the relevant department within Welsh Government recognises the the Welsh Government and are contributions payable for the year. accounted for within Note 3. All actuarial gains and losses arising Health revenue includes Health from experience adjustments and Funding Contributions payable changes in actuarial assumptions are by HM Revenue and Customs recognised through reserves in the which are subject to audit by the period in which they arise. National Audit Office. The audit Some former Welsh Development of these transactions had not Agency staff, current Finance Wales been completed by the time these PLC staff and Career Choices staff accounts were produced. Any participate in a number of Local adjustments arising from the audit Government Pension Schemes in will therefore be made in future Wales which are multi-employer accounting periods. These are not funded schemes. likely to be material. Welsh Government staff contributed A.7 Value Added Tax (VAT) to: the Nursing and Midwifery The Welsh Government recovers Council, NHS Education for Scotland, some elements of VAT for business Department of Health and the services and contracted out services. Nurses Welfare Trust; and the For other goods and services West Yorkshire Pension Scheme expenditure these are recorded administered by the City of Bradford inclusive of VAT Metropolitan District Council. Employees of Local Health Boards A.8 Pensions participate in the NHS pension The majority of present and scheme. Information on this past employees of the Welsh scheme can be found in the LHB Government are covered by the Summarised Accounts. provisions of the Principal Civil Service Pension Scheme (PCSPS) which are described within the

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A.9 Early departure costs A.12 Private Finance The Welsh Government is required Initiative / Public Private to meet the additional cost of Partnership transactions benefits beyond the normal PCSPS HM Treasury has determined that benefits in respect of employees government bodies shall account for who retire early. The Welsh infrastructure PFI schemes where the Government provides in full for government body controls the use this cost when the early retirement of the infrastructure and the residual programme has been announced interest in the infrastructure at the and is binding. The Welsh end of the arrangement as service Government may, in certain concession arrangements, following circumstances, settle some or all the principles of the requirements of its liability in advance by making of IFRIC 12. The LHB, therefore, a payment to the Government recognises the PFI asset as an item Banking Service at the Bank of of property, plant and equipment England for the credit of the Civil together with a liability to pay for Superannuation Vote. Similar it. The services received under the arrangements are in place for LHB contract are recorded as operating employees who retire early. expenses. For pre-merger employees and The annual unitary payment is ex-employees of the former separated into the following Welsh Development Agency in component parts, using appropriate the Rhondda Cynon Taff Pension estimation techniques where Scheme, the Welsh Government necessary: meets the additional cost of benefits a) payment for the fair value of beyond the scheme benefits in services received respect of employees who retire early. b) payment for the PFI asset, including finance costs A.10 Operating leases c) payment for the replacement Expenditure on non-capitalised of components of the asset operating leases, including land during the contract ‘lifecycle and buildings, is charged to the replacement’. Statement of Comprehensive Net The fair value of services received Expenditure in the period to which in the year is recorded under the it relates. relevant expenditure headings within programme costs. A.11 Grants The PFI assets are recognised as Grants payable or paid are recorded property, plant and equipment, as expenditure in the period that the when they come into use. The assets underlying event or activity giving are measured initially at fair value entitlement to the grant occurs. in accordance with the principles of IAS 17. Subsequently the assets are measured at fair value, which is kept

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up to date in accordance with the or constructive obligation exists principles of IAS 16. (ie a present obligation arising from past events), the outflow of The PFI liability is recognised at the resources that will be required to same time as the PFI asset. This is settle the obligation is probable measured at the same amount as and a reasonable estimate of the the fair value of the PFI assets and obligation can be made. is subsequently measured as finance lease in accordance with IAS 17. An Where the time value of money is annual finance cost is calculated material, provisions are discounted by applying the implicit interest to present value using HM Treasury’s rate in the lease to the operating real discount rates. lease liability for the period and is charged to Income. The element of A.15 Financial Instruments the annual unitary payment that is IFRS 7: requires the disclosure of allocated as a finance lease rental is information which allows the user applied to meet the annual finance to evaluate the significance of cost and to repay the lease liability financial instruments on financial over the contract term. performance, and the nature and extent of its exposure to risks arising A.13 Exchange Rate Gains from financial instruments. and Losses As the majority of the Welsh The Welsh European Funding Office, Government’s resources are met which is part of the Central Services by the Welsh Consolidated Fund, Department requests programme financial instruments play a more funding from the European limited role in creating risk than Commission at the Euro equivalent would apply to a non-public sector level to the sterling required body of a similar size. and pays out funds in sterling. The exchange gain or loss on these Credit Risk transactions is calculated and The Welsh Government’s objective accounted for in line with IAS 21. is full recovery of debt, which Other transactions in foreign we actively pursue. The policy is currencies are translated into sterling to operate normal credit control at the rate of exchange ruling at that procedures for the management date. Exchange differences are taken of risk of default by trade debtors into account in the Statement of through the Accounts Receivable Comprehensive Net Expenditure. function. Due to the nature and value of debtors, the credit risk A.14 Provisions associated is deemed as minor. In accordance with IAS 37 Provisions for doubtful debts are Provisions, Contingent Liabilities and made once debts are over 6 months Contingent Assets, provisions for old. liabilities and charges are made at the year-end where present legal

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The Welsh Government has a Liquidity Risk statutory obligation to issue student The Welsh Government only loans, and is not permitted to borrows from the National Loans withhold loans on the basis of poor Fund, and relies primarily on funding credit rating. Exposure to the risk of received from Parliament via the non-repayment of loans is managed Welsh Consolidated Fund for its and monitored, and the impact cash requirements. There is no is accounted for via an annual reason to believe that future funding impairment review. will not be forthcoming, therefore Market Risk on this basis it is not exposed to liquidity risks. It also has no material Foreign Currency Risk - the Welsh deposits, and all material assets Government is exposed to negligible and liabilities are denominated in currency risk on its foreign currency sterling, so it is not exposed to transactions, except for funds interest rate risk or currency rate received from the European Union risk other than the risks arising from to the Welsh European Funding receipt of funds from the European Office. Private sector mitigation Commission in Euros. options are not available. However, total funding received from the European Commission is managed to ensure the available funding is flexibly allocated to projects, enabling targeted expenditure levels to be met. Funding claims from the Commission are also prompt to limit delays between incurring expenditure and its reimbursement.

Interest Rate Risk The amount of student loan interest repayable is subject to the fluctuations in the market interest rate and RPI. This can lead to a risk in accurately forecasting the amount of interest payable and therefore the possible impairment of future cash flows.

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Appendix B – Glossary (unaudited)

Amortisation – this is the method Departmental Expenditure of spreading the cost of a non- Limits (DEL) – this is the spending current intangible asset over its budget which is allocated to the useful life. Welsh Government by the Spending Review. It is normally categorised as Annually Managed Expenditure capital DEL and resource DEL. This (AME) – this is a separate annually expenditure includes the running of managed spending limit called AME the services and the everyday cost of which has a shorter term view than resources such as staff. The DEL limit the DEL limit. AME is more volatile is tightly controlled by HM Treasury. than DEL expenditure and therefore Expenditure is deemed to be DEL is more difficult to explain or control unless HM Treasury has specified as it is spent on programmes which otherwise. are demand-led. Depreciation – a measure of the Capital spending – spending wearing out, consumption or other on the purchase of assets, above reduction in the useful life of a fixed a certain threshold, which are asset whether arising from use, expected to be used for a period passage of time or obsolescence of at least one year. It includes the through technological or market purchase of buildings, equipment changes. and land. The threshold is set by each body: items valued below it are Devolved administrations – not counted as capital assets, even the administrations established if they do have a productive life of in Scotland, Wales and Northern more than one year. Ireland under the Scotland Act 1998, the Government of Wales Act 1998 CFER – Consolidated Fund Extra and the Northern Ireland Act 1998. Receipts. This is income which cannot be retained and is passed FReM – Financial Reporting over to HM Treasury. Manual. This is the HM Treasury technical accounting guide to the Contingent liabilities – contingent preparation of financial statements liabilities are possible obligations that for government. arise from past events and whose existence will be confirmed only IFRS – International Financial by the occurrence of one or more Reporting Standards. The Financial uncertain future events not wholly Statements of Government adopted within the Welsh Government’s IFRS from 2009-10 as the basis for control. An example is legal action preparation of their accounts which where the Welsh Government may were previously prepared under need to pay legal costs if it loses the UK- based Generally Accepted case. These details are not disclosed Accounting Principles (UK GAAP). if doing so could seriously prejudice the outcome of legal claims.

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Intangible – intangible assets are Resource accounting – the system non-physical assets, for example, under which budgets, Estimates and developed computer software and accounts are constructed in a similar website development costs. way to commercial audited accounts, so that both plans and records of Losses – losses are made up of expenditure allow in full for the remissions and write-offs. Remission goods and services which are to be, is the process used to identify and or have been, consumed – i.e. not separate receivables which the just the cash expended. Welsh Government has decided not to pursue, for example on Total Managed Expenditure the grounds of value for money. (TME) – a Treasury budgeting term Write-offs are receivables that are which covers all current and capital considered to be irrecoverable, spending carried out by the public for example because there is no sector. practical means for pursuing them. Welsh Consolidated Fund – PFI – Private Finance Initiative (PFI) a neutral place to hold the public is a way of creating ‘public–private money allocated to Wales by the partnerships’ by funding public UK Government, via the Secretary infrastructure projects with private of State for Wales, and also that capital. received from other sources. Provisions for liabilities – Welsh Government Sponsored provisions are recognised when the Bodies (WGSBs) – the name in Welsh Government has a present Wales for Non Departmental Public legal or constructive obligation as a Bodies established by the Welsh result of a past event, it is probable Ministers. that the obligation will be settled and an amount has been reliably estimated.

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