Public Document Pack
NOTTINGHAMSHIRE AND CITY OF NOTTINGHAM FIRE AND RESCUE AUTHORITY - MEETING OF THE AUTHORITY
Date: Friday, 20 December 2019 Time: 10.30 am
Venue: Fire and Rescue Services HQ, Bestwood Lodge, Arnold Nottingham NG5 8PD
Members are requested to attend the above meeting to be held at the time, place and date mentioned to transact the following business
Clerk to the Nottinghamshire and City of Nottingham Fire and Rescue Authority
AGENDA Pages
1 APOLOGIES FOR ABSENCE
2 DECLARATIONS OF INTERESTS
3 MINUTES 3 - 10 Of the meeting held on 27 September 2019 (for confirmation)
4 CHAIRS' ANNOUNCEMENTS
5 FINAL ACCOUNTS 2018/19 11 - 138 Report of the Treasurer to the Fire Authority
6 EXTERNAL AUDITORS' REPORT TO THOSE CHARGED WITH 139 - 198 GOVERNANCE 2018/19 Joint Report of the Chief Fire Officer and the Treasurer to the Fire Authority
7 TREASURY MANAGEMENT MID-YEAR REVIEW 2019/20 199 - 214 Report of the Treasurer to the Fire Authority
8 MEDIUM TERM FINANCIAL STRATEGY 2020/21 TO 2023/24 AND 215 - 258 BUDGET GUIDELINES 2020/21 Joint Report of the Chief Fire Officer and the Treasurer to the Fire Authority
9 RESERVES STRATEGY 2020/21 TO 2023/24 259 - 286 Joint Report of the Treasurer to the Fire Authority and Chief Fire Officer
10 LOCAL FIREFIGHTER PENSION SCHEME ADMINISTRATION 287 - 290 Report of the Chief Fire Officer
11 PRINCIPAL OFFICER PAY REVIEW 291 - 298 Joint Report of the Clerk and Treasurer to the Fire Authority
12 GRENFELL INQUIRY - PHASE ONE REPORT 299 - 306 Report of the Chief Fire Officer
13 COMMITTEE OUTCOMES 307 - 326 Report of the Chief Fire Officer
14 EXCLUSION OF PUBLIC To consider excluding the public from the meeting during consideration of the remaining items in accordance with Section 100A of the Local Government Act 1972, under Schedule 12A, Part 1, Paragraph 3, on the basis that, having regard to all the circumstances, the public interest in maintaining an exemption outweighs the public interest in disclosing the information.
15 EXEMPT MINUTES 327 - 330 Of the meeting held on 27 September 2019 (for confirmation)
ANY COUNCILLOR WHO IS UNABLE TO ATTEND THE MEETING AND WISHES TO SUBMIT APOLOGIES SHOULD DO SO VIA THE PERSONAL ASSISTANT TO THE CHIEF FIRE OFFICER AT FIRE SERVICES HEADQUARTERS ON 0115 8388900
IF YOU NEED ANY ADVICE ON DECLARING AN INTEREST IN ANY ITEM ABOVE, PLEASE CONTACT THE CONSTITUTIONAL SERVICES OFFICER SHOWN ON THIS AGENDA, IF POSSIBLE BEFORE THE DAY OF THE MEETING.
Constitutional Services Officer: Catherine Ziane-Pryor 0115 8764298 [email protected]
Agenda, reports and minutes for all public meetings can be viewed online at:- https://committee.nottinghamcity.gov.uk/ieListMeetings.aspx?CId=224&Year=0
If you would like British Sign Language interpretation at the meeting, please contact the Service at least 2 weeks in advance to book this, either by emailing enquiries@notts- fire.gov.uk or by text on SMS: 0115 824 0400
Agenda Item 3
NOTTINGHAMSHIRE AND CITY OF NOTTINGHAM FIRE AND RESCUE AUTHORITY
MINUTES of the meeting held at Fire and Rescue Services HQ, Bestwood Lodge, Arnold Nottingham NG5 8PD on 27 September 2019 from 10:32am to 11:50am
Membership Present Absent Councillor Michael Payne (Chair) Councillor Vaughan Hopewell Councillor Toby Neal (Vice Chair) Councillor Andrew Brown Councillor John Clarke Councillor Sybil Fielding Councillor Jawaid Khalil Councillor Gul Nawaz Khan Councillor John Longdon Councillor Salma Mumtaz (items 21-30, 33-37) Councillor Shuguftah Quddoos Councillor Mike Quigley MBE Councillor Nick Raine Councillor Sue Saddington Councillor Parry Tsimbiridis Councillor Stuart Wallace Councillor Jonathan Wheeler Councillor Jason Zadrozny
Also in attendance Paddy Tipping, Nottinghamshire Police and Crime Commissioner
Colleagues, partners and others in attendance:
John Buckley - Chief Fire Officer Neil Harris - External Auditor, Ernst & Young Aileen Macpherson - Human Resources Adrian Mann - Governance Officer Craig Parkin - Deputy Chief Fire Officer Charlotte Radford - Treasurer Becky Smeathers - Head of Finance Malcolm Townroe - Clerk and Monitoring Officer
1 Page 3 Nottinghamshire & City of Nottingham Fire & Rescue Authority - 27.09.19
21 APOLOGIES FOR ABSENCE
Councillor Vaughan Hopewell - unwell
22 DECLARATIONS OF INTERESTS
In relation to item 37, in the interests of transparency, Councillor Andrew Brown, Councillor Toby Neal, Councillor Michael Payne, Councillor Mike Quigley MBE and Councillor Jonathan Wheeler stated that they are the directors of Nottinghamshire Fire Safety Limited.
23 MINUTES
The Committee confirmed the minutes of the meeting held on 26 July 2019 as a correct record and they were signed by the Chair.
24 CHAIR'S ANNOUNCEMENTS
The Chair made the following announcements:
(a) the discussion seminar on 4 September was very productive and the attendance of Authority members was welcomed. Following on, the Chair wrote to the Secretary of State for Housing, Communities and Local Government on the issues of Fire Protection, and to encourage the Government to reference the sector more explicitly in its policies (fire and rescue was not mentioned specifically in the most recent Budget). A recent meeting for Chief Fire Officers and Authority Chairs was held in London and suggestions were made that, as part of future inspections of the sector, the inspectors should also talk to the elected members of the individual fire authorities;
(b) although the standard of this year’s external audit itself was very good, the final report is still not ready for sign-off by the Authority. The Chair has written to the Local Government Association (LGA) to raise concerns about the process through which Ernst & Young (EY) was appointed, and the LGA will report back on the actions that it will take. The experience has been very disappointing and has damaged the reputation of both the Authority and EY, as its external auditor. Clearly, steps should be taken to ensure that a situation like this does not occur again, in the future;
(c) collaboration is progressing well with the Police and other emergency services, with projects such as the Joint Control Centre in Derbyshire and the development of new operational equipment, including drones;
(d) unfortunately, the Authority’s current pensions administrator has decided to not renew its contract, so this issue will be addressed at the next meeting of the Authority;
(e) 14 members of Service staff will be running the Robin Hood Half Marathon on 29 September and any support from members will be very welcome.
25 TREASURY MANAGEMENT ANNUAL REPORT 2018/19
Becky Smeathers, Head of Finance, presented a report on treasury management activity during the 2018/19 financial year. The following points were discussed:
Page 4 2 Nottinghamshire & City of Nottingham Fire & Rescue Authority - 27.09.19
(a) the Authority aims to limit its investments with any single counter-party to £2million. However, this limit was exceeded during 2018/19 when a £2.3million pension grant came in earlier than expected. As such, a total of £3.5million was invested with Barclays during April and May 2018, due to a lack of suitable counter-parties. The limit was increased to £4million in the 2019/20 Treasury Management Strategy while an alternative investment location is agreed;
(b) compliance has been achieved with all treasury and prudential indicators and limits. Due to advantageous interest rates, there was a borrowing total of £29million on 31 March 2019, to help to manage cash flow across year-end.
RESOLVED to note the report.
26 UPDATE REPORT ON AUDIT OF FINAL ACCOUNTS 2018/19
Neil Harris, Associate Partner of Ernst & Young (EY) as the External Auditor, presented a report on the progress of the audit of the Fire Authority’s 2018/19 final accounts. The following points were discussed:
(a) EY acknowledges the concerns raised by the Authority in relation to the audit process and apologises that it was not possible to complete the audit by 31 July. Unfortunately, EY did not have enough staff resources to deliver a thorough audit on time, so its completion was delayed, to ensure that it was of high quality and accuracy. EY is now taking steps to recruit to a sufficient capacity and is now in a much stronger position. Of over 200 public organisations whose external audits were not completed by 31 July, EY was the external auditor for 95. The Authority’s concerns relating to the audit will be raised in the wider context of the Sir Tony Redmond’s independent review of local authority financial reporting and external audit, and the National Audit Office’s second-stage consultation on the best practice for external audits;
(b) the audit is now nearly complete. Work is being concluded on the value of assets, following a sampling of assets and assumptions. Some differences were found on the fixed assets note when compared against the fixed assets register, as not everything in the accounts was found to be in operational use. This issue has now been largely resolved;
(c) actuarial work is underway as a consequence of the McCloud judgement on age discrimination relating to the pensions of fire-fighters. This is likely to have a significant impact on Service pensions and has changed current assumptions, with £24.4million now included in the overall pension liability. The pension membership profile is being reviewed as part of forming a final position but, although the judgement has established that there will be some form of obligation as a consequence, it is not yet clear what this will be. Currently, the situation represents an accounting issue, until the Government confirms the actual cash implications. Although any new shortfall in the pension scheme will be met by a national grant, there could be an increase in future employer contributions to the scheme;
(d) due to a strong mid-term financial plan and savings policy, along with good joint and collaborative decision-making and working with other emergency services, there are no concerns relating to value for money, which is very positive for the Authority. However, the audit did raise some cautionary comments regarding future savings, reserves and overspends.
3 Page 5 Nottinghamshire & City of Nottingham Fire & Rescue Authority - 27.09.19
RESOLVED to note the report.
27 ANNUAL STATEMENT OF ASSURANCE 2018/19
John Buckley, Chief Fire Officer, presented a report on the Annual Statement of Assurance for 2018/19. The following points were discussed:
(a) the Statement provides an overview of organisational performance, to give confidence to local communities and central Government that the Service is carrying out its statutory functions to a high standard. The Statement signposts information in which there is a public interest on the Authority’s website;
(b) the Statement sets out the financial performance of the Service, explains how it manages its governance and internal control measures, provides progress against the priorities set out within the Integrated Risk Management Plan (IRMP), demonstrates how the Service has met the requirements as set out in the National Framework 2012, provides a forward-looking aspect for the year in support of the IRMP priorities, and forms part of the arrangements for transparency and how further information and feedback will be dealt with by the Service.
RESOLVED to approve the Annual Statement of Assurance for 2018/19.
28 SUSTAINABILITY STRATEGY 2020 OUTCOME REPORT
John Buckley, Chief Fire Officer, presented a report on the outcomes of the Sustainability Strategy 2020 objectives and the future staffing establishment. The following points were discussed:
(a) it has been necessary to create £2.5million in efficiency savings over the last two years as a result of the latest savings review. Alternative and mixed crewing is in place and wider collaboration is in place with other emergency services, including the significant establishment of the Joint Control Centre with Derbyshire. A project is also underway to upgrade the Service’s radio equipment;
(b) engagement with voluntary secondary arrangements to support on-call availability has had limited success, so other strategies will be considered. A Watch Manager and two Crew Manager posts have been created to provide additional support to on-call stations in terms of recruitment, training and operational cover;
(c) the Authority has worked in partnership with its local communities, citizens, businesses, societies and others to address the important operational matters, going forward. Fire Protection work will be carried out in relation to the Grenfall Tower disaster’s impact on legislation relating to the built environment. Managerial capacity is being increased on a permanent basis to engage with new legislative requirements, following a period of cover by temporary roles;
(d) in terms of the permanent staff establishment, it is proposed to have 431 full-time fire- fighters (reducing from 470), 204 units of on-call fire-fighters (increasing from 192), no Control Operators (decreasing from 25, due to the creation of the Joint Control Centre with Derbyshire) and 158 Support Staff (increasing from 156).
Page 6 4 Nottinghamshire & City of Nottingham Fire & Rescue Authority - 27.09.19 RESOLVED to approve the proposed staff establishment figures of 431 full-time fire- fighters, 204 units of on-call fire-fighters and 158 Support Staff.
29 SERVICE RESPONSE TO HER MAJESTY'S INSPECTORATE OF CONSTABULARY AND FIRE & RESCUE SERVICES INSPECTION
John Buckley, Chief Fire Officer, presented a report on the Service’s response to the outcomes of the recent inspection by Her Majesty’s Inspectorate of Constabulary and Fire & Rescue Services. The following points were discussed:
(a) a full report has been produced to address the 25 areas of improvement identified by the inspection. Each area has been allocated a specific action, responsible officer, timescale and committee reporting route. Many of the actions fall under the remit of the Deputy Chief Fire Officer, with his responsibilities for Human Resources and service delivery, who will coordinate the other senior staff in these areas to respond to the issues;
(b) the Authority felt that the document represented a positive and transparent means of holding senior staff to account, and that it showed the great deal of hard work undertaken by the Service to address the findings of the inspection. Many of the recommendations made arose from the Service’s own self-assessment, which has informed its overall Corporate Plan and departmental business plans. As such, the areas of improvement identified by the inspectors are integrated into the Service’s existing actions to meet its statutory duties and wider responsibilities, so they should be achievable without detracting from staff capacity to carry out core functions;
(c) a new inspection of the sector is expected to start during Spring 2020, so it is likely that the Service will be inspected again around this time, next year.
RESOLVED to endorse the approach proposed by the Chief Fire Officer to address Her Majesty’s Inspectorate of Constabulary and Fire & Rescue Services’ areas of concern, and to receive progress reports at the relevant committee level.
30 ASSISTANT CHIEF FIRE OFFICER VACANCY
John Buckley, Chief Fire Officer, presented a report on the proposed recruitment to the vacancy of Assistant Chief Fire Officer, following the successful appointment of the previous incumbent to the role of Deputy Chief Fire Officer. The following points were discussed:
(a) the previous Assistant Chief Fire Officer (ACFO) was appointed as the Deputy Chief Fire Officer in February 2019, resulting in a vacancy for Assistant being created. The vacancy has been filled on an internal, temporary basis, to enable a full review process of the role to be carried out;
(b) the ACFO role has three distinct facets: direct leadership and responsibility for a significant number of functions within the organisation; the provision of strategic operational cover as part of the Brigade Manager on-call rota; and to provide advice and support to Members of the Authority as part of the Strategic Team;
(c) the number of applicants for Principal Officer roles like ACFO can be small, as the traditional requirement to seek ‘uniform’ candidates from purely operational backgrounds limits the number of potential applicants considerably, as they must come from within the sector. More
5 Page 7 Nottinghamshire & City of Nottingham Fire & Rescue Authority - 27.09.19 recently, a number of Services have appointed to Principal Officer roles from outside of the sector. Although the individuals do not have the tactical operational experience to manage an incident on scene, they are able to develop the competences to provide strategic command within the context of a Strategic Co-ordinating Group;
(d) this range of competences is the main area of command undertaken by Principal Officers and is similar to the requirements placed on all senior leaders in Local Authorities who provide strategic cover. With a structured training and development programme, senior leaders from outside of the sector are able to satisfy the operational rota requirements;
(e) the Authority recommended that, as the current membership of the Appointments Committee is exclusively male, at least one of the positions should be filled by a female member of the Authority. Councillor Toby Neal agreed to step down from the Appointments Committee, and Councillor Shuguftah Quddoos agreed to fill the vacancy.
RESOLVED to:
(1) task the Chief Fire Officer and the Clerk to the Fire Authority to start the recruitment process for the Assistant Chief Fire Officer vacancy;
(2) appoint Councillor Shuguftah Quddoos to the Appointments Committee, in replacement of Councillor Toby Neal.
31 REVIEW OF STATEMENT OF INTENT
Craig Parkin, Deputy Chief Fire Officer, presented a report on the recent review of the Nottinghamshire Fire and Rescue Service’s Safety Policy Statement of Intent. The following points were discussed:
(a) the aim of the Statement is to ensure that it reflects accurately the Service’s approach to discharging its duty of care to both its employees and others affected by its work activities). The document is underpinned by the Service’s Safety Policy, with the two documents forming an auditable approach to achieving and maintaining safe systems of work.
RESOLVED to endorse the Safety Policy Statement of Intent.
32 ENVIRONMENT AND SUSTAINABILITY POLICY STATEMENT
Craig Parkin, Deputy Chief Fire Officer, presented a report on the recent review of the Nottinghamshire Fire and Rescue Service’s Environment and Sustainability Policy Statement. The following points were discussed:
(a) the Statement communicates the Service’s commitment, and reflects its approach, to discharging its duty of care to minimise its impact on the environment. The Statement is underpinned by the Service’s Safety Policy, with the two documents forming an auditable approach to achieving and maintaining safe systems of work.
RESOLVED to endorse the Environment and Sustainability Policy Statement.
Page 8 6 Nottinghamshire & City of Nottingham Fire & Rescue Authority - 27.09.19 33 ANNUAL REPORT ON INFORMATION GOVERNANCE
John Buckley, Chief Fire Officer, presented a report on information governance at the Nottinghamshire Fire and Rescue Service. The following points were discussed:
(a) between April 2018 and March 2019, the Service received 124 Freedom of Information (FoI) requests. These covered a wide range of information, including the inspection of schools, animal rescues and ICT contracts. Of the FoI requests, 97% were replied to within 20 working days, which is within the Information Commissioner’s target of 90%. The Service publishes a selection of FoI replies on its public website, as well as information about performance and finance;
(b) no data breaches occurred in the period that required reporting to the Information Commissioner’s Office, and no situations arose where the Service needed to undertake directed surveillance.
RESOLVED to note the report.
34 COMMITTEE OUTCOMES
John Buckley, Chief Fire Officer, presented a report on the business and actions of the Fire Authority sub-committee meetings that took place during June and July 2019, which constituted meetings of the Community Safety Committee, the Finance and Resources Committee, the Human Resources Committee and the Policy and Strategy Committee.
RESOLVED to note the report.
35 EXCLUSION OF THE PUBLIC
RESOLVED to exclude the public from the meeting during consideration of the remaining item in accordance with Section 100A of the Local Government Act 1972, under Schedule 12A, Part 1, Paragraph 3, on the basis that, having regard to all the circumstances, the public interest in maintaining an exemption outweighed the public interest in disclosing the information.
36 RESILIENCE AND BUSINESS CONTINUITY UPDATE
John Buckley, Chief Fire Officer, presented a report on the ongoing work to enhance the resilience of operational fire cover, and the wider programme of work to ensure effective business continuity management arrangements in the Service.
RESOLVED to endorse the Chief Fire Officer’s proposed approach to ensure resilience and business continuity for the Service in the event of industrial action.
37 TRADING COMPANY REVIEW
Councillor Mike Quigley MBE presented a report on the future options for the Fire Authority’s trading company, Nottinghamshire Fire Safety Limited.
RESOLVED to approve the recommendations as set out in the exempt report.
7 Page 9 This page is intentionally left blank Agenda Item 5
Nottinghamshire and City of Nottingham Fire and Rescue Authority
FINAL ACCOUNTS 2018/19
Report of the Treasurer to the Fire Authority
Date: 20 December 2019
Purpose of Report:
To present to Members the 2018/19 audited statement of accounts of the Nottinghamshire and City of Nottingham Fire and Rescue Authority.
Recommendations:
• That Members approve the audited Statement of Accounts for 2018/19, as attached at Appendix A.
CONTACT OFFICER
Name : Becky Smeathers Head of Finance Tel : 0115 967 0880
Email : [email protected]
Media Enquiries Therese Easom Contact : (0115) 967 0880 [email protected]
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1. BACKGROUND
1.1 The audited accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2018/19, which is published by the Chartered Institute of Public Finance and Accountancy (CIPFA). The full Fire Authority must approve the audited Statement of Accounts. The unaudited accounts were considered by Finance and Resources Committee in 28 June 2019 and Fire Authority on 26 July 2019.
1.2 Under normal circumstances, the accounts should be approved by Fire Authority by 31 July. However, the audit of the accounts has been delayed due to resourcing issues at Ernst Young LLP. The unaudited accounts have been available on the website since 31 May 2019.
1.3 The audited accounts have been amended to reflect changes to take account of:
• Revised actuarial calculations on both the firefighters’ pension fund and the Local Government Pension Fund to reflect the recent McCloud judgement on the transition arrangements in the 2015 firefighter’s pension scheme which have been judged to be age discriminatory;
• Correction of errors identified during the audit process;
• Amendments to events after the balance sheet date given the time lapse since the unaudited accounts were made available in May 2019.
1.4 This report is issued as a covering paper to the audited final accounts which are appended in full as Appendix A.
2. REPORT
THE CORE STATEMENTS IN THE ACCOUNTS
2.1 There are four core statements in the Statement of Accounts, and these are on Pages 22 to 28 of the accounts. The core statements show references to disclosure notes within the accounts which give further information and explanations about the figures within the core statements.
2.2 The Movement in Reserves Statement shows the movement in the year on the Authority’s various reserves, analysed into “usable” and “unusable” reserves. The usable reserves total £10.340m at 31 March 2019, including the general reserve and earmarked reserves and these are available to be spent by the Authority in the future. This statement also shows how the net deficit on the provision of services is adjusted in accordance with accounting regulations to give the net decrease in the general reserves of £1.377m for the year.
Page 12 2.3 The Comprehensive Income and Expenditure Statement (CIES) shows all of the items of income and expenditure which constitute the accounting cost in the year of providing services. This statement shows a deficit of £35,883m, a significant increase from the £12,020m reported in the unaudited accounts considered by Fire Authority in July. The increase is due to the actuarial revaluation of the pension funds following the McCloud case. The remedy for the McCloud case is yet to be determined and the associated costs are based on estimates.
2.4 The firefighters’ pension scheme is a national scheme funded by Central Government. The amounts included in the Authority’s accounts reflect those costs attributable to this Authority. Any deficit will be funded by Central Government and as such will not be met directly from local tax payers. However, employer superannuation rates may be adjusted in the future if the pension scheme is judged to be unaffordable.
2.5 The £35,883m deficit calculated in the CIES is adjusted in accordance with accounting regulations to give the net deficit of £1.377m, which is the required amount from General Fund Reserve to finance expenditure for the year. This remains unchanged from the accounts reported in July.
2.6 The Balance Sheet shows the value of the Authority’s assets and liabilities at 31 March 2019. The Authority’s net assets are matched by the Authority’s reserves. Paragraph 2.10 below gives further explanation of the Pensions Reserve on the Balance Sheet.
2.7 The Cash Flow Statement shows the changes in cash (and cash equivalents) during the year and shows how the Service’s activities generate and use cash.
2.8 On Pages 104 and 105 of the accounts are the Pension Fund Statements which show the transactions in the year on firefighter pensions and the assets and liabilities as at 31 March 2019.
THE NARRATIVE STATEMENT
2.9 The Narrative Statement gives a useful overview of both the accounts themselves and the Authority’s activities during the year and beyond from a financial viewpoint. It sets the context for the accounts and is therefore a useful starting point for someone reading the Authority’s accounts for the first time.
PENSIONS
2.10 Standard accounting practice requires the Authority to show the full future pensions liabilities at the time that these liabilities are earned by employees. An independent actuary has assessed the liabilities for pension schemes in which the Authority participates, namely the firefighters’ pension schemes and the Local Government Pension Scheme. The schemes are currently in deficit, which shows as a total liability (Pensions Reserve) of £569m on the Balance Sheet. This liability has been recalculated following the recent
Page 13 McCloud judgement (see Paragraphs 2.3 and 2.4). This has increased from £544m included in the Statement of Accounts considered by Fire Authority in July 2019.
NOTTINGHAMSHIRE FIRE SAFETY LIMITED
2.11 Nottinghamshire Fire Safety Limited is an arm’s length trading company, established by the Authority, whose main activity is to sell fire extinguisher maintenance services to external customers. The financial statements for this company are attached as Appendix B. These were noted by Fire Authority at the meeting on 26 July 2019.
3. FINANCIAL IMPLICATIONS
The proposed Annual Audit Fee for 2018/19 was £23,909, although this may be subject to additional fees. The Fee for 2019/20 is expected to remain at £23,909.
4. HUMAN RESOURCES AND LEARNING AND DEVELOPMENT IMPLICATIONS
There are no human resources or learning and development implications arising from this report.
5. EQUALITIES IMPLICATIONS
An equality impact assessment has not been carried out because this is a report of the Authority’s financial performance for the 2018/19 financial year rather than a new or amended policy.
6. CRIME AND DISORDER IMPLICATIONS
There are no crime and disorder implications arising from this report.
7. LEGAL IMPLICATIONS
There are no legal implications arising from this report.
8. RISK MANAGEMENT IMPLICATIONS
8.1 The production of final accounts is fundamental in demonstrating a sound financial position for any organisation. The “snapshot” provided by annual accounts which can be independently audited, provides both stakeholders and elected Members with a significant level of assurance in this area.
Page 14 8.2 The level of working balances and reserves, as shown in the accounts, will enable the position set out in the medium term financial strategy to be sustained.
8.3 Detailed aspects of financial risk management are set out within the body of the report.
9. COLLABORATION IMPLICATIONS
There are no collaboration implications arising from this report.
10. RECOMMENDATIONS
That Members approve the audited Statement of Accounts for 2018/19, as attached at Appendix A.
11. BACKGROUND PAPERS FOR INSPECTION (OTHER THAN PUBLISHED DOCUMENTS)
None
Charlotte Radford TREASURER TO THE FIRE AUTHORITY
Page 15 This page is intentionally left blank Statement of Accounts
2018/19 – Unaudited accounts
Page 17 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
NOTTINGHAMSHIRE AND CITY OF NOTTINGHAM FIRE AUTHORITY STATEMENT OF ACCOUNTS 2018/19
TABLE OF CONTENTS PAGE
Narrative Statement 2
Statement of Responsibilities for the Statement of Accounts 17
Statement of Approval of the Statement of Accounts 18
Auditor's Report 19
The Core Financial Statements 22
- Introduction to Core Statements 22
- Movement in Reserves Statement 24
- Expenditure and Funding Analysis 25
- Comprehensive Income and Expenditure Statement 26
- Balance Sheet 27
- Cash Flow Statement 28
- Index of Notes to the Core Accounting Statements 29
- Notes to the Core Accounting Statements 30
The Pension Statements 104
- Pension Fund Account 104
- Pensions Net Assets Statement 105
- Notes to the Pension Statement 106
Annual Governance Statement 109
Glossary of Terms 119
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Page 18 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
NARRATIVE STATEMENT
Introduction
This Narrative Statement introduces the Statement of Accounts 2018/19 for the Nottinghamshire and City of Nottingham Fire Authority, which was formed as an independent body on 1st April 1998 following local government reorganisation. I write it as the independent Treasurer to the Fire Authority and as the Officer designated under Section 112 of the Local Government Act 1972. My role is to act on behalf of the Authority in providing oversight and ensuring legal compliance and governance in respect of accounting and financial matters which affect the Authority.
This Statement contains a number of sections. It is intended to give the reader of these accounts a clear overview of the Authority’s financial performance in the year and also to put the Authority’s non-financial performance into the context of the financial results. I believe that readers of the accounts will be interested in the financial performance in the year and in how this relates to the delivery of services to our communities. I also recognise that the accounts of the Authority can be quite daunting for readers, especially those who are unfamiliar with accounts in general and local government accounts in particular, so I hope that in taking the time to read my statement you will be able to better understand how these accounts are constructed and how best to read and interpret them. I will also explain more about what the core financial statements mean and explain how the notes to the accounts provide the reader with the detailed information to support those core statements which, by their nature, are summarised.
The accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2018/19, which is published by CIPFA.
Background
The County of Nottinghamshire covers 838 square miles with a mixture of urban and rural areas. It has a population 1.15m, of which around half live in and around the City.
The Fire Authority has 24 Fire Stations, 8 of which are wholetime. 12 stations are crewed by on call staff and the remaining 4 have a mixture of wholetime and on call crews.
The Authority has a number of key plans and strategies which together enable the organisation to deliver its overall objective of creating safer communities:
The Integrated Risk Management Plan (IRMP) 2014-2019 set out the key priorities for the Authority up to March 2019. This has been replaced by a new Strategic Plan which covers 2019/20 to 2021/22. The Medium Term Financial Strategy includes budgets for the next three years which support the delivery of services but within the context of financial sustainability. These plans are all available on our website www.notts-fire.gov.uk or by clicking on the links below.
- Integrated Risk Management Plan (IRMP) 2014-2019
- Strategic Plan 2019 - 2022
- Medium Term Financial Strategy
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Page 19 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Performance Data There has been a 6% increase in the number of incidents in 2018/19, mostly due a spike in incidents during the hot weather in 2018. The 8% increase in On-Call (previously called Retained) Mobilisations is partly due to this increase in incident numbers, but also due to a change in policy to allow the mobilisation on-call appliances with 3 firefighters (instead of a minimum of 4) to some incidents where they are the closest appliance and can be dispatched safely.
The number of incidents does not necessarily relate to the cost of delivering a front-line response because the Fire and Rescue Service is based on risk, with Wholetime Duty System employees ready to respond regardless of the actual numbers of incidents. An incident may comprise a single fire appliance attending a road traffic collision or a number of fire appliances attending a large scale incident.
Emergency On-Call Calls Incident Mobilisations Received Numbers in Year
2018/19 25,094 11,236 2,621 2017/18 22,563 10,577 2,424 2016/17 23,918 11,016 2,495
The 11,236 incidents is broken down below. The service has recently introduced a new policy to challenge false automated fire calls in an attempt to reduce the number of unnecessary call outs.
Fires 4,196 Road Traffic Collisions 541 False automated fire calls 3,146 Other 3,353 Total 11,236
Both the number of wholetime and on-call firefighters has remained steady over the last year. Fluctuations can occur due to timings of recruitment campaigns. There have been 2 wholetime recruitment exercises during the year which were necessary due to an increased number of retirements in the workforce. The recruitment of on-call staff is an ongoing exercise as there remains a higher turnover rate amongst the on-call section compared to wholetime. In April 2019, both Retford and Ashfield fire stations are due to convert to daytime crewing only, with night time cover being provided by on-call firefighters. This will result in changes to both the numbers of wholetime and on- call firefighters. The figures shown include 85 non-operational fire fighters who are employed in roles such as fire prevention and protection work and training provision. There are a further 12 newly appointed firefighters who are currently being trained.
Headcount of Pay Cost of Headcount of Pay Cost of Wholetime Wholetime On-Call On-Call Duty Firefighters Duty System Firefighters System £'000 £'000
2018/19 457 21,868 265 3,052 2017/18 455 21,505 258 2,805 2016/17 465 21,668 251 2,646
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Page 20 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
In addition to responding within the County and City, the Fire and Rescue Service has an obligation to support other Services in times of need such as flooding assistance. The service sent resources to assist both Lancshire and Greater Manchester Fire and Rescue Services during the moorland fires in the summer of 2018. The additional costs related to this work were recovered under the Central Government's Bellwin Scheme.
Similarly, should Nottingham Fire and Rescue Service require additional resources in an emergency, these can be called in from other Services.
The Service also has a responsibility to undertake Fire Protection work. Fire Protection work is aimed at protecting people who work in, use and visit non-domestic buildings and this year has seen an overall increase in the number of fire safety inspections (see table below) as a result of a renewed focus on the Service's risk based inspection programme. The number of fires in non-domestic properties has reduced slightly compared to 2017/18. The service will continue to focus on risk- based inspections and efforts to educate business owners about the importance of fire safety.
Number of Fire Safety Number of Primary Fires in Inspections Non-Domestic Properties 2018/19 1,076 254 2017/18 853 286 2016/17 588 288
The service has a comprehensive community safety programme which is focused on keeping people safe. It is carried out by both operational crews, and by specialist community safety staff. Although it is difficult to prove cause and effect, it is generally accepted that community safety work contributes to reductions in the number of fires. The table on page 5 shows that the number of Home Safety Checks (HSCs) carried out by our staff has increased by 26% this year. However, this follows a significant reduction in 2017/18 due to staff shortages which has now been rectified. Despite this increase, the number of fire injuries and deaths has also increased and the Service is focusing on making further increases to the number of HSCs. The service uses a risk based approach to delivering HSCs to ensure that the most vulnerable and at risk groups of the community are prioritised.
The number of fire prevention activities has similarly increased, mostly concentrating on hot spot areas, fire alarm fitting and national campaigns. Youth activities and school visits have dropped back to 2016/17 levels after an increase in activities in 2017/18. Many HSCs are delivered following referrals from both other agencies and our own Persons At Risk Team and this result reflects the difficulties inherent in targetting those people in the community who are most at risk. The "Safe and Well" checks are continuing in our communities who are most at risk of both fire and ill health.
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Page 21 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Number Number of of Home Number of Fire Safety Proportion Fire-related Prevention Youth Checks of HSCs in Injuries in Activities & Activities (HSCs) in High Risk Dwellings in Campaigns in (Risk Watch, Year Dwellings Year Year School Visits) 2018/19 4,738 19% 38 5,859 623 2017/18 3,757 19% 32 4,281 851 2016/17 4,221 23% 37 4,454 591
The Authority has a complaints process and we do occasionally receive complaints from the public. The number of complaints has remained stable in 2018/19, but the number of communications indicating customer satisfaction has risen significantly over the last 2 years. There was no particular pattern to the nature of complaints received, but every one is investigated by an Officer, who then responds to the complainant.
Where customer satisfaction surveys are distributed after contacts with the public, customer satisfaction rates have been at 99% .
Number of Complaints Number of Customer in Year Satisfaction Letters 2018/19 31 57 2017/18 29 41 2016/17 15 30
The performance statistics used in this statement have been collected from our core management information systems such as the incident recording system, the mobilising system and our human resources and financial systems.
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Page 22 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Risk Management
Risk management processes are well embedded in the Authority. A comprehensive set of risk registers is monitored regularly by senior managers and elected members. By its nature, risk will change over time and in response to both external and internal pressures. It is important, therefore, that the Authority’s managers remain alert to these developments and the emerging risks. In times of austerity and organisational restructuring, there is a possibility that control measures which had previously been seen as satisfactory may become eroded as resources reduce. The Authority has recognised this issue and has responded accordingly. Examples of high risk areas and areas where new risks have been identified are:
The use of vehicles on Authority business; Ensuring that adequate resilience and Business Continuity Plans are in place to ensure the Service can react to major incidents or loss of resources; The introduction of the Emergency Services Network. This reflects the requirement to successfully introduce the government's communications solution and to work collaboratively. Ensuring that employees safe systems of work are in place to protect employees and / or non- employees. Working at Height. The Corporate Risk Register can be found by following the link below.
Corporate Risk Register
Value for Money
Reducing levels of government grant funding and restrictions on the level of council tax which can be raised, have resulted in an increased emphasis on seeking value for money in all that we do. The Service has to find a balance between economy (spending less money), efficiency (working smarter) and effectiveness (delivering relevant services).
At its meeting on 16 February 2018 the Fire Authority approved a proposal to amend the crewing arrangements at Ashfield and Retford Fire Stations with anticipated savings of £800k per year. During the year,a significant amount of work has been undertaken to deliver this project and both stations moved to the new crewing arrangments on 1 April 2019.
The Service uses a jointly procured mobilising system (Systel) alongside Leicestershire and Derbyshire Fire Services. In December 2018 Fire Authority approved for this to be taken one step further with the implementation of a Joint Fire Control with Derbyshire Fire and Rescue Service. This is due to be implemented during 2019/20 with anticipated savings in the region of £350k.
A number of other collaborative opportunities have also been taken advantage of such as the joint use of our fire stations with East Midlands Ambulance Service staff and Nottinghamshire Constabulary.
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Page 23 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
The Core Statements
Comprehensive Income and Expenditure Statement
This statement brings together all of the items of income and expenditure which constitute the accounting cost in the year of providing services in accordance with generally accepted accounting practices. This is not the same as the net cost to be funded from council tax. The reader may wish to refer to the Movement in Reserves Statement to find out the net increase or decrease to the General Fund Balance, which is effectively the underspend or overspend against the amount of income received by the Authority. During 2018/19 £1,377k was used out of General Reserves against a budget of £1,444k. This represents a slight underspend of £67k.
Expenditure and Funding Analysis
The Expenditure and Funding Analysis shows how annual expenditure is used and funded from annual resouces such as grants, non domestic rates and council tax and shows the impact of entries which convert resources consumed or earned by the service calculated in accordance with generally accepted accounting practices, as required in the Comprehensive Income and Expenditure Statement.
Balance Sheet
The Balance Sheet shows the value of the assets and liabilities recognised by the Authority at 31st March. The net assets of the Authority (assets less liabilities) are matched by the reserves held by the Authority and thus the Balance Sheet is "in balance". The reader will notice that the total on the Balance Sheet is a negative figure of £518,180m, which means that the Authority's liabilities exceed its assets. This would usually be a cause for concern, however in this case the large liability in question relates to future pension liabilities (£568,740m) which at present are funded by Central Government. The underlying financial position of the Fire Authority is a strong one because when this pension liability is excluded, assets exceed liabilities by £73,596m.
Movement in Reserves Statement
This statement shows the movement in the year on the different reserves held by the Authority analysed into usable reserves, which can be applied to fund expenditure or reduce local taxation, and other reserves. The Authority holds reserves for two reasons. There are always issues which may arise for which the Authority has no specific budget but in order that these “one off” type events do not unduly impact upon a single year's budget it is wise to maintain some money to deal with these events should they occur. These are what are known as General Fund Balances. Similarly, the Authority may wish to hold back sums of money because it knows that certain items of expenditure will occur but that these are of a “one off” nature and it is uncertain as to when they will occur. These are called earmarked reserves because they are for a specific purpose. As Treasurer I am required to assess the adequacy of these reserves to meet future events and issue a statement annually to that effect. The Surplus (or Deficit) on the Provision of Services line shows the true economic cost of providing the Authority’s services, more details of which are shown in the Comprehensive Income and Expenditure Statement. Adjustments are then made to the Surplus (or Deficit) on the Provision of Services to recognise the fact that the statutory amounts required to be charged to the General Fund Balance for council tax setting purposes are different. The Net Increase (or Decrease) before Transfers to Earmarked Reserves line shows the statutory General Fund Balance before any discretionary transfers to or from earmarked reserves undertaken by the Authority.
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Page 24 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
It is important to note that some of the Authority's reserves which appear on the balance sheet cannot be used to fund expenditure. An example of an unusable reserve would be the Revaluation Reserve, which contains the gains made by the Authority arising from increases in the value of its Property, Plant and Equipment and Intangible Assets. The Authority held £5.576m in General Reserves as well as £4.763m in Earmarked Reserves as at 31st March 2019.
Cash Flow Statement
This statement, as its name suggests, shows the changes in cash and cash equivalents of the Authority during the reporting period. The starting point for this statement is the net surplus or deficit on the provision of services shown in the Comprehensive Income and Expenditure Statement, as this might suggest what the movement in cash balances has been. There are however a number of charges that are made to the revenue account that are not cash transactions and that merely result in a transfer of funds between the balance sheet and the revenue account. The statement shows how the Authority generates and uses cash and cash equivalents by classifying cash flows as operating, investing and financing activities. The amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of the Authority are funded by way of taxation and grant income or from the recipients of services provided by the Authority. Investing activities represent the extent to which cash outflows have been made for resources which are intended to contribute to the Authority’s future service delivery. Cash flows arising from financing activities are useful in predicting claims on future cash flows by providers of capital (i.e. borrowing) to the Authority.
The resultant figure shows the real movement in cash during the year, which is an increase in cash of £5.0m. This is largely due to additional borrowing to fund capital expenditure in line with Treasury Management Strategy and to provide short term cashflow security.
Pension Fund Account
This statement shows the income and expenditure for the year relating to the Firefighters’ Pension Schemes. The net amount payable for the year i.e. the extent to which pension benefits payable exceeded contributions, is £11.227m.
Pension Net Assets Statement
This statement shows the net current assets and liabilities arising from the operation of the Firefighters’ Pension Schemes. This statement does not take account of liabilities to pay future pensions and other benefits after the period end. Such liabilities are shown in the Authority’s Balance Sheet, as explained above.
Annual Governance Statement
This statement sets out the Authority’s responsibilities with regard to corporate governance and gives details of key elements of corporate governance in place during the year. It also summarises the Authority’s review of the effectiveness of its governance framework, measured against the CIPFA / SOLACE framework, and in which issues for action are highlighted.
8 Page 25 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Key Figures with the Core Statements
Revenue Budget: £1.377m was required from General Fund to finance expenditure during 2018/19 against a planned use of £1.444m. This represents a £67k underspend against the budget. This was in line with the Medium Term Financial Strategy. The main reasons for the variance given in the section below "Significant Variances".
Cost of Services: this was £74,775m 2018/19 (£50,509m for 2017/18) and is shown in the Comprehensive Income and Expenditure Statement. This represents a 48% increase. This has been caused by the pension actuarial valuation increases resulting from the estimated additional pension cost resulting from an employment tribunal case were the transitional arrangements to the 2015 firefighters pension scheme were found to be discriminatory.
Total Net Liabilities: this was £518,180m for 2018/19 (£460.918m 2017/18)and is shown on the Balance Sheet. The main reason for the movement between the 2 years was a £35m decrease in the pension liability.
Total Usable Reserves: this was £10.686m for 2018/19 (£12.456m 2017/18) and is shown on the Balance Sheet. The reduction reflects the use of both General Fund (£1.377m) and Earmarked Reserves (£393k) to support revenue expenditure during the year.
Debtors: Debtors were £6.134m for 2018/19 (£5.538m 2017/18), a slight increase from 2017/18 as shown on the Balance Sheet.
Long term and Short term Creditors: this was £3.211m for 2018/19 (£3.735m 2017/18) and is shown on the Balance Sheet. The decrease, corrects a spike in the 2017/18 creditor levels and is made up of several smaller variances including stock movement and miscellaneous creditors.
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Page 26 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Summary of the Year
A summary of the Fire Authority’s overall financial results is given in the following paragraphs:
Revenue Income and Expenditure
The 2018/19 revenue budget for of £42.227m was approved by the Fire Authority in February 2018. This was on the basis that a £1.4m deficit in the budget would be supported by a transfer from general reserves to support the budget. This was in line with the Medium Term Financial Strategy which sets out as a principle that financial planning will take account of the possible use of reserves to minimise the effect of reductions in funding as a means of transition. During the year, a further £393k of planned expenditure has been incurred, funded from Earmarked Reserves. Total Expenditure for the year is £42.715m, requiring £1.377m of funding from General Reserves. This represents an underspend of £67k (0.2%) compared to the £1.444m planned use of General Fund Reserves.
A summary of expenditure is shown below.
Budget Actual Variance 2018/19 2018/19 2018/19 £000 £000 £000
Employees 33,566 34,357 791 Premises Related Expenditure 2,317 2,530 213 Transport Related Expenditure 1,752 1,965 213 Supplies and Services 3,447 3,462 15 Support Services 236 207 (29) Capital Financing 2,432 2,291 (141) Other Income (eg Grants) (1,523) (2,097) (574) Net Expenditure 42,227 42,715 488
Financed By: Contribution from Earmarked Reserves 0 (393) (393) Contribution from General Reserves (1,444) (1,377) 67 Revenue Support Grant (5,961) (6,123) (162) Non Domestic Rates (10,586) (10,586) 0 Precept from Constituent Authorities (24,236) (24,236) 0
Net 000
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Page 27 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Significant Variances
Variances against the budget have arisen in the following areas (only significant variances are detailed):
Explanation of variances
The amount of the revenue budget underspend in total is £67k, which is relatively small at 0.2% of the overall budget, although within this are a few significant over and underspends.
Employee Costs - The overspend on employee costs largely relates to the creation of a £647k provision to cover temination costs due to be incurred during 2019/20. These relate partly to the move to a Joint Control Room with Derbyshire Fire and Rescue Service which is due to open in July 2019. The merger of this service will create long term savings in the region of £350k per year.
The service's Princes Trust Programme is due to be drawn to an end in July 2019 which will similarly result in some staff redundancies. The programme has struggled to attract and maintain young people onto courses and income is insufficient to meet the costs of the programme. The provision has been created in 2018/19 in order to comply with the relevant accounting standard relating to termination benefits.
Premises Costs- The overspend on premises is due to increased necessary expenditure on building maintenance, gas, electric and Business Rates where the Authority has lost valuation appeals.
Transport Related Expenditure - A tax review has identified that some travel related expenses have been incorrectly treated for tax purposes. Whilst these expenses are now being correctly taxed, at its meeting on 28 September 2018, Fire Authority determined that the service would meet the tax liabilities incurred prior to the correct treatment being determined. Some negotiations are ongoing with Her Majesties Customs and Excise (HMRC) so to date no payments have been made. A provision has been created to cover the costs which are estimated to be in the region of £225k.
Capital Financing Costs - The cost of financing the capital programme has underspent by £141k due to delayed capital expenditure resulting in lower than anticipated borrowing and continued lower than forecast interest rates.
Income - Additional secondment income of £267k was received to offset costs of officers seconded onto national projects such as the new inspection regime and the Emergency Services Mobile Communication Project. This is used to offset additional costs of backfilling these posts.
A further £96k was recovered under Central Government's Bellwin scheme to cover the additional costs incurred when the service supported Lancashire and Manchester Fire Services during the moorland fires in 2018.
There were several areas where income was received in excess of the amount budgeted for, these include an increase in income from renting out space in fire stations to Police and ambulance services, and some apprentiship levy that the service was able to recover.
More details regarding expenditure during the year will be available in the Capital and Revenue Budget Monitoring report which will be reported to Finance and Resources Committee on 28 June 2019.
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Capital Expenditure
Capital expenditure describes the purchasing, upgrading and improvement of Fire Authority assets. These assets are known as “non current assets" and they provide a benefit to the Authority over a longer period of time than the current financial year. A summary of the Capital Programme and actual expenditure for the year is shown below.
Variance Capital from Expenditure Programme Actual Budget 2018/19 2018/19 2018/19 £000 £000 £000
Vehicles 372 69 (303) Operational Equipment 690 114 (576) Property 1,453 566 (887) Information, Computer and Technology (ICT) 713 326 (387) Total 3,228 1,075 (2,153)
Funded by:
Borrowing 897 897 0 Grant funding 0 0 0 Capital Receipts 116 116 0 Earmarked reserve 62 62 0 Total 1,075 1,075 0
The 2018/19 capital programme has been smaller than in previous years as the service is between building projects. In April 2018 crews moved into a new Fire Station in Newark. The completion of this station and demolition of the old station accounted for almost half of capital expenditure incurred (£465k). The station has been designed to be much more energy efficient and will reduce future annual running costs.
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Significant Variances
Hucknall Fire Station - The on call station in Hucknall is due to be co-located with the East Midlands Ambulance Service (EMAS) station in Hucknall. The collaborative approach has taken longer to deliver than originally anticipated and the project has been delayed resulting in a £345k underspend during the year.
Vehicles - A review of light vehicle utilisation has taken place to enable more efficient use of vehicles. Orders have been placed for several electric vehicles but delivery is being delayed due to high demand.
Special Appliances - Collaboration opportunities are being explored for these vehicles. This has resulted in a delay in expenditure.
Equipment - the replacement of light weight fire coats and breathing apparatus communication equipment are being procurred in collaboration with Derbyshire Fire and Rescue Service. This has caused some delays whilst the specification is agreed, resulting in some slippage into 2019/20. The collaboration is expected to create savings for both organisations in the region of £15k - £25k each.
ICT - Progress has been made on several ICT projects, including improving mobile working, sharepoint development and equipment replacement.
The delays in the national Emergency Services Mobile Communication Project (ESMCP) have had a knock on effect on anticipated expenditure on project related equipment, resulting in an underspend of £171k.
Treasury Management Activity
The Authority borrowed £4m long term loans from the Public Work Loans Board ( PWLB) and repaid debt of £2.538m. The Authority’s level of long term borrowing at the year end was £25.629m. This compares to long term assets on the Balance Sheet valued at £62.954m. The capital financing requirement as at 31 March 2018 is £25,738m, which demonstrates that the current level of net borrowing is prudent.
There was a further £4m of temporary borrowing outstanding at year end which was taken out to cover a cashflow shortfall. This took total borrowing to £29.629m as at 31 March 2019. This remains within the Operational Boundary set by Fire Authority of £29.723m.
During the year, capital expenditure was mainly financed by capital receipts, capital grant and borrowing.
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Earmarked Reserves
Several earmarked reserves have been created for specific projects which will take place in 2019/20 and beyond. The effect of this will be that these earmarked reserves will support the 2019/20 budget and allow certain non-recurrent expenditure to take place. Earmarked reserves have been funded from two sources – they either arise from grants or donations received which have not been spent by the end of the year or they are created from within the revenue budget .The earmarked reserves held by the Authority are shown in note 11.
Pension Funds
Standard accounting practice requires the Authority to show the full future pensions liabilities at the time that these liabilities are earned by employees. An independent actuary has assessed the liabilities for pension schemes in which the Authority participates, namely the Firefighters’ Pension Schemes and the Local Government Pension Scheme. The schemes are currently in deficit, which shows as a total liability of £568,740m on the balance sheet. The largest element of this liability relates to the Firefighters’ Pension Schemes and stands at £545,718m.
The Firefighters’ Pension Schemes are unfunded and the annual cost of benefits is paid for by employee contributions and employer contributions. The Home Office meets any annual shortfall i.e. if the contributions into the fund do not meet the cost of pensions paid in the year. The Authority is required to continue to show the liability in respect of the Firefighter Pension Schemes in its Balance Sheet and notes to the core financial statements.
An employment tribunal case was brought against the Government in relation to possible discrimination in relation to the introduction of the 2015 Firefighters' Pension Scheme. The scheme included transitional protection arrangements between the old scheme and the new scheme. These transitional arrangements were found to be unlawful as they discriminated on the gounds of age. Depending on the remedy there may be significant additional costs to be met. The pension fund accounts include estimates of these costs.
Other Significant, Material and Unusual Items
Funding for 2020/21 and beyond will be determined as part of the Government's spending review which will not be announced until mid 2019. The spending review will be affected by the revision of the fire funding formula which is also due to be updated for 2020/21 onwards. The uncertainty of Brexit and the possibility of a general electon will also affect the spending review and may even delay its announcement. There may be significant changes to the budget following the spending review and the service will have to deal with these when more information becomes available.
For 2019/20 the Authority has been awarded a £2.3m grant to cover the expected increased costs of the firefighter pension employer contribution following the changes to the discount rates applied to the scheme. It is unsure how much of this additional cost will be covered by the spending review going forward.
Planned budgetary reductions will be ongoing during the year to bridge an £800k ongoing shortfall in the budget. Opportunities for making in year savings are currently being explored. Further plans for any necessary savings will be identified and considered once the outcome of the spending review is known.
Both Worksop and Hucknall fire stations are set to undergo transformations, with Hucknall station moving into Hucknall Ambulance Station once work is complete. Both these projects will significantly benefit the communities they serve and create better working conditions for firefighters.
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The Business Case for a joint Head Quarters with Nottinghamshire Constabulary was approved by Fire Authority in February 2019, with an anticipated moving in date of 2021. The proposed Head Quarters will be based at the existing Police Head Quarters site. This will create an exciting opportunity for the two services to work more closely together going forward as well delivering savings.
Collaboration opportunities are consistently being explored and in addition to the shared accommodation referred to above and in the Value for Money Section, opportunites are being investigated around the shared use of vehicles with neighbouring Fire Authorities and Nottinghamshire Constabulary. Shared use of training facilities with neighbouring Fire Authorities has also been a successful venture, with more opportunities being explored for the future in areas such as driver training and joint leadership training with Nottinghamshire Police.
Nottinghamshire Fire Safety Limited
The Authority established an arm’s-length trading company, which began operating on 1 September 2010. The company was called “Nottinghamshire Fire and Rescue Service (Trading) Limited” .Its main activities are to sell fire extinguisher maintenance services and fire safety training to external customers. The financial position of the company is not material in terms of the overall financial position of the Authority so separate accounts are prepared for both the Authority and the trading company. Further detail about the company's trading results and overall financial position is shown in notes 35 and 42. For 2018/19, Nottinghamshire Fire Safety CIC made a profit before tax of £4k (£42k in 2017/18).
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Plans for 2019/20
Elected Members of the Fire Authority approved a council tax increase of 2.95% for 2019/20 with a Band D council tax of £79.80 (£77.51 2018/19). The revenue budget for 2019/20 has been set at £42.7m (£42.2m 2018/19). The 2019/20 budget requires £1.2m to be drawn from reserves to ensure a balanced budget as a transitional temporary measure until the budget can be brought into balance. At its meeting on 14 December 2018 the Fire Authority approved a proposal to create a joint fire control centre with Derbyshire Fire and Rescue Service with anticipated savings of £350k towards the shortfall identified. There is an ongoing shortfall for 2020/21 and beyond in the region of £800k. Opportunities for making savings are currently being explored, although any major decisions are not expected to be made until the outcome of the spending review are known.
The Fire Authority is committed not only to surviving during this period of financial austerity but also to continuing to improve and develop services against this financial backdrop, as detailed in the services new Strategic Pan and accompanying year 1 action plan. The three core aims of the Authority are to deliver high quality services, with an engaged and motivated workforce, within a framework of strong governance and financial stability. Despite the reductions in funding identified, the service has invested in its on-call services and ICT services. This should place the service in a strong position to become more efficient in the long term.
During January and February 2019 the Service underwent an inspection by Her Majesty's Inspectorate of Constabulary and Fire and Rescue Services (HMICFRS). The inspection report was published in June 2019. The Inspection delivered an overall rating of Requires Improvement. Whilst some areas of perfomance were awarded a rating of Good (protecting the public through fire regulation and responding to national risks) other areas were judged to be requiring improvement. Many of these areas were already identified as areas requiring improvement in the Service's Strategic Plan. The Service will continue to monitor progress against the Strategic Plan and HMICFRS recommendations. .
The Policing and Crime Act 2017 became law in April 2017. This allowed the Police and Crime Commissioner (PCC) for Nottinghamshire to make a business case to take over responsibility for the fire function if desired. At the time of writing this statement, the PCC has not stated an intention to make such a case, but regardless of whether or not a business case is made we are now legally required to consider collaboration opportunities with the other “blue light” emergency services. This was something that wasn't new to the Authority but the Act has focussed attention on future collaboration opportunities, such as the new joint head quarters project, and it is anticipated that some savings will be identified as these opportunities are explored.
The 2019/20 revenue budget and capital programme provide the financial resources required for the replacement or refurbishment of assets as well as for the day to day running of the service. We have planned to use mainly borrowing and internal financing to finance the capital programme in 2019/20.
Charlotte Radford Treasurer to the Nottinghamshire and City of Nottingham Fire Authority
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Page 33 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
STATEMENT OF RESPONSIBILITIES FOR THE STATEMENT OF ACCOUNTS STATEMENT OF ACCOUNTS 2018/19 The Authority's Responsibilities
The Authority is required to: i) make arrangements for the proper administration of its financial affairs and to secure that one of its officers has the responsibility for the administration of those affairs. In this Authority, that officer is the Treasurer; ii) manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets; iii) approve the Statement of Accounts.
The Treasurer's Responsibilities
The Treasurer is responsible for the preparation of the Authority’s Statement of Accounts in accordance with proper practices as set out in the CIPFA / LASAAC Code of Practice on Local Authority Accounting in the United Kingdom (the Code).
In preparing this Statement of Accounts, the Treasurer has: i) selected suitable accounting policies and then applied them consistently; ii) made judgements and estimates that were reasonable and prudent; iii) complied with the local authority Code.
The Treasurer has also: i) kept proper accounting records which were up to date; ii) taken reasonable steps for the prevention and detection of fraud and other irregularities.
The Treasurer to the Authority is Ms Charlotte Radford
This Statement of Accounts is that upon which the auditor should enter his opinion and certificate. It presents a true and fair view of the financial position of the Authority at 31 March 2019 and its income and expenditure for the year then ended.
This Statement of Accounts is authorised for issue on 8th November 2019 by the Treasurer to the Authority. This is the date up to which events have been considered for recognition in the Statement of Accounts.
Signed
Charlotte Radford ( Treasurer)
Dated
17 Page 34 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
STATEMENT OF APPROVAL OF THE STATEMENTS OF ACCOUNTS STATEMENT OF ACCOUNTS 2018/19 I confirm that these accounts were approved by the Nottinghamshire and City of Nottingham Fire Authority at the meeting held on the December 2019.
Signed on behalf of the Nottinghamshire and City of Nottingham Fire Authority.
Signed
(Chair of the Fire Authority)
Dated
18 Page 35 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF NOTTINGHAMSHIRE STATEMENT OF ACCOUNTS 2018/19
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21 Page 38 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
INTRODUCTION TO THE CORE STATEMENTS
Movement in Reserves Statement - Page 24
This statement shows the movement in the year on the different reserves held by the Authority, analysed into 'usable reserves' (ie those that can not be applied to fund expenditure or reduce local taxation) and 'other reserves'. The Surplus or (Deficit) on the Provision of Services line shows the true economic cost of providing the Authority's services, more details of which are shown in the Comprehensive Income and Expenditure Statement. These are different from the statutory amounts required to be charged to the General Fund Balance for council tax setting purposes. The Net Increase/Decrease before Transfers to Earmarked Reserves line shows the statutory General Fund Balance before any discretionary transfers to or from earmarked reserves undertaken by the Authority.
Expenditure and Funding Analysis - Page 25
This statement shows how annual expenditure is used and funded from resources (government grants, council tax and business rates) by the Authority in comparison with those resources consumed or earned by the Authority in accordance with generally accepted accounting practices. It also shows how this expenditure is allocated for decision making purposes between the Authority's services and departments. Income and expenditure accounted for under generally accepted accounting practices is presented more fully in the Comprehensive Income and Expenditure Statement.
Comprehensive Income and Expenditure Statement - Page 26
This statement shows the accounting cost in the year of providing services in accordance with generally accepted accounting practices, rather than the amount to be funded from taxation. Authorities raise taxation to cover expenditure in accordance with regulations; this may be different from the accounting cost. The taxation position is shown in the Movement in Reserves Statement.
IAS 1 requires that where the Statement includes amounts in "Other Comprehensive Income and Expenditure" which will not be reclassified subsequently to the Surplus or Deficit on the Provision of Service as well as amounts which will be, then these two types of transactions should be shown separately on the face of the Statement. The Authority does not have transactions which will be reclassified subsequently to the Surplus or Deficit on the provision of Services, so the items in "Other Comprehensive Income and Expenditure" have not been separated in this way.
Balance Sheet - Page 27
The Balance Sheet shows the value of the assets and liabilities recognised by the Authority as at the Balance Sheet date. The net assets of the Authority (assets less liabilities) are matched by the reserves held by the Authority. Reserves are reported in two categories. The first category of reserves are usable reserves, ie those reserves that the Authority may use to provide services, subject to the need to maintain a prudent level of reserves and any statutory limitations on their use (for example the Capital Receipts Reserve that may only be used to fund capital expenditure or repay debt). The second category of reserves is those that the Authority is not able to use to provide services. This category of reserves includes reserves that hold unrealised gains and losses (for example the Revaluation Reserve), where amounts would only become available to provide services if the assets are sold; and reserves that hold timing differences shown in the Movement in Reserves Statement line 'Adjustments between accounting basis and funding basis under regulations' .
22 Page 39 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Cash Flow Statement - Page 28
The Cash Flow Statement shows the changes in cash and cash equivalents of the Authority during the reporting period. The statement shows how the Authority generates and uses cash and cash equivalents by classifying cash flows as operating, investing and financing activities. The amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of the Authority are funded by way of taxation and grant income or from the recipients of services provided by the Authority. Investing activities represent the extent to which cash outflows have been made for resources which are intended to contribute to the Authority’s future service delivery. Cash flows arising from financing activities are useful in predicting claims on future cash flows by providers of capital (ie borrowing) to the Authority.
Prior Period Adjustments
The 2017/18 Statements have been adjusted to correct errors discovered in the 2017/18 Statement of Accounts. These predominantly relate to the incorrect allocation of costs between service areas in the Comprehensive Income and Expenditure Statement, Expenditure and Funding Analysis and all related notes. There is no impact on the Deficit on Provision of Services or the Total Comprehensive Income and Expenditure resulting directly from these changes.
2017/18 Gross Gross Net Expenditure Income Expenditure £'000 £'000 £'000
Firefighting and Rescue -134 0 -134 Community Safety 294 0 294 Fire Protection -292 0 -292 Resilience 0 0 0
Corporate and Centralised Services:
Estates abd Procurement 0 0 0 Equipment 1 0 1 People and Organisational Development 1 0 1 Finance 129 0 129 ICT 1 -1 0 Transport 0 0 0 Other 1 0 1
Cost of Services 1 -1 0 Other Operating Expenditure 0 0 0 Financing and Investment Income and 0 0 0 Expenditure
Taxation and Non-Specific Grant Income 0 0 0
Suprplus (-) or Deficit on Provision of Services 1 -1 0
23 Page 40 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
CORE ACCOUNTING STATEMENTS
MOVEMENT IN RESERVES STATEMENT
Capital Capital Total General Fund Earmarked Receipts Grants Total Usable Unusable Authority Movement in Reserves during 2017/18 Balance Reserves Reserve Unapplied Reserves Reserves Reserves £000 £000 £000 £000 £000 £000 £000
Balance at 31 March 2017 carried forward 7,837 4,894 477 347 13,555 (522,619) (509,064)
Movement in reserves during 2017/18
Total Comprehensive Income and Expenditure (15,340) 0 0 0 (15,340) 63,486 48,146 Adjustments between accounting basis and funding basis under regulations (Note 10) 14,718 0 (477) 0 14,241 (14,241) 0 Increase or Decrease in 17/18beforeTransfers to Earmarked Reserves (622) 0 (477) 0 (1,099) 49,245 48,146
Transfers to/from Earmarked Reserves (Note 11) 238 (238) 0 0 0 0 0
Increase/(Decrease) in 2017/18 (384) (238) (477) 0 (1,099) 49,245 48,146
Re-allocation of General Fund to Earmarked (500) 500 0 Reserve
Balance at 31 March 2018 carried forward 6,953 5,156 0 347 12,456 (473,374) (460,918)
Capital Capital Total General Fund Earmarked Receipts Grants Total Usable Unusable Authority Movement in Reserves during 2018/19 Balance Reserves Reserve Unapplied Reserves Reserves Reserves £000 £000 £000 £000 £000 £000 £000
Balance at 31 March 2018 carried forward 6,953 5,156 0 347 12,456 (473,374) (460,918)
Movement in Reserves during 2018/19
Total Comprehensive Income and Expenditure (35,883) 0 0 (35,883) (21,379) (57,262) Adjustments between accounting basis and funding basis under regulations (Note 10) 34,114 0 0 34,114 (34,114) 0 Increase or Decrease in 2018/19 beforeTransfers to Earmarked Reserves (1,769) 0 0 0 (1,769) (55,493) (57,262)
Transfers to/from Earmarked Reserves (Note 11) 393 (393) 0 0 0 0 0
Increase/(Decrease) in 2018/19 (1,376) (393) 0 0 (1,769) (55,493) (57,262)
Balance at 31 March 2019 carried forward 5,577 4,763 0 347 10,687 (528,867) (518,180)
24 Page 41 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
EXPENDITURE AND FUNDING ANALYSIS
2017/18 Restated 2018/19 Net Net expenditure Net Net expenditure
Page 42 Page Adjustments Adjustments Expenditure in the Expenditure in the between the between the Chargeable Comprehensive Chargeable Comprehensive Funding and Funding and to the Income and to the Income and Accounting Accounting General Expenditure General Expenditure Basis * Basis * Fund Statement Fund Statement £000 £000 £000 £000 £000 £000 22,387 (5,714) 28,101Firefighting and Rescue 22,739 (4,596) 27,335 1,690 (300) 1,990 Community Safety 1,780 (261) 2,041 1,221 (229) 1,450 Fire Protection 1,253 (203) 1,456 292 (107) 399 Resilience 301 (113) 414 Corporate and Centralised Services: 3,590 (922) 4,512 Estates and Procurement 3,608 (845) 4,453 25 1,096 (135) 1,231 Equipment 1,175 (172) 1,347 3,395 (645) 4,040 People and Organisational Development 3,681 (625) 4,306 770 (58) 828 Finance 1,066 (63) 1,129 2,145 (433) 2,578 ICT 2,524 (487) 3,011 1,148 (178) 1,326 Transport 1,210 (227) 1,437 3,271 (782) 4,053 Other 3,370 (24,476) 27,846 41,005 (9,503) 50,508 Net Cost of Services 42,707 (32,068) 74,775 (40,384) (5,215) (35,169) Other Income and Expenditure (40,938) (2,046) (38,892) 621 (14,718) 15,339 (Surplus) or Deficit 1,769 (34,114) 35,883 (7,837) Opening General Fund Balance (6,953) Less/Plus (Surplus) or Deficit on General 622 1,769 Fund Balance in Year Less/Plus Net Transfers to/(from) Earmarked (238) (393) Reserves Re-allocation of General Fund to earmarked 500 0 reserves (6,953) Closing General Fund Balance (5,577) * See note 8 for further breakdown Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
COMPREHENSIVE INCOME AND EXPENDITURE STATEMENT
2017/18 Restated 2018/19 Gross Gross Net Gross Gross Net Notes Expenditure Income Expenditure Expenditure Income Expenditure £000 £000 £000 £000 £000 £000
28,566 (465) 28,101 Firefighting and Rescue 27,843 (508) 27,335 2,109 (119) 1,990 Community Safety 2,039 3 2,042 1,477 (27) 1,450 Fire Protection 1,462 (5) 1,457 617 (219) 398 Resilience 775 (362) 413 Corporate and Centralised Services: 4,669 (157) 4,512 Estates and Procurement 4,659 (206) 4,453 1,233 (2) 1,231 Equipment 1,347 0 1,347 4,070 (30) 4,040 People and Organisational Development 4,328 (22) 4,306 947 (118) 829 Finance 1,240 (111) 1,129
26 3,586 (1,008) 2,578 ICT 3,018 (8) 3,010 1,417 (90) 1,327 Transport 1,494 (57) 1,437 4,067 (14) 4,053 Other 27,886 (40) 27,846 52,758 (2,249) 50,509 Cost of Services 76,091 (1,316) 74,775 196 0 196 Other Operating Expenditure 12 0 (42) (42) 14,784 (40) 14,744 Financing and Investment Income and Expenditure 13 13,944 (81) 13,863 0 (50,109) (50,109) Taxation and Non-Specific Grant Income 14 0 (52,713) (52,713) 67,738 (52,398) 15,340 Surplus (-) or Deficit on Provision of Services 90,035 (54,152) 35,883 Surplus or deficit on revaluation of property, plant and Page 43 Page (2,048) (4,908) equipment assets Impairment Losses on Non-Current Assets Charged to 25 Revaluation Reserve 0 Remeasurements on the net defined benefit pension (61,463) 26,287 liability (63,486) Other Comprehensive Income and Expenditure 21,379 (48,146) Total Comprehensive Income and Expenditure 57,262
Details of the 2017/18 re-statement can be found in the Introduction to the Core Statements on page 22 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
BALANCE SHEET
31 March 31 March 2018 Notes 2019 £000 £000 Property, Plant & Equipment 50,485 - Land and Buildings 15 56,995 8,430 - Vehicles, Plant and Equipment 15 7,460 2,451 - Assets Under Construction 15 93 37 Surplus Assets 15 31 1,342 Intangible Assets 16 1,105 50 Intangible Assets Under Construction 16 181 62,795 TOTAL LONG TERM ASSETS 65,865
7,436 Short Term Investments 17 5,442 319 Inventories 18 279 5,538 Short Term Debtors 19 6,134 2,005 Cash and Cash Equivalents 20 7,020 15,298 TOTAL CURRENT ASSETS 18,875
(4,639) Short Term Borrowings 17 (4,117) (3,735) Short Term Creditors 22 (3,128) (575) Short Term Provisions 23 (1,285) 0 Other Short Term Liabilities - Finance Leases 37 0 (25) Grants Receipts in Advance - Revenue 34 (25) (8,974) TOTAL CURRENT LIABILITIES (8,555)
(24) Long Term Provisions 23 (30) (20,599) Long Term Borrowing 17 (25,512) 0 Long Term Creditors 22 (83) Other Long Term Liabilities (509,414) - Pensions Liability 39 (568,740) (530,037) TOTAL LONG TERM LIABILITIES (594,365)
(460,918) TOTAL NET ASSETS/(LIABILITIES) (518,180)
Usable Reserves 6,953 - General Fund Balance 24 5,576 5,156 - Earmarked Reserves 24 4,763 0 - Capital Receipts Reserve 24 0 347 - Capital Grants Unapplied 24 347 Unusable Reserves 19,584 - Capital Adjustment Account 25 18,711 16,856 - Revaluation Reserve 25 21,339 (509,814) - Pension Reserve 25 (568,940) 0 - Financial Instruments Adjustment Account 25 0 213 - Collection Fund Adjustment Account 25 232 (213) - Accumulated Absences Adjustment Account 25 (209)
(460,918) TOTAL RESERVES (518,181) Details of the 2017/18 re-statement can be found in the Introduction to the Core Statements on page 22 27 Page 44 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
CASH FLOW STATEMENT
2017/18 2018/19 £000 £000
15,340Net (Surplus)/Deficit on the Provision of Services 35,883
Adjustment to Surplus or Deficit on the Provision of Services for Non-Cash (17,070) (35,890) Movements Adjust for Items Included in the Net Surplus or Deficit on the Provision of 178 116 Services that are Investing and Financing Activities (1,552) Net Cash Flows from Operating Activities (Note 26) 109 6,077Investing Activities (Note 27) (665) (1,921)Financing Activities (Note 28 (4,459)
2,604 Net (Increase) or Decrease in Cash and Cash Equivalents (5,015)
(4,609) Cash and Cash Equivalents at the Beginning of the Reporting Period (2,005)
(2,005) Cash and Cash Equivalents at the End of the Reporting Period (Note 20) (7,020)
28 Page 45 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
INDEX OF NOTES TO THE CORE ACCOUNTING STATEMENTS STATEMENT OF ACCOUNTS 2018/19
Note No: Note: Page No:
1 Accounting Policies 30 2 Accounting Standards Issued, Not Adopted 46 3 Critical Judgments in Applying Accounting Policies 46 Assumptions Made about the Future and other Major Sources 4 47 of Estimation Uncertainty 5 Material Items of Income and Expense 48 6 Events After the Balance Sheet Date 48 7 Note to the Expenditure and Funding Analysis 49 8 Expenditure and Income Analysed by Nature 50 9 Revenue from Contract arising with Service Recipients 51 Adjustments between Accounting Basis and Funding Basis 10 52 under Regulations 11 Transfers to/from Earmarked Reserves 54 12 Other Operating Expenditure 55 13 Financing and Investment Income and Expenditure 55 14 Taxation and Non-Specific Grant Income 55 15 Property, Plant and Equipment 56 16 Intangible Assets 59 17 Financial Instruments 60 18 Inventories 66 19 Debtors 66 20 Cash and Cash Equivalents 66 21 Assets Held for Sale 67 22 Creditors 67 23 Provisions 68 24 Usable Reserves 69 25 Unusable Reserves 71 26 Cash Flow Statement - Operating Activities 75 27 Cash Flow Statement - Investing Activities 76 28 Cash Flow Statement - Financing Activities 76 29 Reconciliation of Liabilities arising from Financing Activities 77 30 Pooled Budgets 78 31 Members' Allowances 78 32 Officers' Remuneration 79 33 External Audit Costs 81 34 Grant Income 81 35 Related Parties 82 36 Capital Expenditure and Capital Financing 84 37 Leases 85 38 Termination Benefits 85 39 Defined Benefit Pension Schemes 86 40 Contingent Assets and Liabilities 97 41Nature and Extent of Risks Arising from Financial Instruments 98 42 Interests in Companies 103
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Page 46 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
NOTES TO THE CORE ACCOUNTING STATEMENTS
1. ACCOUNTING POLICIES
General Principles
The Statement of Accounts summarises the Fire Authority’s transactions for the 2018/19 financial year and its position at the year end of 31 March 2019. The Authority is required to prepare an annual Statement of Accounts by the Accounts and Audit (England) Regulations 2015 which those regulations require to be prepared in accordance with proper accounting practices. These practices primarily comprise the Code of Practice on Local Authority Accounting in the United Kingdom 2018/19 (the Code) and the Service Reporting Code of Practice 2018/19 supported by International Financial Reporting Standards (IFRS).
The accounting convention adopted is principally historical cost, modified by the revaluation of certain categories of non current assets and financial instruments. All figures in the Statement have been rounded to the nearest £1k, which may result in some discrepencies due to roundings.
Accruals of Expenditure and Income
Activity is accounted for in the year that it takes place, not simply when cash payments are made or received. This is known as the accruals basis. In particular: a) Supplies are recorded as expenditure when they are consumed. Some supplies are carried as Inventories on the balance sheet, where they are held in Stores prior to being distributed and used. b) Where goods are supplied to or by the Fire Authority in the financial year, but payment does not occur until the following financial year, a Short Term Creditor or Short Term Debtor for the relevant amount is shown on the Balance Sheet. Exceptions are made to this policy for certain recurring items that cover a specific period, e.g. quarterly energy bills. These items are brought into the accounts in the year they are paid and are not apportioned over the years to which they relate. c) Expenses in relation to services received (including services provided by employees) are recorded as expenditure when the services are received rather than when payments are made. However, due to a policy change which came into effect on 1 April 2017 an exception is now made to this policy for overtime payments and payments claimed in arrears by retained duty system staff. This expenditure is recognised in the year it is paid rather than the year in which the work was carried out. d) Fees and charges due from customers are recognised as income at the date the Fire Authority provides the relevant services. Debts outstanding at the year end are assessed for evidence of uncollectability based on past events and a charge is made to revenue where the total value of debts for which there is evidence of impairment exceeds a £5,000 de minimis threshold. The impairment is assessed using the Expected Credit Loss Model. This model uses a provision matrix and calculates a fixed provision rate based on the number of days that a receivable is past due, assessed on the basis of historical experience from the previous five years and adjusted (if necessary) to reflect current conditions and forecasts of future conditions. Impairment loss allowances are not recognised for debts where the counterparty is central government or a local authority, as statutory provisions prevent default. This policy applies to debts from unpaid fees and charges – council tax debtors are subject to a different policy (see below). e) Interest payable on borrowings and receivable on investments is accounted for on the basis of the effective interest rate for the relevant financial instrument rather than on the basis of cash flows determined by the contract.
30 Page 47 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Allocation of Support Service Costs
Support services are provided primarily by the Authority itself although some are purchased directly from the constituent authorities. The provision of a Clerk to the Authority is purchased from Nottingham City Council and some limited financial services are provided by Nottinghamshire County Council and Leicestershire County Council.
The costs of overheads and support services are charged to service segments in accordance with the Authority's arrangements for accountability and financial performance.
Borrowing Costs
Borrowing costs are recognised as an expense in the period in which they are incurred. Borrowing costs are interest and other costs incurred in connection with the borrowing of funds to finance the acquisition, creation or enhancement of non current assets.
Cash and Cash Equivalents
Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than twenty four hours. Cash equivalents are investments that mature in three months or less from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value.
In the Cash Flow Statement, cash and cash equivalents are shown net of bank overdrafts that are repayable on demand and form an integral part of the Authority’s cash management.
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Contingent Liabilities and Contingent Assets
A contingent liability arises where an event has taken place that gives the authority a possible obligation whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the Authority. Contingent liabilities also arise in circumstances where a provision would otherwise be made but either it is not probable that an outflow of resources will be required or the amount of the obligation cannot be measured reliably. Contingent liabilities are not recognised in the Balance Sheet but disclosed in a note to the accounts.
A contingent asset arises where an event has taken place that gives the authority a possible asset whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the Authority. Contingent assets are not recognised in the Balance Sheet but disclosed in a note to the accounts where it is probable that there will be an inflow of economic benefits or service potential.
Council Tax Income and Non Domestic Rates
Council tax and non domestic rates are collected from taxpayers by billing authorities both for themselves and substantively as agents, collecting council tax and non domestic rates on behalf of precepting authorities and central government and distributing it to them. This authority is a precepting authority, and council tax and non domestic rates income included in the Comprehensive Income and Expenditure Statement is the accrued income for the year. The difference between the income included in the Comprehensive Income and Expenditure Statement and the amount required by regulation to be credited to the General Fund is taken to the Collection Fund Adjustment Account on the Balance Sheet and shown within the Movement in Reserves Statement. Billing authorities prepare a Collection Fund balance sheet for council tax and non domestic rates activities, which is disaggregated and shared between the billing authority and its precepting authorities. This Authority’s Balance Sheet contains the following items: a) Council tax and non domestic rates arrears apportioned in relation to the following year’s precept proportions are included as Short Term Debtors b) Impairment allowance for doubtful debts apportioned as for council tax and non domestic rates arrears and deducted from council tax and non domestic rates arrears debtors c) Council tax and non domestic rates overpayments and prepayments apportioned in relation to the following year’s precept proportions are included as Short Term Creditors d) Collection Fund surplus / deficit – the reversing entry to the Comprehensive Income and Expenditure Account adjustment is included in the Collection Fund Adjustment Account e) Collection Fund cash surplus / deficit held on the authority’s behalf by the billing authority is included in Short Term Debtors or Short Term Creditors
32 Page 49 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Employee Benefits
Benefits Payable During Employment
Short-term employee benefits are those due to be settled within 12 months of the year-end. They include such benefits as wages and salaries, paid annual leave and paid sick leave, bonuses and non-monetary benefits (e.g. cars) for current employees and are recognised as an expense for services in the year in which employees render service to the Authority. An accrual is made for the cost of holiday entitlements (or any form of leave, e.g. time off in lieu) earned by employees but not taken before the year-end which employees can carry forward into the next financial year. The accrual is made at the wage and salary rates applicable in the following accounting year, being the period in which the employee takes the benefit. The accrual is charged to Surplus or Deficit on the Provision of Services, but then reversed out through the Movement in Reserves Statement so that holiday benefits are charged to revenue in the financial year in which the holiday absence occurs.
Termination Benefits
Termination benefits are amounts payable as a result of a decision by the Authority to terminate an officer’s employment before the normal retirement date or an officer’s decision to accept voluntary redundancy. They are charged on an accruals basis to the appropriate service when the Authority can no longer withdraw the offer of those benefits. Where termination benefits involve the enhancement of pensions, statutory provisions require the General Fund Balance to be charged with the amount payable by the Authority to the pension fund or pensioner in the year, not the amount calculated according to the relevant accounting standards. In the Movement in Reserves Statement, appropriations are required to and from the Pensions Reserve to remove the notional debits and credits for pension enhancement termination benefits and replace them with debits for the cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year-end.
Page 50 33 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Post Employment Benefits
Participation in Pension Schemes
As part of the terms and conditions of employment of its officers and other employees, the Authority offers retirement benefits. Although these benefits are not actually payable until the employees retire, the Authority has a commitment to make these payments in the future. This commitment needs to be disclosed at the time that the employees earn their future entitlement.
The Authority participates in five pension schemes, all of which are defined benefit schemes: • The Local Government Pension Scheme (LGPS) is for administrative, support and Control employees and is administered by Nottinghamshire County Council. This is a funded scheme, which means that contributions are paid into a fund with the intention of balancing pension liabilities with pension assets. • The Firefighters’ Pension Scheme 1992 has been closed to new entrants since 6 April 2006. Its members are wholetime firefighters. It is an unfunded pension scheme, meaning that there are no investment assets to meet the cost of pension liabilities and cash has to be generated to meet pension payments as they fall due. The cost of the scheme is met from contributions paid by employees and the Authority, with any deficit in the funding required being met by a top-up grant from the Home Office. Any surplus funding is paid over to the Home Office. • The Firefighters’ Pension Scheme 2006 is also an unfunded pension scheme. This scheme came into being with effect from April 2006 and its members are retained firefighters and wholetime firefighters. Like the 1992 Scheme, the cost of the scheme is met from contributions paid by employees and the Authority, with any deficit in the funding required being met by a top-up grant from the Home Office and any surplus being paid over to them. The Firefighters' Pension Scheme (England)(Amendment) Order 2014 introduced a new modified version of the 2006 Scheme which is available to individuals who were employed as retained firefighters during the period 1 July 2000 to 5 April 2006. The modified version of the scheme has different benefits to the main 2006 Scheme. The 2006 Scheme has been closed to new entrants since April 2015. • The Firefighters' Pension Scheme 2015 came into effect on 1 April 2015. Like the 2006 and 1992 Schemes, the cost of the scheme is met from contributions paid by employees and the Authority, with any deficit in the funding required being met by a top-up grant from the Home Office and any surplus being paid over to them. Unlike the other firefighters' schemes, it is a career average rather than a final salary scheme. Its members are retained firefighters and wholetime firefighters who were first appointed by an English fire and rescue authority on or after 1 April 2015, and firefighters who were transferred from the 1992 or 2006 Schemes. • The Firefighters’ Compensation Scheme (England) Order 2006 makes provision for the payment of pensions, allowances and gratuities to and in respect of persons who die or are permanently disabled as a result of an injury sustained or disease contracted while employed by a fire and rescue authority. The Firefighter Compensation Scheme (FFCS) is treated as an unfunded defined benefit scheme. The cost of this scheme is met by the Authority.
The arrangements for the three Firefighters’ pension schemes and the Firefighters’ Compensation Scheme are determined by the Home Office. In order to identify the amount of top-up grant receivable from / surplus payable to the Home Office the Authority is required to produce separate Pension Fund Statements for the firefighters’ pension schemes. Additional accounting policies can be found in the notes to these statements.
The Authority is required by the CIPFA Code of Practice to account for pensions in accordance with International Accounting Standard 19 Employee Benefits (IAS 19). One of the objectives of IAS 19 is to ensure that an employer’s financial statements reflect a liability when employees have provided services in exchange for benefits to be paid in the future.
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All five pension schemes are accounted for as defined benefit schemes: The liabilities of the LGPS and the firefighters' schemes are included in the Balance Sheet on an actuarial basis using the projected unit method - i.e. an assessment of the future payments that will be made in relation to retirement benefits earned to date be employees, based on assumptions about mortality rates, employee turnover rates etc, and estimates of projected earnings for current employees.
• Liabilities are discounted to their value at current prices, using discount rates of 2.4% and 2.4% for the LGPS and firefighters' schemes respectively. The discount rates for all schemes are based on the yields of AA-rated corporate bonds of currency and term appropriate to the currency and term of the scheme's liabilities. • The assets of the LGPS pension fund attributable to the Authority are included in the Balance Sheet at their fair value: • quoted securities - current bid price • unquoted securities - professional estimate • property - market value • The change in the net pensions liability is analysed into the following components: • Service cost comprising: Current service cost - the increase in liabilities as a result of years of service earned this year. This is allocated in the Comprehensive Income and Expenditure Statement to the services for which the employee worked. Past service cost - the increase in liabilities as a result of a scheme amendment or curtailment whose effect relates to years of service earned in earler years. This is debited to the Surplus or Deficit on the Provision of Services in the Comprehensive Income and Expenditure Statement. • Net interest on the net defined benefit liability, i.e. the net interest expense for the Authority - the change during the period in the net defined benefit liability that arises from the passage of time. This is charged to the Financing and Investment Income and Expenditure line of the Comprehensive Income and Expenditure Statement. • Remeasurements comprising: The return on plan assets - excluding amounts included in net interest on the net defined benefit liability. This is charged to the Pensions Reserve as Other Comprehensive Income and Expenditure. Actuarial gains and losses - changes in the net pensions liability that arise because events have not coincided with assumptions made at the last actuarial valuation, or because the actuaries have updated their assumptions. This is charged to the Financing and Investment Income and Expenditure line of the Comprehensive Income and Expenditure Statement. • Contributions paid to the pension fund - cash paid as employer's contributions to the pension funds in settlement of liabilities.
In relation to retirement benefits, statutory provisions require the General Fund Balance to be charged with the amount payable by the Authority to the pension fund or directly to pensioners in the year, not the amount calculated according to the relevant accounting standards. In the Movement in Reserves Statement, this means that there are transfers to and from the Pensions Reserve to remove the notional debits and credits for retirement benefits and replace them with debits for the cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year end. The negative balance that arises on the Pensions Reserve thereby measures the beneficial impact to the General Fund of being required to account for retirement benefits on the basis of cash flows rather than as benefits are earned by employees.
Further detail on post employment benefits accounting policies is given in note 39 to the core financial statements.
35 Page 52 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Discretionary Benefits
The Authority also has restricted powers to make discretionary awards of retirement benefits in the event of early retirements. Any liabilities estimated to arise as a result of an award to any member of staff are accrued in the year of the decision to make the award and accounted for using the same policies as are applied to the Local Government Pension Scheme.
Events after the Reporting Period
Events after the Balance Sheet date are those events, both favourable and unfavourable, that occur between the end of the reporting period and the date when the Statement of Accounts is authorised for issue. Two types of events can be identified: a) those that provide evidence of conditions that existed at the end of the reporting period – the Statement of Accounts is adjusted to reflect such events b) those that are indicative of conditions that arose after the reporting period – the Statement of Accounts is not adjusted to reflect such events, but where a category of events would have a material effect, disclosure is made in the notes of the nature of the events and their estimated financial effect. Events taking place after the date of authorisation for issue are not reflected in the Statement of Accounts.
Exceptional Items
When items of income or expense are material, their nature and amount is disclosed separately, either on the face of the Comprehensive Income and Expenditure Statement or in the notes to the accounts, depending on how significant the items are to an understanding of the Authority’s financial performance.
Financial Instruments
Financial Liabilities Financial liabilities are recognised on the Balance Sheet when the Authority becomes a party to the contractual provisions of a financial instrument and are initially measured at fair value and carried at their amortised cost. The amortised cost will include any interest accrued and not paid as at the Balance Sheet date. Where the transaction costs of borrowing are immaterial and there is no premium or discount on borrowing and the interest rate is fixed for the loan term, then the actual interest rate has been used to calculate interest payable as this is the same as the effective interest rate. Annual charges to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement for interest payable are based on the carrying amount of the liability, multiplied by the effective rate of interest for the instrument.
Financial Assets Financial assets are classified based on a classification and measurement approach that reflects the business model for holding the financial assets and their cashflow characteristics. There are three main classes of financial assets measured at: • Amortised cost • Fair value through profit or loss • Fair value through other comprehensive income The Authority’s business model is to hold investments to collect contractual cash flows. Financial assets are therefore classified as amortised cost, except for those whose contractual payments are not solely payment of principal of interest (i.e. where the cash flows do not take the form of a basic debt instrument). Financial assets measured at amortised cost are recognised on the Balance Sheet when the Authority becomes a party to the contractual provisions of a financial instrument and are initially measured at fair value. They are subsequently measured at their amortised cost.
36 Page 53 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Annual credits to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement (CIES) for interest receivable are based on the carrying amount of the asset multiplied by the effective rate of interest for the instrument. For most of the financial assets held by the authority, this means that the amount presented in the Balance Sheet is the outstanding principal receivable (plus accrued interest) and interest credited to the CIES is the amount receivable for the year in the loan agreement.
Expected Credit Loss Model The Authority recognises expected credit losses on all of its financial assets held at amortised cost, either on a 12-month or lifetime basis. The recognition of an impairment in the CIES is subject to a collective de minimis threshold of £10k. The expected credit loss model also applies to lease receivables and contract assets. Only lifetime losses are recognised for trade receivables (debtors) held by the Authority. Impairment losses are calculated to reflect the expectation that the future cash flows might not take place because the borrower could default on their obligations. Credit risk plays a crucial part in assessing losses. Where risk has increased significantly since an instrument was initially recognised, losses are assessed on a lifetime basis. Where risk has not increased significantly or remains low, losses are assessed on the basis of 12-month expected losses. Impairment loss allowances are not recognised for expected credit losses on a financial assets where the counterparty is central government or a local authority for which relevant statutory provisions prevent default.
Government Grants and Contributions (Revenue)
Grants and contributions relating to revenue expenditure are accounted for on an accruals basis, when there is reasonable assurance that the grant or contribution will be received, and they are recognised immediately in the Comprehensive Income and Expenditure Statement as income, except to the extent that the grant or contribution has a condition that the Authority has not satisfied.
A condition requires the grant funder or donor to have a right to the return of their monies (or asset or similar equivalent compensation) if the Authority fails to meet a stipulation under the terms of the transfer. If there are conditions attached to grants and contributions:
where there is no reasonable assurance that the conditions will be met, the grant or contribution received is recorded in Cash and held on the Balance Sheet as a Creditor.
where there is reasonable assurance that the conditions will be met but this has not yet occurred, the grant or contribution is held in the Grants Receipts in Advance account as a liability on the Balance Sheet and recorded in Cash (if received) or Debtors (if receivable). When the conditions have been satisfied, the income will be credited to the Comprehensive Income and Expenditure Statement.
Revenue grants are matched in the Comprehensive Income and Expenditure Statement with the service expenditure to which they relate. Grants to cover general expenditure (e.g. Revenue Support Grant) are credited to Taxation and Non-Specific grant income within the Comprehensive Income and Expenditure Statement
Government Grants and Contributions (Capital)
Grants and contributions relating to capital expenditure are accounted for on an accruals basis, when there is reasonable assurance that the grant or contribution will be received, and they are recognised immediately in the Comprehensive Income and Expenditure Statement as income, except to the extent that the grant or contribution has a condition that the Authority has not satisfied.
A condition requires the grant funder or donor to have a right to the return of their monies (or asset or similar equivalent compensation) if the Authority fails to meet a stipulation under the terms of the transfer. If there are conditions attached to grants and contributions:
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• where a capital grant or contribution has been received and conditions remain outstanding at the Balance Sheet date, the grant or contribution is recorded in Cash and held in the Capital Grants Receipts in Advance account as a liability on the Balance Sheet. When the conditions have been satisfied, the income will be credited to Taxation and Non- Specific Grant Income within the Comprehensive Income and Expenditure Statement.
• where no conditions remain outstanding and expenditure has been incurred, the grant or contribution is transferred from the General Fund to the Capital Adjustment Account to reflect the application of capital resources to finance expenditure. This transfer is reported in the Movement in Reserves Statement.
• where no conditions remain outstanding and expenditure has not yet been been incurred, the grant or contribution is transferred to the Capital Grants Unapplied Account to reflect its status as a capital resource available to finance expenditure. This transfer is reported in the Movement in Reserves Statement. When, at a future date, the expenditure to be financed is incurred the grant or contribution is transferred from the Capital Grants Unapplied Account to the Capital Adjustment Account to reflect the application of capital resources to finance expenditure. This transfer is reported in the Movement in Reserves Statement.
Interests in Companies
The Authority owns a subsidiary company, Nottinghamshire Fire Safety Limited, which commenced operations on 1 September 2010. The Authority is the sole owner of this company. Single entity accounts have been prepared for both the Authority and for Nottinghamshire Fire and Rescue Service (Trading) Limited. The former are shown within this Statement of Accounts and the latter will be available from the Authority. The company changed its name on 1st April 2016 to "Nottinghamshire Fire Safety Limited".
Further details about the Authority's interest in this company is disclosed in the note on Interests in Companies.
Inventories (Stocks)
Inventories are included in the Balance Sheet at the lower of cost and net realisable value. The cost of inventories is assigned using the First In, First Out (FIFO) costing formula.
Leases
Finance Leases (the Authority as Lessee)
The Fire Authority accounts for leases as finance leases when substantially all of the risks and rewards relating to the leased asset transfer to the Authority. Property, plant and equipment held under finance leases is recognised on the Balance Sheet at the commencement of the lease at its fair value measured at the lease’s inception (or the present value of the minimum lease payments, if lower). The asset recognised is matched by a liability for the obligation to pay the lessor. Initial direct costs of the Authority are added to the carrying amount of the asset. Lease rentals payable are apportioned between:
A charge for the acquisition of the interest in the asset (recognised as a liability in the balance sheet at the start of the lease, matched with a tangible fixed asset – the liability is written down as the rent becomes payable) and
A finance charge (debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement as the rent becomes payable).
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Non current assets recognised under finance leases are accounted for using the policies generally applied to such assets, subject to depreciation being charged over the lease term if this is shorter than the asset’s estimated useful life. Finance charges are accounted for on a straight line basis over the term of the lease.
Operating Leases (the Authority as Lessee)
Leases that do not meet the definition of finance leases are accounted for as operating leases. Rentals payable are charged to the Comprehensive Income and Expenditure Statement on a straight line basis over the term of the lease (unless the arrangement specifies a rental pattern which is not straight line, in which case this will be disclosed). Arrangements that do not have the legal status of a lease but convey a right to use an asset in return for payment are accounted for under this policy where fulfilment of the arrangement is dependent on the use of specific assets, and where the costs are material.
Operating Leases (the Authority as Lessor)
Income from operating leases is recognised in the Comprehensive Income and Expenditure Statement on a straight line basis over the term of the lease, with the exception of the lease relating to the property at Clifton. In this instance, as the annual payments vary, the income is recognised based on the specific cash flows as notated in the lease agreement.
Non Current Assets
Property, Plant and Equipment
Non current assets which have physical substance and are held for use in the provision of services or for administrative purposes on a continuing basis are classified as Property, Plant and Equipment.
Recognition
Expenditure on the acquisition, creation or enhancement of property, plant and equipment is capitalised on an accruals basis, provided that it yields benefits for more than one financial year. Expenditure on repairs and maintenance is charged as an expense when it is incurred.
Measurement
The value of assets shown is subject to a £30,000 de minimis level. Assets with a value less than £30,000 will, however, be capitalised if they form part of a larger asset e.g. a piece of IT equipment which forms part of the IT infrastructure.
Assets are initially measured at cost, comprising the purchase price plus all expenditure directly attributable to bringing the asset to the location and condition for its intended use. Donated assets are measured initially at fair value with the difference between fair value and any consideration paid being credited to the Taxation and Non-Specific Grant Income line of the Comprehensive Income and Expenditure Statement, unless the donation has been made conditionally. Until conditions are satisfied, the gain is held on the Balance Sheet in the Donated Assets Account. Where gains are credited to the Comprehensive Income and Expenditure Statement, they are reversed out of the General Fund Balance to the Capital Adjustment Account in the Movement in Reserves Statement. Assets are then carried in the balance sheet using the following measurement bases:
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Land and Buildings These assets are classified as either operational or non operational and valued at current value in existing use, which is deemed to be the amount that would be paid for the asset in its existing use in an arm's-length transaction and disregarding potantial alternative uses (Existing Use Value - EUV). Specialised, operational assets (e.g. Fire Stations) and specialised, non operational assests are valued at Depreciated Replacement Cost (DRC) which is a proxy for EUV and recognises that for specialised assets there is no market based evidence of fair value. Surplus assets are valued at Fair Value under IFRS. Non operational assets under construction are valued at historical cost. All assets are revalued every 5 years on a rolling basis by the Nottingham Valuation Office, or more if there have been material changes in value. All buildings are revalued subsequent to major refurbishment works being completed.
Furniture and Fittings Furniture and fittings which form part of major refurbishments are classed as non current assets and are shown in the balance sheet at depreciated historic cost.
Vehicles and Plant Vehicles and plant are classified as non current assets and are shown at a value which represents cost less depreciation charged on a straight line basis over the length of their useful lives.
All other Assets All other assets are shown in the Balance Sheet at a valuation which represents their cost less depreciation charged on a straight line basis over the length of their useful lives.
Increases in valuations are matched by credits to the Revaluation Reserve to recognise unrealised gains (although see section below: Revaluation and Impairment Losses). Where decreases in value and impairments are identified, they are accounted for by: a) Where there is a balance of revaluation gains for the asset in the Revaluation Reserve, the carrying amount of the asset is written down against that balance (up to the amount of the accumulated gains). b) where there is no balance in the Revaluation Reserve or an insufficient balance, the carrying amount of the asset is written down against the relevant service line(s) in the Comprehensive Income and Expenditure Statement.
The Revaluation Reserve contains revaluation gains recognised since 1 April 2007 only, the date of its formal implementation. Gains arising before that date have been consolidated into the Capital Adjustment Account.
Charges to Revenue for Non Current Assets
Services and support services are charged annually with the following amounts to record the real cost to the Authority of holding non current assets during the year:
a) depreciation attributable to the assets used by the relevant service.
b) revaluation and impairment losses on assets used by the service, where there are insufficient accumulated gains in the Revaluation Reserve balance for that asset against which the losses can be written off.
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The Authority is not required to raise council tax to cover these charges. It is, however, required to make an annual contribution from revenue towards the reduction in its overall borrowing requirement. This is known as the Minimum Revenue Provision (MRP) and the Authority’s policy is to charge an amount of MRP equal to 4% of the Capital Financing Requirement relating to assets purchased on or before 31 March 2007 plus an amount of MRP calculated on the basis of asset lives relating to assets purchased on or after 1 April 2007. The charges listed in a) to c) above are replaced by a Minimum Revenue Provision charge, by way of an adjusting transaction with the Capital Adjustment Account in the Movement in Reserves Statement for the difference between the two.
Depreciation and Amortisation
Depreciation is provided for on non current assets with a determinable finite life by allocating the value of the asset in the Balance Sheet over the periods expected to benefit from their use.
Depreciation is calculated on the following bases: Buildings: straight line allocation over the remaining useful life as estimated by the Valuation Office IT and Communications Equipment: straight line allocation over estimated remaining useful life Land, assets under construction and assets held for sale: not depreciated Fire Appliances: straight line allocation over the estimated useful life Furniture and Fittings: 20% of the balance at the beginning of the financial year Intangible Non Current Assets (software): amortisation equal to straight line allocation over the useful life.
Part year depreciation is charged from the start of the month of acquisition.
Where an item of property, plant and equipment has major components whose cost is significant in relation to the total cost of the item, the components are depreciated separately. The de minimis threshold for componentisation is a current net book value of £150k - individual assets with a value of less than £150k will be disregarded for componentisation. To be separately identified as a component, an element of an asset must meet the following criteria:
have a cost of at least 20% of the cost of the overall asset and have a materially different useful life (at least 20% different) and/or have a different depreciation method that materially affects the amount charged
Revaluation gains are also depreciated, with an amount equal to the difference between current value depreciation charged on assets and the depreciation that would have been chargeable based on their historic cost being transferred each year from the Revaluation Reserve to the Capital Adjustment Account.
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Revaluation and Impairment Losses
Where the carrying amount of an item of property, plant and equipment is decreased as a result of a revaluation, the decrease is recognised in the Revaluation Reserve up to the credit balance existing in respect of that asset and thereafter in the Surplus or Deficit on Provision of Services.
Where the carrying amount of an item of property, plant and equipment is increased as a result of a revaluation, any impairment losses for that asset, which have been charged to the Surplus or Deficit on Provision of Services in previous years, shall be reversed in the current year as a credit to the Surplus or Deficit on Provision of Services. The balance of the revaluation increase is credited to the Revaluation Reserve, but this amount represents the difference between the revalued amount and what the carrying amount net of depreciation would have been if no impairment loss had occurred in previous years. This means that the previous impairment loss reversal may not reverse the full amount of the loss.
Disposals and Non Current Assets Held for Sale
When it becomes probable that the carrying amount of an asset will be recovered principally through a sale transaction rather than through its continuing use, it is reclassified as an Asset Held for Sale. The asset is revalued immediately before reclassification and then carried at the lower of this amount and fair value less costs to sell. Where there is a subsequent decrease to fair value less costs to sell, the loss is posted to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement. Gains in fair value are recognised only up to the amount of any previous losses recognised in the Surplus or Deficit on Provision of Services. Depreciation is not charged on Assets Held for Sale.
If assets no longer meet the criteria to be classified as Assets Held for Sale, they are reclassified back to non-current assets and valued at the lower of their carrying amount before they were classified as held for sale; adjusted for depreciation, amortisation or revaluations that would have been recognised had they not been classified as Held for Sale, and their recoverable amount at the date of the decision not to sell.
When an asset is disposed of or decommissioned, the value of the asset in the balance sheet is written off to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement as part of the gain or loss on disposal. Amounts received from disposals are credited to the Usable Capital Receipts Reserve, which will then be used for new capital investment or set aside to reduce the borrowing requirement. Receipts are appropriated to the Reserve from the General Fund Balance in the Movement in Reserves Statement. Any accumulated balance of gains in the Revaluation Reserve, relating to an asset which has been disposed of, are written out to the Capital Adjustment Account.
When an existing building is demolished and replaced with a new build, the existing building would be treated as a disposal, the new building being added to Assets Under Construction at cost and then moved to Operational Buildings and revalued at Fair Value from the date it becomes operational.
The written-off value of disposals is not a charge against council tax, as the cost of non current assets is fully provided for under separate arrangements for capital financing. Amounts are appropriated to the Capital Adjustment Account from the General Fund Balance in the Movement in Reserves Statement
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Donated Assets
Donated assets are defined as assets transferred at nil value or acquired at less than fair value. Donated assets from other public bodies which meet the definition of “government” in IAS 20 are accounted for as a government grant.
Donated assets are recognised immediately on receipt as Property, Plant and Equipment and are valued at fair value, which in this case is the amount for which the asset could be exchanged between knowledgeable, willing parties in an arm’s-length transaction. The gain to the Authority on receipt of the asset is recognised as income in the relevant service line in the Comprehensive Income and Expenditure Statement. The exception to this is to the extent that the Authority has not met any conditions attached to the donated asset, the gain relating to the asset is recognised in the Donated Assets Account on the Balance Sheet. The income will subsequently be recognised in the Comprehensive Income and Expenditure Statement when the conditions of donation have been satisfied.
After initial recognition, donated assets are measured in accordance with the accounting policies for Property, Plant and Equipment.
Re-classification of Assets Under Construction to Operational Assets
Assets under construction which are subsequently identified as being operational will be reclassified in the quarter following the date when the asset became operational.
Intangible Assets
Intangible assets are identifiable, non financial, non current assets controlled by the Authority which do not have physical substance. This Authority has one type of intangible non current asset, which is software. Expenditure on the acquisition of intangible non current assets is capitalised on an accruals basis, provided that it yields benefits for more than one financial year.
The value of assets capitalised is subject to a £30,000 de minimis level. Assets with a value of less than £30,000 will, however, be capitalised if they form part of a larger asset e.g. an ICT project to implement a new system with both hardware and software. Where an asset incorporates both hardware and software, it will be classified as an intangible asset when the majority of the cost is attributable to software – otherwise it will be classified as Equipment within Property, Plant and Equipment.
Software is initially measured at cost and subsequently shown in the Balance Sheet at amortised historic cost. Amortisation is charged to the Comprehensive Income and Expenditure Account over the economic life of the asset. An asset is tested for impairment whenever there is an indication that the asset might be impaired – any losses recognised are charged to the relevant service line in the Comprehensive Income and Expenditure Statement. Any gain or loss arising on the disposal or abandonment of an intangible asset is posted to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement.
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Prior Period Adjustments, Changes in Accounting Policies and Estimates and Errors
Prior period adjustments may arise as a result of a change in accounting policies or to correct a material error. Changes in accounting estimates are accounted for prospectively, i.e. in the current and future years affected by the change and do not give rise to a prior period adjustment. Changes in accounting policies are only made when required by proper accounting practices or the change provides more reliable or relevant information about the effect of transactions, other events and conditions on the Authority’s financial position or financial performance. Where a change is made, it is applied retrospectively (unless stated otherwise) by adjusting opening balances and comparative amounts for the prior period as if the new policy had always been applied. Material errors discovered in prior period figures are corrected retrospectively by amending opening balances and comparative amounts for the prior period.
Provisions
Provisions are made where an event has taken place which gives the Fire Authority an obligation that probably requires settlement by a transfer of economic benefits, but where the timing of the transfer is uncertain. Provisions are charged to the appropriate service line in the Comprehensive Income and Expenditure Statement when the authority becomes aware of the obligation, based on the best estimate of the likely settlement. When payments are eventually made, they are charged to the provision carried in the balance sheet. Estimated settlements are reviewed at the end of each financial year and a provision may then be reversed and credited back to the relevant service if the requirement has changed.
Reserves
The Fire Authority sets aside specific amounts as reserves for future policy purposes or to cover contingencies. Reserves are created by appropriating amounts out of the General Fund Balance in the Movement in Reserves Statement. When expenditure to be financed from a reserve is incurred, it is charged to the appropriate service in that year in that year to score against the Cost of Services in the Comprehensive Income and Expenditure Statement. The reserve is then appropriated back into the General Fund Balance in the Movement in Reserves Statement so that there is no net charge against Council Tax for the expenditure.
Two usable reserves are shown on the face of the Balance Sheet. These are:
General Reserve This reserve is the surplus or deficit of income over expenditure in the 2018/19 financial year, and the cumulative effect of such surpluses or deficits carried forward from previous years. See note 24.
Earmarked Reserve This reserve contains funds built up to meet expected liabilities. The movement of this reserve is shown in note 11.
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Capital Reserves There are four capital related reserves shown in the Balance Sheet. Of these four reserves the Usable Capital Receipts Reserve and the Capital Grants Unapplied Reserve are cash backed; the remaining two are non cash backed.
The Revaluation Reserve This represents the total of all fixed asset revaluation gains since 1 April 2007, less any revaluation losses since 1 April 2007 which have been offset against prior revaluation gains for the same asset. The Capital Adjustment Account This account is credited with amounts set aside to finance capital expenditure and absorbs any timing differences between the setting aside of resources and accounting for depreciation and impairment losses. This reserve was created on 1 April 2007, replacing the Capital Financing Account. Its opening balance was an amalgamation of the closing balances as at 31 March 2007 of the Fixed Asset Restatement Account and the Capital Financing Account. The Usable Capital Receipts Reserve This reserve is credited with the disposal proceeds when fixed assets are sold. It is ring fenced for supporting new capital expenditure or for reducing the underlying need to borrow against the capital financing requirement. The Capital Grants Unapplied Reserve This reserve is credited with capital grants received, which have yet to be used to finance capital expenditure.
Movements on these reserves are shown in notes 24 and 25.
Pensions Reserve This reserve represents the full future pensions liabilities at the time that these liabilities are earned by employees. An independent actuary assesses the liabilities for pension schemes in which the Authority participates, namely the Firefighters’ Pension Schemes and the Local Government Pension Scheme.
Accumulated Absences Adjustment Account This reserve absorbs the differences that would otherwise arise on the General Fund balance from accruing for accumulated absences earned but not taken in the year.
Collection Fund Adjustment Account This reserve manages the differences arising from the recognition of council tax income in the Comprehensive Income and Expenditure Statement as it falls due from council tax payers, compared with the statutory arrangements for paying across amounts due to the General Fund from the billing authorities.
Value Added Tax
VAT payable is included as an expense only to the extent that it is not recoverable from Her Majesty's Revenue and Customs. VAT receivable is excluded from income.
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2. ACCOUNTING STANDARDS ISSUED, NOT ADOPTED
The Code of Practice requires the disclosure of the impact of an accounting change arising from a new accounting standard which has been issued but not yet adopted by the Code for the relevant financial year.
There are a number of new standards introduced in the 2019/20 Code of Practice:
• Amendments to IAS 40 Investment Property: Transfers of Investment Property (issued December 2016) • Annual Improvements to IFRS Standards 2014 - 2016 Cycle (December 2016). The amendments that may apply to local authorities include: • IFRS 12 Disclosure of Interests in Other Entities: Clarification of the Scope of the Standard • IAS 28 Investments in Associates and Joint Ventures: Measuring an Associate or Joint Venture at Fair Value • IFRIC 22 Foreign Currency Transactions and Advance Consideration (issued December 2016) • IFRIC 23 Uncertainty over Income Tax Treatments (issued June 2017) • Amendments to IFRS 9 Financial Instruments : Prepayment Features with Negative Compensation (issued October 2017).
None of these changes would impact significantly on the Authority's accounts for 2019/20.
A new accounting standard coveringSM leases, IFRS31/05/2016 16 - Leases, is expected to be adopted in the 2020/21 Code. This new standard will bring almost all leases onto an entitiy's balance sheet. As a result, some contractual payments that the Authority currently recognises as revenue expenditure could instead be recognised as an asset with a corresponding lease liability.
3. CRITICAL JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
In applying the accounting policies set out in Note 1, the Authority has had to make certain judgements about complex transactions or those involving uncertainty about future events. The critical judgements made in the Statement of Accounts are:
The Government has provided an indicative four year funding settlement, which gives some degree of certainty around future grant levels, however there still the possibility that funding for local government organisations will be further reduced. Despite this there is no indication that the assets of the Authority might be impaired as a result of a need to close facilities and reduce levels of service provision. The Authority faces a budget deficit in the region of £0.8m in three years to 2020/21. Plans are being developed to reduce base budgets over the next three years and eliminate the deficit.
The Authority has valued its Fire Stations at depreciated replacement cost, as there is no market based evidence of fair value due to the specialised nature of the assets.
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4. ASSUMPTIONS MADE ABOUT THE FUTURE AND OTHER MAJOR SOURCES OF ESTIMATION UNCERTAINTY
The Statement of Accounts contains estimated figures that are based on assumptions made by the Authority about the future or that which are otherwise uncertain. Estimates are made taking into account historical experience, current trends and other relevant factors. However, because balances cannot be determined with certainty, actual results could be materially different from the assumptions and estimates.
The items in the Authority’s Balance Sheet at 31 March 2019 for which there is a significant risk of material adjustment in the forthcoming year are as follows:
Effect if Actual Results Differ from Item Uncertainties Assumptions Property, Plant Assets are depreciated over useful lives that are If the useful life of assets is reduced, and Equipment dependent on assumptions about the level of depreciation increases and the carrying repairs and maintenance that will be incurred in amount of the assets falls. relation to individual assets. The It is estimated that the annual depreciation current economic climate makes it uncertain that charge for buildings would increase by £90k the Authority will be able to sustain its current for every year that useful lives had to be spending on repairs and maintenance, bringing reduced. into doubt the useful lives assigned to assets.
Effect if Actual Results Differ from Item Uncertainties Assumptions Pensions Liability Estimation of the net liability to pay pensions The effects on the net pensions liability of depends on a number of complex judgements changes in individual assumptions can be relating to the discount rate used, the rate at measured. A sensitivity analysis showing the which salaries are projected to increase, impacts of changes in the discount rates used changes in retirement ages, mortality rates and is included in note 39 expected returns on pension fund assets. A firm of consulting actuaries is engaged to provide the Authority with expert advice about the assumptions to be applied.
This list does not include assets and liabilities that are carried at fair value based on a recently observed market price.
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5. MATERIAL ITEMS OF INCOME AND EXPENSE
Within the Comprehensive Income and Expenditure Statement are a number of material items of income and expense in Net Cost of Services which are not disclosed separately. These are as follows:
Income or 2017/18Description of Item Expense 2018/19 £000 £000 Depreciation and Amortisation of 3,379Expense 3,532 Non Current Assets (153)Capital Receipt Income (116) Reversal of unused provision for 0 firefighters' pay award Income (183)
6. EVENTS AFTER THE BALANCE SHEET DATE
The Statement of Accounts was authorised for issue by the Treasurer to the Authority on 08 November 2019. Events taking place after this date are not reflected in the financial statements or notes. Where events taking place before this date provided information about conditions existing at 31 March 2019, the figures in the financial statements and notes have been adjusted in all material respects to reflect the impact of this information.
The service has lost an Employment Tribunal case for unfair dismissal. Costs related to this case are expected to be in the region of £40k. This has not been adjusted for in the Statement of Accounts on the grounds of materiality.
On 27 June 2019 the Supreme Court denied the Government's request for permission to appeal against the Court of Appeal's decision in the cases of McCloud and Sargeant, regarding age discrimination and transitional protection arrangements in the New Judges Pension Scheme and New Firefighters' Pension Scheme. This refusal could have significant implications for all public sector pension schemes. Although these two cases related specifically to the judicial and firefighters' pension schemes, similar transitional arrangements were agreed in relation to the Local Government Pension Scheme (LGPS). There is therefore likely to be an additional liability arising on both the LGPS and the Firefighter pension schemes as a result of this ruling.
Significant changes are likely to be required to all public sector pension schemes, although due to the uncertainties surrounding the outcome at this time it is difficult to quantify the impact of these changes. Additional actuarial calculations were requested to reflect the likely pension position following the outcome of the McCloud and Sargeant cases. The accounts have been adjusted to reflect these additional costs and the increase in the pension liability.
.
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7. NOTE TO THE EXPENDITURE AND FUNDING ANALYSIS
Adjustments between Funding and Accounting Basis 2018/19
Net change Adjustments from the General Fund to Adjustment for the arrive at the Comprehensive Income and for Capital Pension Other Total Expenditure Statement amount 2017/18 purposes Adjustment Differences Adjustments £000£000 £000 £000
Firefighting and Rescue 187(4,799) 15 (4,597) Community Safety (9)(257) 4 (262) Fire Protection 0(200) (2) (202) Resilience 0(115) 2 (113) Corporate and Centralised Services Estates & Procurement (784)(62) 2 (844) Equipment (91)(80) (1) (172)
People and Organisation (115)(491) (19) (625) Development Finance (6)(56) (1) (63) Information Communication and (358)(132) 3 (487) Technology Transport (227)0 0 (227)
Other Corporate and Centralised 61(24,539) 1 (24,477) Services (1,342) (30,731) 4 (32,069) Other income and expenditure 43(2,107) 19 (2,045) (1,299)(32,838) 23 (34,114)
Adjustments between Funding and Accounting Basis 2017/18 (restated) Net change Adjustments from the General Fund to Adjustment for the arrive at the Comprehensive Income and for Capital Pension Other Total Expenditure Statement amount 2017/18 purposes Adjustment Differences Adjustments £000£000 £000 £000
Firefighting and Rescue 0(5,715) 1 (5,714) Community Safety (10)(288) (2) (300) Fire Protection 0(226) (3) (229) Resilience 0(102) (5) (107) Corporate and Centralised Services Estates & Procurement (856)(65) 0 (921) Equipment (43)(91) (1) (135) People and Organisation (110)(538) 3 (645) Development Finance (2)(58) 2 (58) Information Communication and (279)(154) 1 (432) Technology Transport (182)0 4 (178) Other Corporate and Centralised (1)(780) (1) (782) Services (1,483) (8,017) (1) (9,501) Other income and expenditure (171)(4,962) (83) (5,216) (1,654)(12,979) (84) (14,717) Details of the 2017/18 re-statement can be found in the Introduction to the Core Statements on page 22 49 Page 66 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
8. EXPENDITURE AND INCOME ANALYSIS BY NATURE
2017/18 Restated 2018/19 £000 £000 Expenditure 55,074Employee Benefits Expenses 77,841 426 Other Employee Expenses 398 2,402 Premises Related Expenses 2,530 1,548 Transport Related Expenditure 1,965 4,113 Supplies and Services 3,462 39 Third Party Payments 35 159 Support Services 172 3,170Depreciation, amortisation, impaiment and loss on 2,840 disposal of non-current assets 807 Interest Payments 793 67,738 Total Expenditure 90,036
Income (704) Fees, charges and other service income (817) (40) Interest and investment income (81) (33,686) Income from council tax and non-domestic rates (35,033) (17,968) Government grants (18,179) 0 Income from profit on disposal of non-current assets (42) (52,398) Total Income (54,152)
15,340 (Surplus)/Deficit on Provision of Services 35,884
Details of the 2017/18 re-statement can be found in the Introduction to the Core Statements on page 22
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9. REVENUE FROM CONTRACTS WITH SERVICE RECIPIENTS
Amounts included in the Comprehensive Income and Expenditure Statement for contracts with service recipients
2017/18 2018/19 £'000 £'000
(£633) Revenue from contracts with service recipients (£683) Impairment of receivables or contract assets (£633) Total Included in Comprehensive Income and Expenditure Statement (£683)
Amounts included in the Balance Sheet for contracts with Service Recipients
2017/18 2018/19 £'000 £'000
(£178)Receivables which are included in debtors (£337)
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10. ADJUSTMENTS BETWEEN ACCOUNTING BASIS AND FUNDING BASIS UNDER REGULATIONS
This note details the adjustments that are made to the total comprehensive income and expenditure recognised by the Authority in the year in accordance with proper accounting practice to the resources that are specified by statutory provisions as being available to the Authority to meet future capital and revenue expenditure. The following sets out a description of the reserves that the adjustments are made against.
General Fund Balance The General Fund is the statutory fund into which all the receipts of an authority are required to be paid and out of which all liabilities of the authority are to be met, except to the extent that statutory rules might provide otherwise. These rules can also specify the financial year in which liabilities and payments should impact on the General Fund balance, which is not necessarily in accordance with proper accounting practice. The General Fund balance therefore summarises the resources that the Authority is statutorily empowered to spend on its services or on capital investment (or the deficit of resources that the Authority is required to recover) at the end of the financial year.
Capital Receipts Reserve The Capital Receipts Reserve holds the proceeds from the disposal of land or other assets, which are restricted by statute from being used other than to fund new capital expenditure or to be set aside to finance historical capital expenditure. The balance on the reserve shows the resources that have yet to be applied for these purposes at the year-end.
Capital Grants Unapplied The Capital Grants Unapplied Account holds the grants and contributions received towards capital projects for which the Authority has met the conditions that would otherwise require repayment of the monies but which have yet to be applied to meet expenditure. The balance is restricted by grant terms as to the capital expenditure against which it can be applied and/or the financial year in which this can take place.
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Usable Reserves
2017/18 2018/19 General Capital Capital Capital Capital Fund Receipts Grants General Fund Receipts Grants Balance Reserve Unapplied Balance Reserve Unapplied £000 £000 £000 £000 £000 £000
Adjustments to the Revenue Resources
Amounts by which income and expenditure included in the Comprehensive Income and Expediture Statement are different from revenue for the year calculated in accordance with statutory requirements:
(12,979)Pension costs (transferred to (or from) the Pensions (32,838) Reserve) Council tax and NDR (transfers to or from the Collection (83) 19 Fund Adjustment Account) Holiday pay (transferred to the Accumulated Absences (1) 4 Reserve)
Reversal of entries included in the Surplus or Deficit on the (3,298) (25) (2,914) Provision of Services in relation to capital expenditure (these items are charged to the Capital Adjustment Account) 0 (16,361) 0 (25)Total Adjustments to Revenue Resources (35,729) 0 0
Adjustments between Revenue and Capital Resources Transfer of non-current asset sale proceeds from revenue to 153 (153) the Capital Receipts Reserve 116 (116)
Administrative costs of non-current asset disposals (funded by a contribution from the Capital Receipts Reserve)
Statutory provision for the repayment of debt (transfer from 1490the Capital Adjustment Account) 1436
Capital expenditure financed from revenue balances 0(transfer to the Capital Adjustment Account) 62 Total Adjustments between Revenue and 1,643 (153) 0 1,614 (116) 0 Capital Resources
Adjustments to Capital Resources 630Use of the Capital Receipts Reserve to finance capital 116 25Application of capital grants to finance capital expenditure 0 Cash payments in relation to deferred capital receipts
063025 0116 0 Total Adjustments to Capital Resources
(14,718) 477 0Total Adjustments (34,115) 0 0
53 Page 70 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
11 TRANSFERS TO/FROM EARMARKED RESERVES
This note sets out the amounts set aside from the General Fund in earmarked reserves to provide financing for future expenditure plans and the amounts posted back from earmarked reserves either to meet General Fund expenditure in the year, or because the earmarked reserve was no longer required.
Restated* Restated Restated* Restated Restated Transfers Balance at Balance at Transfers Balance at Movements Transfers Movements Transfers in out 31 March 31 March out 31 March 2018/19 in 2018/19 2017/18 2017/18 2018/19 2019 2017 2017/18 2018 £000 £000 £000 £000 £000 £000 £000 £000 £000
Information Communication (1,321) 909 1 (949) and Technology (1,360) 62 (54) 0 (1,352) Prevention, Protection and (639) 126 0 (2) Partnerships (514) 146 0 (7) (375) (451) 69 0 (22) Resilience (404) 45 0 (177) (536) (1,114) 0 0 0 Capital (1,114) 77 0 0 (1,037) 54 (585) 105 0 0 Operational (480) 65 0 0 (415) (95) 0 0 0 Estates (95) 95 0 0 0 (349) 0 0 (500) Transition (849) 130 54 (50) (715) (308) 0 0 0 Pension (308) 0 0 0 (308) (32) 1 0 0 Other (31) 7 0 0 (24) (4,894) 1,210 1 (1,473) SubTotal (5,155) 627 0 (234) (4,762)
*Note
Page 71 Page During the year a review took place of Earmarked Reserves which resulted in individual smaller reserves now being amalgamated into larger reserves according to their purpose. The 2017/18 figures have been restated to reflect this change. The amounts shown in the SubTotal row remain unchanged. Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
12 OTHER OPERATING EXPENDITURE
2017/18 2018/19 £000 £000 182 Gains/(Losses) on the disposal of non-current assets (42) 182Total (42)
13 FINANCING AND INVESTMENT INCOME AND EXPENDITURE
2017/18 2018/19 £000 £000 807Interest payable and similar charges 793 0Interest paid in relation to Finance Leases 0 13,977Net interest on defined pension liability 13,151 (40)Interest receivable and similar income (81)
14,744Total 13,863
14 TAXATION AND NON-SPECIFIC GRANT INCOME
2017/18 2018/19 £000 £000 23,365Council tax income and surplus on collection 24,366 3,525Non domestic rates 3,667 9,015Pension top up grant 11,044 6,979Non ringfenced government grants 6,125 25 Capital grants and contributions 0 6,796 Non domestic rates tax top-up grant 7,000 397 Business Rates Tax Loss Reimbursement Grant 503 8 Transparency grant 8 50,110Total 52,713
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Page 72 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19 15 PROPERTY PLANT AND EQUIPMENT
Other Land Vehicles, Plant, Total Property, and Furniture & Surplus Assets Under Plant & Movements in 2018/19 Buildings Equipment Assets Construction Equipment £000 £000 £000 £000 £000 Cost or Valuation At April 2018 52,763 22,945 1,155 2,453 79,316 Adjustments to bring fixed asset register and statutory accounts into (76) (604) (680) alignment Additions 32 323 0 538 893 Donations 0 0 0 0 0 Revaluation Increases/(decreases) recognised in the Revaluation Reserve 3,318 0 0 (50) 3,268 Revaluation increases/(decreases) recognised in the Surplus/Deficit on the Provision of Services 331 0 0 0 331 Derecognition - Disposals (164) 0 0 (164) Derecognition - Other 0 (577) 0 0 (577) Assets reclassified (to)/from Held for Sale 0 00 0 0 Assets reclassified (to)/from Assets Under Construction 2,500 0 0 (2,500) 0 Correction of classification 0 396 0 (346) 50 At 31 March 2019 58,704 22,483 1,155 95 82,437
Accumulated Depreciation & Impairment At April 2018 (2,278) (14,516) (1,118) 0 (17,912) Adjustments to bring fixed asset register and statutory accounts into 152 619 771 alignment Depreciation & Impairment Charges (1,399) (1,700) (6) 0 (3,105) Depreciation written out to the Revaluation Reserve 1,638 0 0 1,638 Depreciation written out to the Surplus/Deficit on the Provision of 88 0 88 Services Impairment losses/(reversals) recognised in the Revaluation Reserve 0 0 Impairment losses/(reversals) recognised in the Surplus/Deficit on the Provision of Services 0 0 Derecognition- Disposals 86 0 86 Derecognition- Other 0 574 0 574 Other movements in Depreciation & Impairment 0 0 0 At 31 March 2019 (1,713) (15,023) (1,124) 0 (17,860)
Net Book Value at 31st March 2019 56,991 7,460 31 95 64,577 at 31st March 2018 50,485 8,429 37 2,453 61,404 * Restated Gross book and Accumulated Depreciation as per the Fixed Asset Register Page 73 56 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Other Land Vehicles, Plant, Total Property, Comparative Movements in 2017/18: and Furniture & Surplus Assets Under Plant & Buildings Equipment Assets Construction Equipment £000 £000 £000 £000 £000 Cost or Valuation At April 2017 53,646 21,709 1,155 635 77,145 Prior Year Adjustments 0 Additions 223 1,467 0 2,113 3,803 Donations 0 Revaluation Increases/(decreases) recognised in the Revaluation Reserve (1,347) 0 0 0 (1,347) Revaluation increases/(decreases) recognised in the Surplus/Deficit on 405 the Provision of Services 405 0 0 0 Derecognition - Disposals 0 (252) 0 (295) (547) Derecognition - Other (164) 0 0 0 (164) Assets reclassified (to)/from Held for 0 Sale Assets reclassified (to)/from Assets Under Construction 0 21 0 0 21 At 31 March 2018 52,763 22,945 1,155 2,453 79,316
Accumulated Depreciation & Impairment At April 2017 (4,457) (13,027) (1,112) 0 (18,596) Prior Year Adjustments 0 00 0 0 Depreciation & Impairment Charges (1,215) (1,687) (6) 0 (2,908) Depreciation written out to the Revaluation Reserve 3,369 3,369 Depreciation written out to the Surplus/Deficit on the Provision of Services 0 Impairment losses/(reversals) recognised in the Revaluation Reserve 0 0 Impairment losses/(reversals) recognised in the Surplus/Deficit on the Provision of Services 0 Derecognition- Disposals 0 198 198 Derecognition- Other 25 0 0 25 Other movements in Depreciation & Impairment 0 00 0 0 At 31 March 2018 (2,278) (14,516) (1,118) 0 (17,912)
Net Book Value at 31st March 2018 50,485 8,429 37 2,453 61,404
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Capital Commitments
At 31 March 2019 the Authority had entered into a number of contracts for the construction or enhancement of Property, Plant and Equipment in 2018/19 and future years budgeted to cost £60k. Similar commitments at 31 March 2018 were £603k. The major commitments for 2018/19 are:
• Newark Fire Station £60k
Revaluations
The Authority carries out a rolling programme that ensures that all Property, Plant and Equipment required to be measured at fair value is revalued at least every five years. All valuations are carried out by the Valuation Office, the last valuation took place on the 31 March 2019, covering 6 properties and was carried out by Richard Hemsworth MRICS. Valuations of and and buildings were carried out in accordance with the methodologies and bases for estimation set out in the professional standards of the Royal Institute of Chartered Surveyors.
The basis of valuation for various types of property is given in Accounting Policies Note 1.
The following table shows the progress of the Authority's rolling programme for the revaluation of non-current assets.
Other Vehicles, Land & Plant, Surplus Buildings Equipment Assets Total £000 £000 £000 £000
Carried at Historical cost 0 7,460 0 7,460 Valued at Fair Value as at: 31 March 2019 13,639 0 0 13,639 31 March 2018 9,578 0 0 9,578 31 March 2017 10,944 0 0 10,944 31 March 2016 20,917 0 0 20,917 31 March 2015 1,504 0 0 1,504 31 March 2014 406 0 0 406 31 March 2013 7 0 0 7 31 March 2012 0 0 31 31
Total Cost or Valuation 56,995 7,460 31 64,486
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16 INTANGIBLE ASSETS
The Authority accounts for its software as intangible assets, to the extent that the software is not an integral part of a particular IT system and accounted for as part of the hardware item of Property, Plant and Equipment.
The basis of valuation and amortisation of intangible assets is outlined in Accounting Policies Note 1.
Software Software Under Under Software Construction Software Construction 2017/18 2017/18 2018/19 2018/19 £000 £000 £000 £000
Balance at start of year: 2,289 418 • Gross carrying amounts 2,894 50 (1,221) 0 • Accumulated amortisation (1,553) 0 1,068 418 Net carrying amount at start of year 1,341 50 Adjustments to bring fixed asset register and statutory accounts into alignment 173 397 (418) Assets Reclassified 0 (50) 208 50 Purchases 0 181
0 0 Disposals 0 0
(332) 0Amortisation for the period (410) 0
0 0Other Changes - Disposal Amortisation 0 0
1,341 50Net carrying amount at end of year 1,104 181
Comprising: 2,894 50• Gross Carrying Amounts 2,894 181 (1,553) 0• Accumulated amortisation (1,790) 0
1,341 50 1,104 181
Restated Gross book and Accumulated Depreciation as per the Fixed Asset Register
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17 FINANCIAL INSTRUMENTS
The 2018/19 CIPFA Code of Practice on Local Authority Accounting in the United Kingdom incorporates a new accounting standard, IFRS 9 Financial Instruments. IFRS 9 replaces an earlier accounting standard, IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 introduces changes to the classification of financial assets. As a result, financial assets that were previously classed as "Loans and Receivables" are now reclassified as "Amortised Cost".
The following categories of financial instrument are carried in the Balance Sheet:
31 March 2018 31 March 2019
Non-currentCurrent Non-currentCurrent £000£000 £000 £000 Financial assets 0 7,436 Investments measured at amortised cost 0 5,442 Cash & cash equivalents measured at 02,005amortised cost 0 7,020 0 4,748Debtors measured at cost 0 5,298 Financial assets measured at fair value through 00profit or loss 00 Financial assets measured at fair value through 00other comprehensive income 00 0 14,189Total financial assets 0 17,760
Financial liabilities (20,599) (4,639) Loans measured at amortised cost (25,512) (4,117) 0 (3,411)Creditors measured at cost 0 (3,121) 00Financial liabilities measured at fair value 00 (20,599) (8,050)Total financial liabilities (25,512) (7,238)
Note: the figures for debtors and creditors in the above table include grant receipts in advance but exclude Council Tax and Non Domestic Rates (NDR) debtors and creditors because Council Tax is a statutory debt not arising from a contract and therefore falls outside the scope of financial instruments. The table below provides a reconciliation between the figures in the above table and those on the Balance Sheet.
Short term debtors and creditors are carried at cost rather than amortised cost as this is a fair approximation of their value.
The values for financial instruments in the above table, and on the Balance Sheet, are all gross figures i.e. no netting of financial instruments has taken place.
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31 March 31 March 2018 2019
£000 £000 Debtors 5,538Debtors - as shown on Balance Sheet 6,134 (790)Less: Council Tax and NDR debtors (836) 4,748Debtors Classified as Financial Instruments 5,298
Creditors (3,735)Creditors - as shown on Balance Sheet (3,211) 349Less: Council Tax NDR prepayments / overpayments 514 (25) Grant Receipts in Advance - as shown on Balance Sheet (424) (3,411)Creditors Classified as Financial Instruments (3,121)
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Income, Expense, Gains and Losses
2017/18 2018/19
Surplus or Other Surplus or Other Deficit on the Comprehensive Deficit on the Comprehensive Provision of Income and Provision of Income and Services Expenditure Services Expenditure £000 £000 £000 £000 Interest revenue: Financial assets measured at amortised (40)cost (81) Financial assets measured at fair value 0through other comprehensive income 0 (40) 0 Total interest revenue (81) 0
807 Interest expense 793
Fair Value of Financial Assets and Financial Liabilities
The fair value of financial instruments has been determined by calculating the net present value (NPV) of future cashflows. The discount rates used in the NPV calculations are equivalent to the current rates in relation to the same or similar instruments of the same remaining duration from comparable lenders on the date of the valuation. A more detailed explanation of the rates used is given below. Short-term detors and creditors are carried at cost as this is a fair approximation of their value.
The fair value of Public Works Loan Board (PWLB) loans of £24.1m is based on new PWLB borrowing rates. This fair value measures the economic effect of the terms agreed with the PWLB compared with estimates of the terms that would be offered for new PWLB loans undertaken at the balance sheet date. The difference between the carrying value and the fair value measures the additional interest that the authority will pay over the remaining terms of the loans under the agreements with the PWLB, against what would be paid if the loans were at prevailing PWLB rates.
The Authority also has the ability to prematurely repay its PWLB loans, however the PWLB would raise a penalty charge for early redemption in addition to charging a premium for the additional interest that would not be paid. The fair value of PWLB loans calculated using premature repayment rates is £28.7m. This fair value is £4.7m higher than that calculated using the PWLB new loans rates because the discount rate is lower and hence the premium payable would be higher.
There have been limited trades in the Lender Option Borrower Option (LOBO) market during the financial year ended 31 March 2019, so comparable market rates are not available. A proxy LOBO new loans rate has been derived by applying a margin of 80 basis points above the corresponding gilt rates. The fair value of the non-PWLB LOBO loan calculated using PWLB premature repayment rates as a market illustration is £8.6m. This fair value is £2.3m higher than that calculated using new loan rates (£6.3m) because the discount rate is lower and hence the premium payable would be higher.
At 31 March 2019 the Authority had a short term loan of £4m. Where an instrument has a maturity of less than 12 months the carrying amount is taken to be a reasonable approximation of the fair value.
62 Page 79 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
31 March 2018 31 March 2019 Carrying Fair Carrying Fair Amount Value Amount Value £000 £000Financial Liabilities at £000 £000 amortised cost (19,227) (21,337) - PWLB Loans (21,618) (24,059) (6,011) (8,222) - Other Loans (8,011) (10,321)
The fair value of borrowings is higher than the carrying amount because the Authority's portfolio of loans includes a number of fixed rate loans where the interest payable is higher than the prevailing rates at the Balance Sheet date. This shows a notional future loss (based on economic conditions at 31 March 2019) arising from a commitment to pay interest to lenders above current market rates.
31 March 2018 31 March 2019 Carrying Fair Carrying Fair Amount Value Amount Value £000 £000 £000 £000 Investments held at 7,436 7,436amortised cost 5,442 5,442 Cash and cash equivalents 2,005 2,005held at amortised cost 7,020 7,020
All of the investments and cash equivalents held by the Authority have a maturity of less than 12 months. The carrying value is therefore taken to be a reasonable approximation of the fair value.
The 2018/19 CIPFA Accounting Code of Practice ("the Code") requires authorities to maximise the use of relevant observable inputs and minimise the use of unobservable inputs when measuring fair value. To achieve this objective, authorities are required to follow a fair vaule hierarchy, which categorises the inputs to valuation techniques used to measure fair value into three levels as follows:
• Level 1 inputs - quoted prices (unadjusted) in active markets for identical assets or liabilities that an authority can access at the measurement date. • Level 2 inputs - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3 inputs - unobservable inputs for the asset or liability.
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Fair value hierarchy for financial assets and financial liabilities that are not measured at fair value in the Balance Sheet
31 March 2019
Quoted prices in active Other markets for significant Significant identical observable unobservable Recurring fair value assets inputs inputs Total measurements using: (Level 1) (Level 2) (Level 3) £'000 £'000 £'000 £'000
Financial liabilities Loans held at amortised cost 0 (34,380) 0 (34,380) Financial assets Investments, cash & cash equivalents held at amortised cost 0 12,462 0 12,462 Total 0 (21,918) 0 (21,918)
31 March 2018 Comparative Year
Quoted prices in active Other markets for significant Significant identical observable unobservable assets inputs inputs Total
Recurring fair value measurements using: (Level 1) (Level 2) (Level 3) £'000 £'000 £'000 £'000
Financial liabilities Loans held at amortised cost 0 (29,559) 0 (29,559) Financial assets Investments, cash & cash equivalents held at amortised cost 0 9,441 0 9,441 Total 0 (20,118) 0 (20,118)
64 Page 81 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
The fair value for financial liabilities and financial assets that are not measured at fair value included in level 2 in the previous table have been arrived at using a discounted cash flow analysis with the most significant inputs being the discount rate.
The fair value for financial liabilities and financial assets that are not measured at fair value can be assessed by calculating the present value of cash flows that will take place over the remaining term of the instruments, using the following assumptions:
Financial assets Financial liabilities • no early repayment or impairment is • no early repayment is recognised recognised • estimated ranges of interest rates at 31 • estimated ranges of interest rates as 31 March 2019 of 1.47% to 2.35% for loans March 2019 of 0.05% to 0.95% for short payable based on new lending rates for term investments and cash equivalents, equivalent loans at that date based on new lending rates for equivalent assets at that date • the fair value of trade and other receivables
65 Page 82 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
18 INVENTORIES
Consumable Stores 31 March 31 March 2018 2019 £000 £000 298Balance Outstanding at start of year 319
403Purchases 374 (382)Recognised as an expense in year (414) 0Written off balances 0
319 Balance outstanding at year end 279
19 DEBTORS Restated* 31 March 31 March 2018 2019 £000 £000 2,504 NNDR and council tax 2,727 882 Trade Debtors 240 2,760 Other debtors 3,769 (1,373) Provision for bad debts (1,420) 765 Prepayments and Accrued Income 818 5,538 Total Short Term Debtors 6,134 5,538 Total 6,134 *Note 2018 figures have been recategorised in accordance with revised CIPFA guidance.
20 CASH AND CASH EQUIVALENTS
The balance of Cash and Cash Equivalents is made up of the following elements:
31 March 31 March 2018 2019 £000 £000
Cash held by the Authority
351 Bank Current Accounts 196 1,654Short-term deposits with banks 6,824 2,005 Total Cash and Cash Equivalents 7,020
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21 ASSETS HELD FOR SALE
There were no Non Current Assets held for sale either as at 31st March 2018 or at 31st March 2019.
22 CREDITORS Restated* 31 March 2018 31 March 2019 £000 £000 (2,064) Trade Creditors (800) (549) NNDr and Council Tax (675) (1,121) Other Creditors (1,654) (3,734) Short Term Creditors (3,129)
0 Other Entities and Individuals (83) 0 Long Term Creditors (83) (3,734) Total (3,212) *Note 2018 figures have been recategorised in accordance with revised CIPFA guidance.
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23 PROVISIONS PROVISIONS
Long TermShort Term Total Fire Non Officers Fighters Domestic On-Call Duty Car Pay Exit Rates Insurances System Leasing Award Packages Appeals £000 £000 £001 £000 £000 £000 £000 Balance at 1 April 2018 (24) (22) 0 (183) 0 (370) (599) Additional provisions made in 2018/19 (30) (225) (647) (21) (923) Amounts used in 2018/19 15 1 16 Unused amounts reversed in 2018/19 9 183 192
Balance at 31 March 2019 (30) (21) (225) 0 (647) (391) (1,314)
Insurances This provision allows for potential liabilities arising from existing claims against the authority. Uninsured losses of £15k were covered by the provision during the year. The provision required at 31 March 2019 was determined to be £30k. On Call Duty System This liability arises from an employment tribunal test case relating to “Part Time Workers (Prevention of Less Favourable Treatment) Regulations”. A prudent estimate was made in 2009/10 and 2010/11 relating to the payment of compensation to on call duty system firefighters. During the year amounts of compensation have continued to be paid, although there remain some amounts of compensation to be paid as well as the possibility that further applications for compensation may be made. The remaining provision should cover any outstanding liabilities. Officers Car Leasing A tax review has identified that some travel related expenses have been incorrectly treated for tax purposes. Whilst these expenses are now being correctly taxed, at its meeting on 28 September 2018, Fire Authority determined that the service would meet the tax liabilities incurred prior to the correct treatment being determined. Some negotiations are ongoing with Her Majesties Customs and Excise (HMRC) so to date no payments have been made. A provision has been created to cover the costs which are estimated to be in the region of £225k. Fire Fighters Pay Award A provision of £183k is in relation to ongoing Firefighter pay award negotiations, representing 1% of pay. This was not used during 2018/19 so was reversed. Exit Package During 2018/19, decisions were made by the Authority to move the service's Control Room into a joint Control with Derbyshire Fire and Rescue, and also to draw to a close the service's Princes Trust Programme following the end of the current course. A provision has been created to cover termination costs which will be incurred during 2019/20. Non Domestic Rates Appeals From 2013/14, a proportion of Non Domestic Rates collected by Nottinghamshire collecting authorities is retained locally, rather than paid directly to central government. Part of these retained rates are collected on behalf of NFRS, and so a portion of any related provisions must now be recognised by NFRS. This provision allows for possible losses arising from any successful appeals of business premises rateable values in 2018/19.
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24 USABLE RESERVES
Usable reserves contain resources which the Authority can apply to the provision of services, either by incurring expenditure or by undertaking capital investment
31 March 2018 31 March 2019 £000 £000 6,953General Fund 5,576 5,156 Earmarked Reserves 4,763 0 Capital Receipts Reserve 0 347 Capital Grants Unapplied 347 12,456 Total Usable Reserves 10,686
General Fund
The General Fund reserve contains accumulated surplus funds which have arisen either as a result of general underspending against the revenue budget or as a result of decisions to transfer revenue resources to the General Fund reserve. This reserve contains resources which could be used to fund any future unforeseen and unbudgeted significant expenditure.
2017/18 2018/19 £000 £000 7,837 Balance at 1 April 6,953 (384) Transfer (to)/from General Fund Reserve (1,377) (500) Transfer from General Fund Reserve to Earmarked Reserves 0 6,953 Balance at 31 March 5,576
Earmarked Reserves
Earmarked Reserves contain resources set aside for specific purposes such as future projects. The reserves are created by appropriating amounts out of the General Fund Balance (shown in the Movement in Reserves Statement). When expenditure to be financed from an earmarked reserve is incurred, it is charged to the appropriate service in that year to score against the Surplus or Deficit on the Provision of Services in the Comprehensive Income and Expenditure Statement. The reserve is then appropriated back into the General Fund Balance in the Movement in Reserves Statement so that there is no net charge against council tax for the expenditure.
2017/18 2018/19 £000 £000 4,894 Balance at 1 April 5,156 (1,210) Application of Earmarked Reserves to finance expenditure (627) 1,472 Transfer from General Fund Reserve 234 0 Write back reserves no longer required 0
5,156 Balance at 31 March 4,763
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Capital Receipts Reserve
The Capital Receipts Reserve holds resources arising from capital receipts which have not yet been applied to finance new capital expenditure or to repay debt.
2017/18 2018/19 £000 £000 477Balance at 1 April 0 153 Capital Receipts in Year 116 (630) Capital Receipts applied in year to finance capital (116) 0Balance at 31 March 0
Capital Grants Unapplied
The Capital Grants Unapplied Account holds capital grants received in the year, which have not yet been applied to finance new capital expenditure.
2017/18 2018/19 £000 £000 347Balance at 1 April 347 25 Capital Grants received in Year 0 (25) Capital Grants applied in year to finance capital 0 347Balance at 31 March 347
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25 UNUSABLE RESERVES
31 March 31 March 2018 2019 £000 £000 16,856 Revaluation Reserve 21,339 19,584 Capital Adjustment Account 18,711 (509,815) Pensions Reserve (568,940) 213 Collection Fund Adjustment Account 232 (213) Accumulated Absences Account (209) (473,375) Total Unusable Reserves (528,867)
Revaluation Reserve
The Revaluation Reserve contains the gains made by the Authority arising from increases in the value of its Property, Plant and Equipment and Intangible Assets. The balance is reduced when assets with accumulated gains are:
• Re-valued downwards or impaired and the gains are lost • Used in the provision of services and the gains are consumed through depreciation, or • Disposed of and the gains are realised.
The Reserve contains only revaluation gains accumulated since 1 April 2007, the date that the Reserve was created. Accumulated gains arising before that date are consolidated into the balance on the Capital Adjustment Account.
2017/18 2018/19 £000 £000 15,175 Balance at 1 April 16,856
2,058 Upward revaluations of assets 5,008 Downward revaluation of assets and impairment losses not charged to the Surplus/Deficit on the Provision of (35)Services (100) 2,023 4,908 Surplus or deficit on revaluation of non-current assets not posted to the Surplus or Deficit on the Provision of 17,198Services 21,764 Difference between fair value depreciation and historical (342)cost depreciation (425) 0 Accumulated gains on assets disposed of 0 (342) Amount written off to the Capital Adjustment Account (425)
16,856 Balance at 31 March 21,339
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Capital Adjustment Account
The Capital Adjustment Account absorbs the timing differences arising from the different arrangements for accounting for the consumption of non-current assets and for financing the acquisition, construction or enhancement of those assets under statutory provisions. The Account is debited with the cost of acquisition, construction or enhancement as depreciation, impairment losses and amortisations are charged to the Comprehensive Income and Expenditure Statement (with reconciling postings from the Revaluation Reserve to convert fair value figures to historical cost basis). The Account is credited with the amounts set aside by the Authority as finance for the costs of acquisition, construction and enhancement.
The Account contains gains recognised on donated assets that have yet to be consumed by the Authority, and also contains revaluation gains accumulated on Property, Plant and Equipment before April 2007, the date that the Revaluation Reserve was created to hold such gains.
Note 8 provides details of the source of all the transactions posted to the Account, apart from those involving the Revaluation Reserve.
2017/18 2018/19 £000 £000 20,419Balance at 1 April 19,583 Reversal of items relating to capital expenditure debited or credited to the Comprehensive Income and Expenditure Account (CIES) • Charges for depreciation and impairment of non-current (3,047) assets (3,022) 405 • Revaluation losses on Property, Plant and Equipment 419 and reversal of previous impairments (332)• Amortisation of intangible assets (237) 0 • Revenue expenditure funded from capital under statute
• Amounts of non-current assets written off on disposal or (349)sale as part of the gain/loss on disposal to the CIES (74) (3,323) (2,914) 342 Adjusting amounts written out of the Revaluation Reserve 425 Net written out amount of the cost of non-current assets (2,981)consumed in the year (2,488) Capital financing applied in the year: • Use of Capital Receipts Reserve to finance new capital 630expenditure 116 • Capital grants and contributions credited to the CIES that 0have been applied to capital financing 0 • Statutory provision for the financing of capital investment 1,490charged against the General Fund balance 1,436 • Voluntary provision for the financing of capital investment 0charged against the General Fund balance 0 • Application of grants to capital financing from Capital 25Grants Unapplied Account 0 • Capital expenditure charged against the General Fund 0balance 62 2,145 1,614 0 Movement in the Donated Assets Account credited to the CIES 19,583Balance at 31 March 18,709 72 Page 89 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Pension Reserve
The Pensions Reserve absorbs the timing differences arising from the different arrangements for accounting for post employment benefits and for funding benefits in accordance with statutory provisions. The Authority accounts for post employment benefits in the Comprehensive Income and Expenditure Statement (CIES) as the benefits are earned by employees accruing years of service, updating the liabilities recognised to reflect inflation, changing assumptions and investment returns on any resources set aside to meet the costs. However, statutory arrangements require benefits earned to be financed as the Authority makes employer’s contributions to pension funds or eventually pays any pensions for which it is directly responsible. The debit balance on the Pensions Reserve therefore shows a substantial shortfall in the benefits earned by past and current employees and the resources the Authority has set aside to meet them. The statutory arrangements will ensure that funding will have been set aside by the time the benefits come to be paid.
2017/18 2018/19 £000 £000 (558,299)Balance at 1 April (509,815) 61,463Remeasurements on the net defined benefit pension (26,287) Reversal of items relating to retirement benefits debited or credited to the Surplus or Deficit on the Provision of (26,966)Services in the CIES (48,398) Employers pensions contributions and direct payments to 13,987pensioners payable in the year 15,560 (509,815)Balance at 31 March (568,940)
Collection Fund Adjustment Account
The Collection Fund Adjustment Account manages the differences arising from the recognition of council tax and non-domestic rates income in the Comprehensive Income and Expenditure Statement as it falls due from council tax payers and business rates payers compared with the statutory arrangements for paying across amounts to the General Fund from the Collection Fund.
2017/18 2018/19 £000 £000 296Balance at 1 April 213 Amount by which council tax and non-domestic rates income credited to the Comprehensive Income and Expenditure Statement is different from council tax and non-domestic rates income (83)calculated for the year in accordance with statutory requirements 19 213Balance at 31 March 232
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Accumulated Absences Adjustment Account
The Accumulated Absences Adjustment Account absorbs the differences that would otherwise arise on the General Fund Balance from accruing for compensated absences earned but not taken in the year e.g. annual leave entitlement carried forward at 31 March. Statutory arrangements require that the impact on the General Fund Balance is neutralised by transfers to or from the Account.
2017/18 2018/19 £000 £000 (212)Balance at 1 April (213)
Settlement or cancellation of accrual made at the end of 212the preceding year 213 (213)Amounts accrued at the end of the current year (209) Amount by which officer remuneration charged to the CIES on an accruals basis is different from remuneration chargeable in the year in accordance with statutory (1)requirements 4 (213)Balance at 31 March (209)
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26 CASHFLOW STATEMENT - OPERATING ACTIVITIES
2017/18 2018/19 £000 £000
15,340 Net (Surplus) or Deficit on the Provision of Services 35,883 Adjust net surplus or deficit on the provision of services for non cash movements (2,909) Depreciation (3,022) 266 Impairment and revaluations 419 (332) Amortisation (237) (33) (Increase)/Decrease in impairment for bad debts (47) 209 (Increase)/Decrease in Creditors (1,111) (1,350) Increase/(Decrease) in Debtors 1,937 21 Increase/(Decrease) in Inventories (40) (12,578) Pension Liability (33,039) (21) Contributions (to)/from Provisions (717) Carrying amount of non-current assets sold (property plant and (349) equipment, investment property and intangible assets) (74) 6 Accrued Interest 41
(17,070) (35,890) Adjust for items included in the net surplus or deficit on the provision of services that are investing or financing activities
25 Capital Grants credited to surplus or deficit on the provision of services 0 Proceeds from the sale of property plant and equipment, investment 153 property and intangible assets 116
178 116 (1,552) Net Cash Flows from Operating Activities 109
CASHFLOW STATEMENT - OPERATING ACTIVITIES
The cash flows for operating activities include the following items:
2017/18 2018/19 £000 £000 (34)Interest received (66) 808Interest paid 474 0Dividends received 0
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27 CASHFLOW STATEMENT - INVESTING ACTIVITIES
2017/18 2018/19 £000 £000 Purchase of property, plant and equipment, investment property and 3,749 intangible assets 1,458 3,500 Purchase of short-term and long-term investments 2,000 Proceeds from the sale of property, plant and equipment, investment (146) property and intangible asset (123) (1,000) Proceeds from short-term and long-term investments (4,000) (25) Other receipts from investing activities 0
6,078 Net cash flows from investing activities (665)
28 CASHFLOW STATEMENT - FINANCING ACTIVITIES
2017/18 2018/19 £000 £000 (7,950) Cash receipts of short and long-term borrowing (14,000) 6,029 Repayments of short and long-term borrowing 9,541
(1,921) Net cash flows from financing activities (4,459)
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29 RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
Financing Non-cash 1 April 2018 31 March 2019 cash flows changes £'000 £'000 £'000 £'000 Long-term borrowings (20,599) (5,000) 88 (25,511) Short-term borrowings (4,639) 541 (20) (4,118) Total liabilities from financing activities (25,238) (4,459) 68 (29,629)
Financing Non-cash 1 April 2017 31 March 2018 cash flows changes £'000 £'000 £'000 £'000 Long-term borrowings (21,183) (2,000) 2,583 (20,600) Short-term borrowings (2,135) 79 (2,583) (4,639) Total liabilities from financing activities (23,318) (1,921) 0 (25,239)
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30 POOLED BUDGETS
The Authority has a pooled budget arrangement with the Local Resilience Forum, which is a multi-agency project for planning and coordinating response to major incidents. This forum involves various public bodies from the Nottinghamshire area including Health Bodies and Local Government Authorities.
The Authority has a pooled budget arrangement for the Multi-Agency Coordination Centre, which is a premise at which a coordinated response to major incidents can be managed. Various Nottinghamshire public bodies, including Health Bodies, Local Government, and Police Authorities are parties to this arrangement.
See note 34 details of balances held relating to this arrangements.
31 MEMBERS' ALLOWANCES
The following amounts were paid to Members of the Authority during the year
2017/18 2018/19 £000 £000 124 Allowances 117 2 Expenses 2 126 Total 119
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32 OFFICERS’ REMUNERATION
The remuneration paid to the Authority's senior employees is as follows: Total Salary, Fees Compensation Remuneration
Page 96 Page and Expenses for loss of excluding Pension Pension Allowances Allowances employment Contributions Contribution Total £ £ £ £ £ £ Chief Fire OfficerJohn Buckley 2018/19 153,377 47 0 153,424 36,047 189,471 2017/18 150,702 72 0 150,774 32,702 183,476
Deputy Chief Fire Officer started 25.02.19 2018/19 10,076 5 10,081 1,637 11,718 Deputy Chief Fire Officer left 24.02.19 2018/19 114,455 42 0 114,497 16,367 130,864 2017/18 124,329 63 0 124,392 17,779 142,171
Assitant Chief Fire Officer left 24.02.19 2018/19 105,419 42 0 105,461 16,632 122,093 2017/18 113,027 440 0 113,467 24,527 137,994 79 Assistant Chief Officer started 24.02.19 2018/19 9,961 4 0 9,965 1,277 11,242 2017/18 0 0 0 0 0 0 Head of Finance 2018/19 56,662 47 0 56,709 9,709 66,418 Head of Finance started 12.09.17 2017/18 29,907 40 29,947 4,426 34,373 Head of Finance left 04.06.2017 2017/18 10,623 12 0 10,635 1,566 12,201 Treasurer - Post Outsourced 16/12/2017 2018/19 0 0 0 0 0 0 (Note 2) 2017/18 8,395 37 0 8,432 1,566 9,998 Total 2018/19 449,950 187 0 450,137 81,669 531,806 2017/18 436,983 664 0 437,647 82,566 520,213 Notes: 1) "Expense Allowances" shows taxable benefits. Employer's National Insurance contributions are excluded from the above table 2) The Treasurer post has been outsourced to the Nottinghamshire Police and Crime Commissioners (PCC) since December 2017. The role is currently undertaken by the PCC Chief Finance Officer, whose remuneration details can be found in the PCC Statement of Accounts Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
The table below shows the number of employees whose remuneration was £50,000 or more, in bands of £5,000. It includes the senior officers shown in the previous table. Remuneration is defined as pay, taxable expenses allowances and the monetary value of any benefits such as a provided car. Employer's pension contributions are excluded.
2017/18 2018/19
Number of Remuneration Band Number of employees employees 11 £50,000-£54,999 14 23 £55,000-£59,999 30 8 £60,000-£64,999 10 5 £65,000-£69,999 2 2 £70,000-£74,999 5 £75,000-£79,999 £80,000-£84,999 1 £85,000-£89,999 1 £90,000-£94,999 £95,000-£99,999 £100,000-£104,999 1 £105,000-£109,999 1 £110,000-£114,999 1 £115,000-£119,999 1 1 £120,000-£124,999 £125,000-£129,999 £130,000-£134,999 £135,000-£139,999 £140,000-£144,999 £145,000-£149,999 1 £150,000-£154,999 1 £155,000-£159,999 £160,000-£164,999 £165,000-£169,999
The numbers of exit packages with total cost per band and total cost of the compulsory and other redundancies are set out in the table below:
(a) (b) (c) (d) (e) Exit package cost Number of Number of other Total number of Total cost of exit band (including compulsory departures exit packages by packages in each special payments) redundancies agreed cost band band
2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 £0-£20,000 2 2 2 5 4 734,520127,957
£20,001 - £40,000 0 2 0 8 0 10 0312,333
£40,001 - £60,000 0 0 0 1 0 1 041,977 Total 2 4 2 14 4 1834,520482,267
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33 EXTERNAL AUDIT COSTS
The Authority has incurred the following costs in relation to the audit of the Statement of Accounts, statutory inspections provided by the Authority's external auditors and other services provided by the Authority's external auditors. 2017/18 2018/19 £000 £000
Fees payable with regard to external audit services carried out by the 31appointed auditor for the year 24 0Fees payable in respect of statutory inspections 0 0Fees payable in respect of other services provided by the appointed 0 auditor 0Audit Commission Rebate 0 31 Total 24
34 GRANT INCOME
The Authority credited the following grants, contributions and donations to the Net Cost of Services in the Comprehensive Income and Expenditure Statement. Other grants have been credited to Taxation and Non-Specific Grant Income in the Comprehensive Income and Expenditure Statement. These grants are detailed in note 14.
2017/18 2018/19 £000 £000 Credited to Services (375) Firelink grant (part of the Fire Revenue grant DCLG) (387) (91) New Dimension grant (part of the Fire Revenue grant DCLG) (80) (28)New Risks grant (32) (599) Emergency Services Mobile Communications grant 0 0Sponsorship of events and awards 0 0Miscellaneous Community Safety donations 0 (3)Apprenticeship Levy (33) (47) National Resilience Service and Maintenance grant 0 (1,143)Total (532)
The Authority has received a number of grants, contributions and donations that have yet to be recognised as income because they have conditions attached to them that will require the monies or property to be returned to the giver if the conditions are not met. The balances at the year-end are as follows:
Current Liabilities
31 March 2018 31 March 2019 £000 £000 Grants Receipts in Advance (Revenue Grants) (11)Local Resilience Forum (11) (14)Multi Agency Coordination Centre (14) (1) Emergency Services Carol Concert (1) (26)Total (26)
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35 RELATED PARTIES The Authority is required to disclose material transactions with related parties, which are bodies or individuals that have the potential to control or influence the Authority or to be controlled or influenced by the Authority. Disclosure of these transactions allows readers to assess the extent to which the Authority might have been constrained in its ability to operate independently or might have secured the ability to limit another party's ability to bargain freely with the Authority.
Central Government
Central government has significant influence over the general operations of the Authority. It is responsible for providing the statutory framework within which the Authority operates, provides the majority of its funding in the form of grants and prescribes the terms of many of the transactions that the Authority has with other parties (e.g. council tax bills). Grants received from government departments are set out in the analysis in Note 34 and Note 14.
Members
Members of the Authority have direct control over the Authority's financial and operating policies. Details of members' allowances and expenses are shown in Note 31.
Officers
Some senior employees have significant influence over the Authority’s activities. Details of senior officers’ remuneration are shown in Note 32.
Nottinghamshire County Council and Nottingham City Council
The Authority is made up of 12 members from Nottinghamshire County Council and 6 members from Nottingham City Council, and so a related party relationship exists between the Authority and these Councils by way of common control. Significant transactions are detailed below, and include expenditure on cleaning and maintenance services and income from partnership working. The Police and Crime Commissioner attends the Combined Fire Authority meetings in a non votinc capacity. Nottinghamshire Nottingham County Council City Council 2017/18 2018/19 2017/18 2018/19 £000 £000 £000 £000 Expenditure during year 414 458 653 525 Income during year 1 12 38 29
Creditor at 31 March 4 3 36 76 Debtor at 31 March 0 10 28 20
Other Public Bodies
Some members of the Authority are also members of other local Borough or District Councils in Nottinghamshire. Other public bodies such as Fire Authorities are subject to varying degrees of common control or significant influence by central government. The Authority carries out transactions with such bodies from time to time, including income and expenditure from the provision of goods or services, partnership working and pooled budgets, including transactions at other than commercial value. Note that council tax receipts from collecting authorities and transactions with tax authorities are considered to be agency arrangements, and do not qualify as related party relationships.
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Derbyshire Leicestershire Fire & Rescue Fire & Rescue Service Service 2017/18 2018/19 2017/18 2018/19 £000 £000 £000 £000 Expenditure during year 169 221 50 147 Income during year 61 12
Creditor at 31 March 0 2 155 Debtor at 31 March 30 00
Entities Controlled or Significantly Influenced by the Authority
The Authority is the sole shareholder of Nottinghamshire Fire Safety Limited, with 6 members forming the Board of Directors. The Authority recovers costs incurred in the provision of certain goods and services to the Company including finance, payroll, human resources, insurance and transport. The Company is the Authority’s provider of fire extinguisher maintenance services.
The Authority provided a loan of £55k to the Company on the commencement of trading on 1 September 2010. The loan is a revolving credit facility allowing the Company to draw down up to a maximum of £100k and decrease to nil at any time and interest is charged at 15 basis points above the Bank of England bank rate, a rate negotiated at arm’s length. During 2015/16 the outstanding balance of the loan was repaid in full. The Authority’s transactions and balances with the Company are detailed below. Note 42 provides more details regarding the company’s transactions for the year 2018/19.
Nottinghamshire Fire Safety Ltd
2017/18 2018/19 £000 £000 9 Expenditure during year 12 47 Income during year 49
0 Creditor at 31 March 0 15 Debtor at 31 March 14
Outstanding loan to 0 0 Trading Company
Other than the items detailed above, there were no members or officers with significant influence over the authority who had an interest in an organisation with which the Authority carried out significant transactions or held significant balances.
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36 CAPITAL EXPENDITURE AND CAPITAL FINANCING
The total amount of capital expenditure incurred in the year is shown in the table below, together with the resources that have been used to finance it. Where capital expenditure is to be financed in future years by charges to revenue as assets are used by the Authority, the expenditure results in an increase in the Capital Financing Requirement (CFR), a measure of the capital expenditure incurred historically by the Authority that has yet to be financed. The change in the CFR is analysed in the second part of this note.
2017/18 2018/19 £000 £000
23,885 Opening Capital Financing Requirement 26,278 477 Capital receipt not applied in year 0 Capital Investment 283 Property, Plant and Equipment - (Operational and under Construction) 570 3,519 Property, Plant and Equipment - (Non Operational) 323 258 Intangible Assets (including under construction) 181
Sources of Finance (629) Capital Receipts (116) (25) Government grant and other contributions 0 Sums set aside from revenue: 0 Direct revenue contributions (62) (1,490) Minimum / Voluntary Revenue Provision (1,436)
26,278 Closing Capital Financing requirements 25,738
Explanation of Movements in Year Decrease in underlying need to borrow (unsupported 0by government financial assistance) 0 2,393(Decrease) / Increase in Capital Financing (540) Requirement
0 0
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37 LEASES
Authority as Lessee The Authority currently has no assets which would be defined as assets subject to operating lease arrangements. This was also the case in 2017/18.
Authority as Lessor
Operating Leases
The Authority has entered into an operating lease arrangement with Nottinghamshire Police in respect of one of its properties, which is currently not required for operational purposes. Annual rentals are varied therefore the straight line method of accounting for rental income to the Comprehensive Income and Expenditure Statement, is not used. (See item in the Statement of Accounting Policies - Note 1). Rent received in 2018/19 was £15k and in 2017/18 was £12k.
Future contracted receipts are: £000's Within 1 year 15 Within 2 to 5 years 39 * Over 5 years 0
*The rent receivable in these years is £15,000 or 75% of the commercial rent applicable in each year, whichever is the greater. The figure stated above is based on the minimum amount receivable.
38 TERMINATION BENEFITS
In 2018/19 the Authority made the decision to terminate the contracts of 18 individuals. These redundancies are not due to occur until 2019/20. 14 of the redundancies are due to the implementation of a joint fire control function with Derbyshire Fire and Rescue Service, and 4 are due to the closure of the Prince's Trust Programme.
In total the Authority expects to incur redundancy and other termination costs of £648k, and this expenditure has been recognised as a provision in 2018/19 (this compares with termination benefits of £37k in 2017/18).
The Authority expects to incur pension strain costs of £36k arising from an early retirement without actuarial reduction of pension, and this is also classed as a termination benefit. This expenditure has been recognised in the Comprehensive Income and Expenditure Statement in 2018/19, and has increased the pension liability in the balance sheet. However, it is a statutory requirement that the general fund must be only charged for amounts payable in the financial year, so an adjustment has been made in the Movement in Reserves Statement to transfer the charge to the Pensions Reserve as the payment is due to be made in 2019/20.
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39 DEFINED BENEFIT PENSION SCHEMES Participation in Pension Schemes As part of the terms and conditions of employment of its officers, the Authority makes contributions towards the cost of post-employment benefits. Although these benefits will not actually be payable until employees retire, the Authority has a commitment to make these payments in the future.
As at 31 March 2019 the Authority participates in four post-employment schemes, all of which are defined benefit schemes:
1) The Local Government Pension Scheme (LGPS) This scheme is for administrative, support and Control employees. It is a funded scheme, which means that contributions are paid into a fund with the intention of balancing pension liabilities with pension assets. It is administered in accordance with the Local Government Pension Scheme Regulations 2013, and it provides benefits based on career average revalued earnings. The administering authority for the fund is Nottinghamshire County Council. The Pension Fund Committee oversees the management of the Fund whilst the day to day Fund administration is undertaken by a team within the administering authority. Where appropriate some functions are delegated to the Fund's professional advisors. The administering authority is responsible for the preparation and maintenance of the Funding Strategy Statement and the Investment Strategy Statement. These should be amended when appropriate based on the Fund’s performance and funding. By participating in the Local Government Scheme, the Authority is exposed to a number of risks: a) Investment risk: The Fund holds investments in assets such as equities which have volatile market values and, while these asset are expected to provide real returns over the long-term, the short-term volatility can cause additional funding to be required if a deficit emerges. b) Interest rate risk: The Fund’s liabilities are assessed using market yields on high quality corporate bonds to discount the liabilities. As the Fund holds assets such as equities, the value of assets and liabilities may not move in the same way. c) Inflation risk: All of the benefits under the Fund are linked to inflation and so deficits may emerge to the extent that the assets are not linked to inflation. d) Longevity risk: In the event that the members live longer than assumed, a deficit will emerge in the fund. There are also other demographic risks. e) “Orphan” liability risk: As many unrelated employers participate in the Nottinghamshire County Council Pension Fund, there is an orphan liability risk that employers may leave the Fund but with insufficient assets to cover their pension obligations so that the difference may fall on the remaining employers
These risks are mitigated to a certain extent by the requirement to charge the General Fund with the amounts payable to the pension fund or pensioners at the year end, in accordance with statute.
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2) The Firefighters’ Pension Scheme 1992 (1992 FPS) The Firefighters’ Pension Scheme 1992 is an unfunded pension scheme. This scheme has been closed to new entrants since 6 April 2006. Its members are wholetime firefighters. It is a defined benefit, final salary scheme and its arrangements are governed by statute (the Firemen’s Pension Scheme Order 1992).
3) The Firefighters’ Pension Scheme 2006 (2006 NFPS) The Firefighters’ Pension Scheme 2006 is also an unfunded pension scheme. This scheme came into effect from April 2006 and its members are retained firefighters and wholetime firefighters. Like the 1992 FPS it is a defined benefit, final salary scheme and its arrangements are governed by statute (the Firefighters’ Pension Scheme (England) Order 2006). The Firefighters’ Pension Scheme (England) (Amendment) Order 2014 introduced a new modified version of the 2006 Scheme which is available to individuals who were employed as retained firefighters during the period 1 July 2000 to 5 April 2006. Although this modified version does not constitute a scheme on its own, it has different benefits to the main 2006 Scheme. The 2006 Scheme has been closed to new entrants since 1 April 2015.
4) The Firefighters' Pension Scheme 2015 (2015 FPS) The Firefighters' Pension Scheme 2015 came into effect on 1 April 2015. Like the 1992 FPS and the 2006 NFPS, it is an unfunded defined benefit scheme and its arrangements are governed by statute (the Firefighters' Pension Scheme (England) Regulations 2014). However, unlike the other two firefighters' schemes, it is a career average rather than a final salary scheme. This scheme will eventually replace the 1992 FPS and 2006 NFPS after a transitional phase which will last for 10 years. The Firefighters' Pension Scheme (England) (Transitional and Consequential Provisions) Regulations 2015 protects the rights that members have accrued in the 1992 and 2006 schemes, and sets out the transitional arrangements for transferring members of these schemes into the 2015 scheme. Its members are retained firefighters and wholetime firefighters who were first appointed by an English fire and rescue authority on or after 1 April 2015, and firefighters who were transferred from the 1992 FPS or 2006 NFPS.
The three Firefighters’ Schemes are very similar in nature. They are unfunded pension schemes, meaning that there are no investment assets to meet the cost of pension liabilities and cash has to be generated to meet pension payments as they fall due. The Authority has primary responsibility for meeting the costs and managing the risks relating to the firefighters’ pension arrangements. However, there is currently an arrangement in place whereby the cost of the schemes are met from contributions paid by employees and the Authority, with any deficit in the funding required being met by a top-up grant from the Home Office. Any surplus funding is paid over to the Home Office.
The 1992 FPS and 2006 NFPS provide benefits based on final salary and length of service at retirement, and the 2015 FPS provides benefits based on revalued average salary. The governance arrangements are managed by the Authority, and this essentially involves managing the cash flows and being responsible for the administration of the schemes. The day to day administration is carried out by Leicestershire County Council on behalf of the Authority.
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Given that the pension schemes are unfunded, the contributions payable are simply those which are sufficient to meet the benefit outgo as and when it arises. As mentioned above, this benefit outgo is largely underwritten by the Home Office. By participating in these pension schemes, the Authority is exposed to some risks: a) There are no investment risks in relation to these schemes as they are unfunded. The greatest single risk is that the government could change the arrangements for meeting part of the benefit outgo, which could increase the Authority’s contributions. b) There is a risk that changes in the assumptions (e.g. life expectancy, price inflation, discount rate) could increase the defined benefit obligation. Other assumptions used to value the defined benefit obligation are also uncertain, although their effect is less material.
A Pension Top-up Grant is received annually from the government to meet the cost of the net funding deficit for the three firefighters' schemes. It is paid directly to the Firefighters’ Pension Fund (see the Pension Fund statements on pages 105 to 108) and it is therefore not the Authority’s income, however in IAS 19 terms it is a current contribution towards the Authority’s liabilities for retirement benefits. The grant is therefore credited to other operating income in the Comprehensive Income and Expenditure Statement. The grant is not treated as an asset of the firefighters’ pension schemes, but as a source of income to the schemes it does reduce the year end pension liability.
Past service costs of £206k relating to the 2006 NFPS are recognised under Corporate and Centralised Services in the Comprehensive Income and Expenditure Statement. These past service costs relate to the purchasing of back service credits by members of the Modified Scheme.
The Authority also participates in the Firefighters’ Compensation Scheme. The Firefighters’ Compensation Scheme (England) Order 2006 makes provision for the payment of pensions, allowances and gratuities to and in respect of persons who die or are permanently disabled as a result of an injury sustained or disease contracted while employed by a fire and rescue authority. The level of benefits payable is dependent on salary, service and the degree of disablement of the individual at the time the injury is incurred. Therefore the level of long term benefits can be both material and volatile. For this reason the Compensation Scheme is treated as an unfunded defined benefit scheme and accounted for, under International Accounting Standard 19 (IAS 19), in the same manner as for the Firefighters’ Pension Schemes.
The Compensation Scheme is administered by the Authority in accordance with statutory arrangements. The cost of the scheme is met solely by the Authority. The risks arising from the Authority’s participation in this scheme are as follows: a) There is a risk that changes in the assumptions (e.g. life expectancy, price inflation, discount rate) could increase the defined benefit obligation. Other assumptions used to value the defined benefit obligation are also uncertain, although their effect is less material. b) There is a risk that the government could change the arrangements of the scheme in such a way that the costs incurred by the Authority are significantly increased.
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c) Historically the number of firefighters who are permanently disabled or who die as a result of injuries sustained or diseases contracted whilst in the employment of the Authority is very low, so the number of injury pension recipients is relatively small. However, the Authority is committed to pay benefits as and when they fall due, so if the number of occurrences were to increase it could have a significant impact on the amounts payable.
Court of Appeal ruling for Firefighters/Judges Pension Schemes (the Sergeant and McCloud cases) In December 2018 the Court of Appeal ruled against the Government in these two linked cases. In essence, the Court held that the transitional protections which were afforded to older members when the reformed schemes were introduced in 2015 constituted unlawful age discrimination. In June 2019 the Supreme Court denied the Government's request for permission to appeal against this ruling. This decision is likely to impact the Local Government Pension Scheme as well as the Firefighters' Schemes, as the LGPS implemented similar transitional protections. There is a great deal of uncertainty surrounding the impact of this decision, as there are a range of potential remedies. Nevertheless the Authority has obtained actuarial calculations which reflect the estimated impact of the McCloud/Sargeant ruling, and it is upon these calculations that the accounts are based. The estimated net pension liability for the Firefighters' Schemes has increased by £23.4m as a result of the McCloud/Sargeant ruling, and the net pension liability for the LGPS has increased by £559k. These increases have been recognised as past service costs in the Comprehensive Income and Expenditure Statement.
Transactions Relating to Post-employment Benefits The Authority recognises the cost of retirement benefits in the reported cost of services when they are earned by employees, rather than when the benefits are actually paid as pensions. However, the charge against council tax is based on the cash payable in the year, so the real cost of post- employment/retirement benefits is reversed out of the General Fund to the Pension Reserve via the Movement in Reserves Statement. Ordinarily, the balance on the Pension Reserve will match the balance on the Pension Liability as the real cost of the post-employment benefits is fully reversed out of the General Fund. However, following the most recent triennial funding valuation of the LGPS the Authority opted to prepay its monetary contributions for the three years to 31 March 2020 by making a single lump sum payment of £602k in April 2017, thus achieving a saving of £33k. In order to spread the monetary cost over the 3 year period one third of the lump sum payment (£201k) has been charged to the General Fund via the Movement in Reserves Statement. As a result of this, the balance on the Pension Reserve is £201k more than the balance on the Pension Liability. This mis-match will be eliminated by the end of the three year period once the monetary cost has been fully recognised in the General Fund.
The following transactions have been made in the Comprehensive Income and Expenditure Statement and the General Fund Balance via the Movement in Reserves Statement during the year:
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Firefighters' Firefighters' schemes LGPS schemes LGPS £'000 £'000 £'000 £'000
2017/18 2017/18 2018/19 2018/19
Comprehensive Income and Expenditure Statement Cost of Services Service cost comprising: 2,111 10,625 - current service costs 2,036 8,972 0 242 - past service costs 595 23,631 110Administration expenses 130 Financing and Investment Income and Expenditure 627 13,350Net interest expense 569 12,582
2,749 24,217Total Post-employment Benefits charged to the 3,213 45,185 Surplus or Defecit on the Provision of Services Other Post-employment Benefit charges to the Comprehensive Income and Expenditure Statement Remeasurement of the net defined benefit liability comprising:
36 0Return on plan assets (excluding the amount (1,890) 0 included in the net interest expense) Actuarial (gains) and losses arising on changes 0 (31,732) (3,245) 0 in demographic assumptions
(1,789) (19,515)Actuarial (gains) and losses arising on changes 3,062 28,360 in financial assumptions 0(8,463)Experience (gains) and losses 0 0 00Other actuarial gains and losses 00 Total Post-employment Benefits charged to the 996 (35,493)Comprehensive Income and Expenditure 1,140 73,545 Statement
Movement in Reserves Statement Reversal of net charges made to the Surplus or (2,749) (24,217)Deficit on the Provision of Services for post- (3,213) (45,185) employment benefits in accordance with the Code Actual amount charged against the General Fund Balance for pensions in the year: 1,012 11,826 1,021 13,818 Employers' contributions payable to the scheme 1149Retirement benefits payable to pensioners 721
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Firefighters’ Firefighters’ Firefighters' Firefighters’ Pension Scheme Pension Scheme Pension Scheme Compensation 1992 £’000 2006 £’000 2015 £'000 Scheme £’000 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18
Page 108 Page Comprehensive Income and Expenditure Statement Cost of Services Service cost comprising: current service cost 1,981 3,242 290 636 4,803 5,606 1,898 1,141 past service cost 31,362 10 10,769 232 (18,500) 0 0 0 Financing and Investment Income and Expenditure Net interest expense 10,437 11,346 855 920 515 403 775 681 Total Post-employment Benefits charged to the Surplus or Deficit on the Provision of Services 43,780 14,598 11,914 1,788 (13,182) 6,009 2,673 1,822 Other Post-employment Benefits charges to the Comprehensive Income and Expenditure Statement
91 Remeasurement of the net defined benefit liability comprising: Actuarial (gains) and losses arising on changes in 0 (26,143) (1,977) (972) (2,640) demographic assumptions Actuarial (gains) and losses arising on changes in 20,804 (14,386) 3,097 (2,313) 2,331 (1,327) 2,128 (1,489) financial assumptions Experience (gains) and losses (11,593) (1,298) (1,040) 5,468 Total Post-employment Benefits charged to the 64,584 (37,524) 15,011 (3,800) (10,851) 2,670 4,801 3,161 Comprehensive Income and Expenditure Statement Movement in Reserves Statement Reversal of net charges made to the Surplus or Deficit on the Provision of Services for post- (43,780) (14,598) (11,914) (1,788) 13,182 (6,009) (2,673) (1,822) employment benefits in accordance with the Code Actual amount charged against the General Fund Balance for pensions in the year: Employers’ contributions payable to the scheme 15,386 13,148 (20) (68) (1,548) (1,254) (inclusive of government top-up grant) Retirement benefits payable to pensioners 721 1,149 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Pension Assets and Liabilities Recognised in the Balance Sheet
Reconciliations of the amounts included in the Balance Sheet arising from the authority’s obligation in respect of its defined benefit plans:
Reconciliation of Present Value of the Scheme Liabilities (Defined Benefit Obligation)
Firefighters' Schemes: Unfunded Liabilities: Unfunded Liabilities: Unfunded Liabilities: Unfunded Liabilities: Firefighters’ Pension Firefighters’ Pension Firefighters' Pension Firefighters’ Scheme 1992 Scheme 2006 Scheme 2015 Compensation Scheme £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 Opening balance at 1 April (408,113) (458,785) (32,729) (36,461) (16,633) (12,709) (29,237) (27,225) Current service cost (1,981) (3,242) (290) (636) (4,803) (5,606) (1,898) (1,141) Past service cost (31,362) (10) (10,769) (232) 18,500 0 0 0
92 Interest cost (10,437) (11,346) (855) (920) (515) (403) (775) (681) Contributions from scheme participants (587) (724) (140) (163) (1,605) (1,405) 0 0
Remeasurement gains and (losses):
Actuarial gains/losses arising from changes in 0 26,143 0 1,977 0 972 0 2,640 demographic assumptions Actuarial gains/losses arising from changes in (20,804) 14,386 (3,097) 2,313 (2,331) 1,327 (2,128) 1,489 financial assumptions Experience gains/losses on defined benefit
Page 109 Page 0 11,593 0 1,298 0 1,040 0 (5,468) obligation Benefits paid net of transfers (in)/out 15,973 13,872 120 95 57 151 721 1,149 Closing balance at 31 March (457,311) (408,113) (47,760) (32,729) (7,330) (16,633) (33,317) (29,237) Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Reconciliation of Present Value of the Scheme Liabilities (Defined Benefit Obligation) Local Government Pension Scheme:
Funded Liabilities: Local Government Pension Scheme
£’000 £’000 2017/18 2018/19 (52,653) Opening balance at 1 April (53,572) (2,111) Current service cost (2,036) 0 Past service cost (595) (1,462) Interest cost (1,362) Contributions from scheme (355) (360) participants Remeasurement gains and (losses): Actuarial gains/losses arising from 0 changes in demographic 3,245 assumptions Actuarial gains/losses arising from 1,789 (3,062) changes in financial assumptions 1,199 Benefits paid net of transfers (in)/out 671 21 Unfunded pension payments 22 (53,572) Closing balance at 31 March (57,049)
Reconciliation of the Movements in the Fair Value of the Local Government Pension Scheme Assets
Local Government Pension Scheme
£’000 £’000 2017/18 2018/19 Opening fair value of scheme 29,534 30,870 assets 835 Interest income 793 Remeasurement gain/(loss): The return on plan assets, excluding (36) the amount included in the net 1,890 interest expense 0 Other actuarial gains/(losses) 0 1,413 Contributions from employer 820 Contributions from employees into the 355 360 scheme Benefits paid (including unfunded (1,220) (693) benefits) (11) Administration expenses (13) 30,870 Closing fair value of scheme assets 34,027
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Local Government Pension Scheme assets comprised: Fair value of scheme assets at Fair value of scheme assets at 31 March 2018 31 March 2019 % % £’000 % Quoted £’000 % Quoted Unquoted Unquoted Equities: 7,650 25% <1% • UK investments 8,285 24% <1% 12,154 39% • Overseas investments 12,053 36% • Private equity investments – 494 2% 781 2% unspecified origin 20,298 64% 2%Equities subtotal 21,119 60% 2%
Gilts: 707 2% • UK fixed interest gilts 1,108 3% 0 • Overseas fixed interest gilts 0 0 • UK inflation-linked gilts 0 707 2% Gilts subtotal 1,108 3%
Other Bonds: 3,452 11% • UK corporate bonds 3,084 9% 154 1% • Overseas corporate bonds 69 <1% 0 0% • Inflation-linked bonds 0 0 3,606 12% Bonds subtotal 3,153 9%
3,878 13%Property 4,605 14% 610 2%Cash 822 2% 764 3%Inflation-linked pooled fund 1,237 4% 1,007 3%Infrastructure 1,638 5% 0 0%Unit trust 345 1% 30,870 78% 22%Total 34,027 72% 28% Further information about the Fund's assets can be obtained from the Pension Fund Annual Report, which can be accessed online at www.nottspf.org.uk.
Basis for Estimating Assets and Liabilities Liabilities have been assessed on an actuarial basis using the projected unit credit method, an estimate of the pensions that will be payable in future years dependent on assumptions about mortality rates, salary levels etc. The liabilities of the Local Government Pension Scheme and the Firefighters' schemes have been assessed by Barnett Waddingham Public Sector Consulting and Mercer Limited respectively, both of whom are independent firms of actuaries.
The most recent full actuarial valuations for the Local Government Pension Scheme and the Firefighters' schemes were carried out at 31 March 2016 and 31 March 2018 respectively. Both firms of actuaries have adopted a roll-forward approach to updating the net liabilities as at 31 March 2019. This approach takes into account the cashflows paid into and out of each scheme before taking into consideration any changes in assumptions.
The rate of interest used to discount the post-employment benefit obligations is based on the market yields at the reporting date on high quality corporate bonds of equivalent currency and term to the scheme liabilities. In assessing the liabilities for retirement benefits at 31 March 2019 both firms of actuaries have used a rate of 2.4%, compared with respective rates of 2.55% and 2.6% for the local government and firefighters' schemes at 31 March 2018.
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The principal assumptions used by the actuaries in their calculations were:
Firefighters' Firefighters' Local Government Schemes 1992, Compensation Pension Scheme 2006 and 2015 Scheme 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 Mortality assumptions: Longevity at 65 for current pensioners (LGPS) and at 60 for current pensioners (FF Schemes): Men 21.6 22.6 26.4 26.3 23.8 23.7 Women 24.4 25.6 28.4 28.3 25.8 25.7 Longevity at 65 for future pensioners (LGPS) and at 60 for future pensioners (FF Schemes): Men 23.3 24.8 28.3 28.2 25.7 25.6 Women 26.2 27.9 30.3 30.2 27.7 27.6 Rate of inflation (CPI) 2.4% 2.3% 2.2% 2.1% 2.2% 2.1% Rate of increase in salaries 3.9% 3.8% 3.7% 3.6% 3.7% 3.6% Rate of increase in pensions 2.4% 2.3% 2.3% 2.2% 2.3% 2.2% Rate of revaluation of CARE 3.5% 3.4% pensions (2015 Scheme only) Rate for discounting scheme* 2.4% 2.6% 2.4% 2.6% 2.4% 2.6%
*The discount rate is determined by reference to market yields at the end of the reporting period on high quality corporate bonds.
The estimation of the defined benefit obligations is sensitive to the actuarial assumptions set out in the table above. The sensitivity analyses below have been determined based on reasonable possible changes of the assumptions occurring at the end of the reporting period and assumes for each change that the assumption analysed changes while all other assumptions remain constant. This approach is not necessarily realistic, since some assumptions are related: for example, if inflation were to increase it might be reasonable to expect that nominal yields on corporate bonds will increase also. However, it enables the reader to isolate one effect from another. The methods and types of assumptions used in preparing the sensitivity analysis below did not change from those used in the previous period.
Sensitivity analysis for the Firefighters’ Schemes
Firefighters’ Schemes (consolidated) Impact on Impact on the the defined projected benefit service liability cost £’000 £’000 Increase discount rate by 0.1% p.a. -10,005 -536 Increase inflation by 0.1% p.a. 10,213 552 Increase pay growth by 0.1% p.a. 1,799 93 Increase life expectancy by 1 year 15,873 499 95 Page 112 Nottinghamshire and City of Nottingham Fire Authority - Statement of Accounts 2018/19
Sensitivity analysis for the LGPS Impact of Impact of an a increase decrease of +0.1% of -0.1% £'000 £'000 Adjustment to discount rate: Impact on the defined benefit liability -1,205 1,232 Impact on the projected service cost -47 48 Adjustment to long term salary increase: Impact on the defined benefit liability 163 -162 Impact on the projected service cost 0 0 Adjustment to pension increases and deferred revaluation: Impact on the defined benefit liability 1,068 -1,044 Impact on the projected service cost 48 -47 Adjustment to mortality age rating assumption: Impact on the defined benefit liability 2,046 -1,974 Impact on the projected service cost 60 -58
Asset and Liability Matching Strategy The Local Government Pension Scheme does not use any asset and liability matching strategies to manage risk. The Pension Fund Annual Report details the nature and extent of risks arising from financial instruments, and the Fund’s Risk Management Strategy and Risk Register details the measures taken to mitigate those risks. These documents are available at www.nottspf.org.uk.
Impact on the Authority’s Cash Flows
The defined benefit liability shows the underlying commitments that the Authority has in the long run to pay retirement benefits. The total liability of £569m has a substantial impact on the net worth of the Authority as recorded in the Balance Sheet, however statutory arrangements for funding the deficit mean that the financial position of the Authority remains healthy:
• The net liability on the Local Government Pension Scheme will be made good by increased contributions over the remaining working life of employees (i.e. before payments fall due), as assessed by the scheme actuary. The aims of the Fund are to keep employer contribution rates as constant as possible. Contributions are set every three years as a result of the actuarial valuation of the Fund required by the Regulations. The next actuarial valuation of the Fund will be carried out as at 31 March 2019 and will set contributions for the period from 1 April 2020 to 31 March 2023. There are no minimum funding requirements in the LGPS but the long term funding objective is for the Fund to achieve and then maintain sufficient assets to cover 100% of projected accrued liabilities.
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• Finance is only required to be raised to cover firefighter pensions when the pensions are actually paid, and any shortfalls are currently met by the Home Office.
• Finance is only required to be raised to cover the costs of the firefighters’ compensation scheme when the pensions are actually paid, and these costs are included in the Authority’s annual budget. The amount spent in 2018/19 was £720k.
The total contributions expected to be made by the Authority to the Local Government Pension Scheme in the year to 31 March 2020 is £714k. The total expected contributions for the Firefighters’ Pension Schemes and Compensation Scheme are £14.5m inclusive of government top-up grant.
The weighted average duration of the defined benefit obligation for Local Government Pension Scheme Members is 22 years. The weighted average durations of the defined benefit obligations of the 1992 FPS, 2006 NFPS, 2015 FPS and the Firefighters’ Compensation Scheme are 17 years, 29 years, 32 years and 22 years respectively.
40 CONTINGENT ASSETS AND LIABILITIES
At 31 March 2018, the Authority had no contingent assets
On 22 January 2018, the Government published the outcome to its Indexation of Guaranteed Minimum Pension (GMP) in public service pension schemes consultation, concluding that the requirement for public service pension schemes to fully price protect the GMP element of individuals' public service pension would be extended to those indiviuals reaching State Pension Age (SPA) before 6 April 2021. HM Treasury have advised that public sector pensions already have a method of to equalise guaranteed minimum pension benefits. No adjustments are therefore considered necessary to the value of liablilities as a result of this outcome.
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41 NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS The Authority's activities expose it to a variety of financial risks: Credit risk – the possibility that other parties might fail to pay amounts due to the Authority Liquidity risk – the possibility that the Authority might not have funds available to meet its commitments to make payments Re-financing risk – the possibility that the Authority may be required to renew a financial instrument on maturity at less advantageous interest rates or terms Market risk – the possibility that financial loss might arise as a result of changes in, for example, interest rates.
Overall procedures for managing risk
The Authority's overall risk management programme focuses on the unpredictablility of financial markets and seeks to minimise potential adverse effects on the resources available to fund services. Risk management is carried out by the Finance Team, in conjunction with treasury advisors from Link Asset Services. Risk Management policies are approved by the Authority.
The procedures for managing risk are set out through a legal framework based on the Local Government Act 2003 and associated regulations. These require the Authority to comply with the CIPFA Prudential Code, the CIPFA Code of Practice on Treasury Management in the Public Services and investment guidance. Overall, these procedures require the Authority to manage risk in the following ways:
• by formally adopting the requirements of the the CIPFA Treasury Management Code of Practice; • by the adoption of a Treasury Policy Statement and treasury management clauses within its financial regulations/standing orders; • by approving annually in advance prudential and treasury indicators for the following three years limiting: • The Authority's overall borrowing; • Its maximum and minimum exposures to the maturity structures of its debt; • Its management of interest rate exposure; • Its maximum annual exposures to investments maturing beyond a year. • by approving an investment strategy for the forthcoming year, setting out its criteria for both investing and selecting investment counterparties in compliance with Government guidance.
The annual treasury management strategy and prudential code indicators for 2018/19 were approved by the Authority on 16 February 2018. They are available on the Nottingham City Council website. The key issues within the treasury management strategy were: The Authorised Limit for 2017/18 was set at £32.7m. This is the maximum limit of external borrowings or other long term liabilities. The Operational Boundary was set at £29.7m. This is the expected maximum level of debt and other long term liabilities during the year. The maximum proportions of fixed and variable interest rate exposure were set at 100% and 30% respectively. Maximum and minimum exposures to the maturity structure of debt were set, which restricted the amount of short term debt as a way of reducing exposure to re-financing risk. An upper limit of £2.0m was set for principal sums invested for longer than 364 days.
The Authority has adopted the CIPFA Treasury Management in the Public Services Code of Practice and Cross-Sectoral Guidance Notes (updated) and sets prudential and treasury indicators each year to control the key risks arising from financial instruments.
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Credit Risk
Credit risk arises from deposits with banks and financial institutions, as well as credit exposures to the Authority's customers. The risk is minimised through the Annual Investment Strategy, which is contained within the Annual Treasury Management Strategy.
The Annual Investment Strategy required that deposits are not made with financial institutions unless they meet identified minimum credit criteria, in accordance with the Fitch, Moody's, and Standard & Poor's Credit Rating Services. The Authority has a list of approved banks and financial institutions to which it will lend surplus cash. The list is based on minimum independent credit ratings from the Credit Rating Services, which are overlaid by credit outlooks, credit default swap spreads and sovereign ratings to give an overall rating for each counterparty which indicates a maximum term for investments. The annual investment strategy also considers maximum amounts to be deposited with any one institution. The Authority is advised of ratings changes by Link Asset Services and the list is updated accordingly on an ongoing basis.
The Authority’s maximum exposure to credit risk in relation to its investments with banks and other local authorities cannot be assessed generally as the risk of any institution failing to make interest payments or to repay the principal sum will be specific to each individual institution. Recent experience has shown that it is rare for such entities to be unable to meet their commitments, and there was no evidence at 31 March 2019 that any of the Authority’s deposits might not be repaid.
Invoices to customers for chargeable services are usually of relatively low value. The Authority actively pursues outstanding debts, and the Debt Recovery Policy provides for non emergency services to be ceased to non paying customers.
Amounts arising from Expected Credit Losses
Impairment losses are calculated to reflect the expectation that the future cash flows might not take place because the borrower could default on their obligations. Credit risk plays a crucial part in assessing losses, particularly where risk has increased significantly since the investment or debtor was initially recognised. Impairment is based on the principle of credit loss, which is defined as cash shortfalls measured by the difference between the cash flows that are contractually due to the Authority, and the cash flows that the Authority expects to receive. Changes to credit risk relating to investments are assessed based on information obtained from Credit Rating Services, the financial press, and the Authority’s treasury advisors. Credit risk relating to investments will also be deemed to have increased significantly should contractual payments of principal or interest become more than 30 days overdue. Since the Annual Investment Strategy prohibits the use of investment counterparties that do not meet minimum creditworthiness criteria, all investments are considered to have low credit risk upon initial recognition. Credit risk relating to trade receivables is not deemed to have increased significantly until payments become more than 120 days overdue. The Authority is very successful at collecting trade debtors, which is reflected by the fact that less than 1% of debts have been written off during the past five years. Experience shows that debts are highly likely to be recovered, and of the relatively small proportion of debts that reach the stage of 120 or more days overdue around 12% will be written off. In accordance with the Authority’s accounting policies, lifetime expected credit losses have been calculated for trade receivables and 12-month expected credit losses have been calculated for investments.
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The lifetime expected credit losses were assessed using a provision matrix which calculates a fixed provision rate based on the number of days that a receivable is past due, assessed on the basis of historical experience from the previous five years and adjusted (if necessary) to reflect current conditions and forecasts of future conditions.
The calculation for the 12-month expected credit losses was based on the historic default rate for A-rated investments which was produced by combining multi-year historic default rate data up to the end of December 2018 from the three main credit rating agencies. The credit losses were found to be immaterial and have therefore not been recognised.
The Authority has the following exposure to credit risk at 31 March 2019:
Credit risk rating / Provision matrix Gross Carrying category amount £'000s 12-month expected credit losses AAA 0 AA 0 A 12,462
Simplified approach (lifetime Not due 33 credit losses for trade 1-30 days 0 receivables) 31-60 days 4 61-90 days 0 91-120 days 0 121+ days 1
Liquidity Risk
Liquidity Risk The Authority manages its liquidity position through the risk management procedures outlined above (the setting and approval of prudential indicators and the approval of the treasury management strategy), as well as through cash flow management processes. This ensures that sufficient cash balances are maintained to meet daily revenue requirements without recourse to borrowing other than short term borrowing to deal with temporary cash flow deficits. The Authority has ready access to borrowings from the money markets to cover any day to day cash flow needs and is able to access borrowings from the Public Works Loan Board for longer term funds so there is no significant risk that it will be unable to raise funds in order to meet its commitments relating to financial liabilities.
All trade and other payables are due to be repaid within one year.
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Re-financing and Maturity Risk The risk to which the Authority is exposed is that it will need to replenish its borrowings when interest rates are unfavourable. The Authority’s strategy is to place limits on the percentage of borrowings due to mature within 10 years, as follows: maturing within 12 months – less than 20%; maturing 12 months to 5 years – less than 30%; maturing 5 years to 10 years – less than 75%. Between 0% and 100% of borrowings may fall due for repayment after 10 years, and between 30% and 100% of borrowings may fall due for repayment after 20 years. This strategy allows the Authority time to restructure debt when interest rates are favourable. The Authority maintains a significant debt and investment portfolio. Whilst the cash flow procedures above ensure adequate liquidity, longer-term risk to the Authority relates to managing the exposure to replacing financial instruments as they mature. This risk relates to both the maturing of longer term financial liabilities and longer term financial assets.
The approved treasury indicator limits for the maturity structure of debt and the limits placed on investments placed for greater than one year in duration are the key parameters used to address this risk. The Finance team manages the risk within the approved parameters by: monitoring the maturity profile of financial liabilities and amending the profile through either new borrowing or the rescheduling of the existing debt; and
monitoring the maturity profile of investments to ensure sufficient liquidity is available for the Authority’s day to day cash flow needs, and the spread of longer-term investments provide stability of maturities and returns in relation to the longer term cash flow needs.
The maturity analysis of financial liabilities is as follows, with the maximum and minimum limits for fixed interest rates maturing in each period:
Approved Approved Actual 31 March Actual 31 March minimum limits maximum limits £000s £000s Less than 1 0% 20% 4,117 4,639 year Between 1 and 5 0% 30% 1,612 1,699 years Between 5 and 10 0% 75% 5,000 4,000 years Over 10 0% 100% 0 0 years Over 20 30% 100% 18,900 14,900 years Total 29,629 25,238
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Market Risk
Price risk The Authority has no investments in equity shares and therefore has no exposure to loss arising from movements in share prices.
Foreign exchange risk The Authority has no financial assets or liabilities denominated in foreign currencies and therefore has no exposure to loss arising from exchange rate movements.
Interest rate risk The Authority is exposed to interest rate movements on its borrowings and investments. Movements in interest rates have a complex impact on the Authority. For instance, a rise in variable and fixed interest rates would have the following effects: Borrowings at variable rates – the interest expense charged to the Surplus or Deficit on the Provision of Services will rise
Borrowings at fixed rates – the fair value of the borrowing will fall (no impact on revenue balances) Investments at variable rates – the interest income credited to the Surplus or Deficit on the Provision of Services will rise Investments at fixed rates – the fair value of the assets will fall (no impact on revenue balances). Borrowings are not carried at fair value on the balance sheet, so nominal gains and losses on fixed rate borrowings would not impact on the Surplus or Deficit on the Provision of Services or Other Comprehensive Income and Expenditure. However, changes in interest payable and receivable on variable rate borrowings and investments will be posted to the Surplus or Deficit on the Provision of Services and affect the General Fund Balance. Movements in the fair value of fixed rate investments that have a quoted market price will be reflected in the Other Comprehensive Income and Expenditure Statement. The strategy is to set a maximum proportion of interest on borrowing which is subject to variable rates. This maximum is determined annually, kept under review and reported to the Fire Authority through the Treasury Management Strategy. In 2018/19 this maximum was set at 30%. In addition, the annual Treasury Management Strategy includes an expectation of interest rate movements, which can be taken into account when planning borrowing and investment activities and when determining whether fixed or variable rate instruments are appropriate. The portfolio of long term borrowings is kept under review and may be restructured when interest rate changes make it advantageous to do so. If all interest rates had been 1% higher (with all other variables held constant) the financial
£'000 Decrease in fair value of fixed rate investment assets 0 Decrease in fair value of fixed rate borrowings 5,248
The impact of a 1% fall in interest rates would be an equivalent increase in fair value.
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42 INTERESTS IN COMPANIES Nottinghamshire Fire Safety Limited.
Principal activities
Nottinghamshire Fire Safety Limited is a limited company and wholly owned by Nottinghamshire Fire and Rescue Service. The company was formed on 31st March 2010. The company is engaged in fire extinguisher sales and maintenance together with some safety training activity.
It has been determined that the Authority does control this subsidiary on the basis that the Authority has the power to govern its financial and operating policies so as to benefit from its activities because the board of directors of the subsidiary comprises six elected members. The accounts of this subsidiary are not consolidated with the accounts of the Authority because the turnover of the company and the value of the Authority’s investment in it are not material when considered in the context of the Authority’s accounts, and corporate governance objectives can be effectively achieved without consolidation. Instead, separate financial statements are prepared for the Authority and for the subsidiary. The financial statements for the company are shown for the current year in draft format as they have yet to be ratified by the Directors and are subject to change. The Authority has the ability to invest in the subsidiary (in the form of a loan) . There is currently no loan outstanding but any balance would be accounted for at cost and shown as a short term investment on the Authority’s Balance Sheet and a liability on the subsidiary’s Balance Sheet.
The company is considered to be a related party to the Authority, and details of transactions between the two entities have been disclosed in Note 35. The Authority’s maximum exposure to loss from its interest in the subsidiary is limited to the share capital
Key Financial Information for Nottinghamshire Fire Safety Limited
Final Draft 2017/18 2018/19 £000 £000 Profit and Loss 439Turnover 393 42Operating Profit 4 42 Profit on Ordinary Activities before Taxation 4 33 Profit on Ordinary Activities after Taxation 3
Balance Sheet 253Total assets less current liabilities 256
The accounts of the company can be obtained from:
Nottinghamshire Fire Safety Limited Bestwood Lodge Bestwood Lodge Drive Arnold Nottingham Nottinghamshire
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PENSION FUND ACCOUNT
2017/18 2018/19 £000 £000 Contributions Receivable Fire Authority: (2,813) Contributions in relation to pensionable pay (2,774) (108) Other (Ill Health Retirements) (115) (2,300) Firefighters’ contributions (2,330) (5,221) Total Contributions Receivable (5,219)
Transfers in from other authorities 0 Transfers in from other schemes (13)
Benefits Payable 12,353 Pensions 12,891 1,465 Commutations and lump sum retirement benefits 3,410 92 Lump sum death benefits 79 143Other 75 14,053 Total Benefits Payable 16,455
Refunds of Contributions 6 Contribution holiday refund payments 4
Net Amount payable for the year before top-up grant from 8,838Central Government 11,227
(7,570) Top-up grant received from Central Government (8,689)
Balance of top-up grant for the year (receivable (1,268)from)/payable to Central Government (2,538)
0 0
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PENSION NET ASSETS STATEMENT
The net current assets and liabilities arising from the operation of the pension fund are shown in this statement. This statement does not take account of liabilities to pay pensions and other benefits after the period end. Such liabilities are shown in the core accounting statements and are explained in more detail in note 39.
2017/18 2018/19 £000 £000 Current Assets 1,021 Prepaid Pensions 1,041 1,269 Pension top-up grant receivable from Central Government 2,538 2,290 Total 3,579
Current Liabilities
0 Unpaid pension benefits (221) (22) Tax payable on behalf of members (20) (2,268) Amount owing (to)/from General Fund (3,338) (2,290) Total (3,579)
0 Net Current Assets 0
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NOTES TO THE PENSION STATEMENTS
1. The Firefighters’ Pension Fund
The Firefighters' Pension Fund was established for Fire Authorities in England under the Firefighters' Pension Scheme (Amendment) (England) Order 2006. Until April 2015 there were two separate pension schemes for firefighters: the 1992 Scheme and the 2006 Scheme.
The Firefighters' Pension Scheme (England) (Amendment) Order 2014 introduced a new modified version of the 2006 Scheme which is available to individuals who were employed as retained firefighters during the period 1 July 2000 to 5 April 2006. Although this modified version does not constitute a scheme on its own, it has different benefits to the main 2006 Scheme and is therefore often referred to separately as the "Modified Scheme". The Modified Scheme came into being on 1 April 2014. Individuals who have elected to join the Modified Scheme can choose to pay their historic contributions either by a lump sum or in instalments over a 10 year period. These contributions are being accounted for in the year that the cash is received as the individuals concerned do not accrue any additional pensionable service until the contributions are paid.
The Firefighters' Pension Scheme (England) Regulations 2015 introduced a new pension scheme which came into being on 1 April 2015. This is referred to as the 2015 Scheme. This scheme will eventually replace the 1992 and 2006 Schemes after a transitional phase which will last for 10 years.
All Firefighters' Pension Schemes are unfunded and consequently the fund holds no investment assets. Benefits are payable to pensioners in accordance with with the regulations. Benefits payable are funded by contributions from employees and from the Authority, and any deficit in the funding required is met by a top-up grant from the Home Office. If the amounts receivable exceed the amounts payable then the surplus is paid over to the Home Office. Employees' and employer's contribution rates are set nationally by central government and are subject to a triennial review by the Government Actuary's Department.
The fund is administered by the Authority in accordance with the regulations. The primary objective of the Pension Fund Statements is to demonstrate the balance of transactions taking place over the year in order to identify the amount of top-up grant payable from, or surplus payable to, the Home Office.
2. Accounting Policies for the Pension Fund
General Principles The Pension Fund Account and Net Assets Statement summarise the Pension Fund transactions for the 2018/19 financial year and its position at the year end of 31 March 2019. It has been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2018/19.
Accruals Activity is generally accounted for in the year that it takes place, not simply when cash payments are made or received. This is known as the accruals basis. However, employee and employer contributions are not accounted for on an accruals basis as the effect of doing so is not material. Accruals are shown as debtors and creditors in the Net Assets Statement. In all cases, reasonably accurate calculations of accruals have been possible with the information available at the time of preparing the financial statements. The one exception to this policy is the treatment of historic employee contributions paid into the Modified Scheme (see note 1 above for details).
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Administration Costs The cost of managing pension activities, which includes part of the costs of Human Resources, Payroll and Finance staff as well as part of the cost of Pension Services provided by Leicestershire County Council and the cost of actuarial services, are not accounted for within the Pension Fund but are included in the Authority’s Comprehensive Income and Expenditure Statement.
3. The Liability to Pay Pensions
The Authority has a liability to pay future retirement benefits to current members of the Firefighters’ Pension Schemes. The value of this liability has been assessed by an independent firm of actuaries and is shown in the Authority’s Balance Sheet and explained further in note 39 to the core financial statements. The Pension Fund Account and Net Assets Statement do not take account of this liability.
4. Accruals Within the Pension Fund and Net Assets Statement
Prepaid Pensions Retirement benefits payable under the 1992 Scheme are paid to members monthly in advance. The payments made in March 2019 relate to April 2019 and have been treated as prepayments.
Pension Top-Up Grant Payable/Receivable The amount required to be paid by the Home Office in order to balance the Pension Fund to nil has been calculated and accrued for.
Unpaid Pension Benefits A number of pension lump sums relating to retirements in 2018/19 have been accrued for.
Tax Payable on Behalf of Members Some pension payments are classed as unauthorised by Her Majesty's Revenue and Customs (HMRC). Members must pay tax on any unauthorised payments they receive. When the payments are made to the members, the Authority deducts the tax that is due and pays it over to HMRC on the member's behalf. Tax that has been deducted but not yet paid over to HMRC has been accrued for.
5. Financing of the Pension Fund
The Authority does not operate a separate bank account for Pension Fund transactions. Instead, all Pension Fund cash transactions go through the Authority’s main bank account. These amounts are shown as “Amounts owing from the General Fund”. Top-up grant received in advance from central government is based on an estimate - an overpayment of grant is recovered after the year end and an underpayment of grant is paid to the Authority after the year end. The amount of grant payable by the Home Office to the Authority in respect of the 2018/19 financial year is £2,538k, and this is included in the Pension Net Assets Statement. The difference between the grant payable and the cash deficit of £3,338k as at 31 March 2019 is the total of the accruals included in the Pension Fund.
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6. Contingent liability
The Authority is required to disclose if there are possible obligations which may require payment or a transfer of economic value.
On 22 January 2018, the Government published the outcome to its Indexation of Guaranteed Minimum Pension (GMP) in public service pension schemes consultation, concluding that the requirement for public service pension schemes to fully price protect the GMP element of individuals' public service pension would be extended to those indiviuals reaching State Pension Age (SPA) before 6 April 2021. HM Treasury have advised that public sector pensions already have a method of to equalise guaranteed minimum pension benefits. No adjustments are therefore considered necessary to the value of liablilities as a result of this outcome.
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NOTTINGHAMSHIRE AND CITY OF NOTTINGHAM FIRE AND RESCUE AUTHORITY ANNUAL GOVERNANCE STATEMENT
1.0 SCOPE OF RESPONSIBILITY
1.1 Nottinghamshire Fire and Rescue Authority (the Authority) is responsible for ensuring that there is a sound system of governance (incorporating the system of internal control). It needs to ensure its business is conducted in accordance with the law and proper standards, and that public money is safeguarded, properly accounted for and used economically, efficiently and effectively. The Authority also has a duty under the Local Government Act 1999 to make arrangements to secure continuous improvements in the way in which its functions are exercised having regard to a combination of economy, efficiency and effectiveness. 1.2 In discharging this overall responsibility, the Authority is responsible for putting in place proper arrangements for the governance of its affairs, facilitating the effective exercise of its functions, use of its resources and including arrangements for the management of risk and the maintenance of an effective internal control environment. 1.3 The Authority has approved and adopted a code of corporate governance, which is consistent with the principles of the CIPFA / Solace framework Delivering Good Governance in Local Government. 1.4 This statement sets out how the Authority has complied with the code and also meets the requirements of regulation 6 of the Accounts and Audit (England) Regulations 2015 in relation to the publication of an annual governance statement. 2.0
2.1 THE PURPOSE OF THE GOVERNANCE FRAMEWORK
The governance framework comprises the systems, processes, cultures and values for the direction and control of the Authority and the activities through which it accounts to, engages with and leads the community. It enables the Authority to monitor the achievement of its strategic objectives and to consider whether those objectives have led 2.2 to the delivery of appropriate and cost-effective services.
The system of internal control is a significant part of that framework and is designed to manage risk to a reasonable level. It cannot eliminate all risk of failure to achieve policies, aims and objectives and can therefore only provide reasonable and not absolute assurance of effectiveness. The system of internal control is part of an on-going process designed to identify and prioritise the risks to the achievement of Nottinghamshire Fire and Rescue Authority's policies, aims and objectives, to evaluate the likelihood of those risks being realised and the impact should they be realised, and to manage them efficiently, 2.3 effectively and economically.
A key element of the Internal Control Environment is the development and maintenance of Strategic, Corporate and Departmental risk registers which are understood and managed 2.4 by senior managers.
The governance framework has been in place at the Authority for the year ended 31 March 2019 and up to the date of the 2018/19 Statement of Accounts. In 2016/17 a full review of the Local Code of Corporate Governance was carried out and a new Local Code was adopted in line with the CIPFA / Solace framework which was revised in 2016.
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3.0 THE GOVERNANCE FRAMEWORK
3.1 In addition to the Annual Governance Statement the Authority has a Code of Corporate Governance that the Authority will commit to in carrying out its duties and responsibilities. In this document, officers have identified against each of the Code’s principles what source documentation or existing practice demonstrates how the Authority complies with the principles that make up the Code.
3.2 In developing a code of corporate governance, the Authority had the aim of seeking compliance with the CIPFA / Solace guidelines and recognised that these constitute good practice for local authority organisations.
3.3 The Local Code of Corporate Governance was adopted by the Authority in February 2017. This Annual Governance Statement, and the annual review of governance is against this framework.
3.4 Summarised below are some of the key elements of the systems and processes that underlie the Authority’s governance arrangements:
3.5 Identifying and Communicating the Authority’s vision and outcomes for citizens and service users
3.5.1 After consulting with the citizens of Nottinghamshire and service users, assessing current risks and service priorities, the Authority prepares an Integrated Risk Management Plan (IRMP) that sets out the vision and service objectives for the organisation. The IRMP covering 2014 – 2019 has now been replaced with a new Strategic Plan 2019 - 2022 which was approved by Fire Authority in February 2019.
3.5.2 The Authority’s vision is “Creating Safer Communities” and it strives to deliver this by developing a set of cohesive business plans and working in partnership with others to provide an excellent, affordable service to all the diverse communities of Nottinghamshire. To deliver this the Authority has established three strategic aims, which are:
- to provide high quality services; - to offer strong governance and financial sustainability; and - to ensure that our employees are engaged and motivated.
3.6 Monitoring the achievement of the Authority’s objectives through a comprehensive performance management framework
3.6.1 The Service operates a system of cascading business plans. The IRMP is the highest level and from this an annual corporate plan is produced followed by a series of departmental and functional business plans. Progress against these plans is regularly reported on to the Executive Delivery Team (EDT) and the Strategic Leadership Team (SLT). Officers also report on progress and outcomes to the relevant committees of the Fire Authority.
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3.7 The Internal Control Environment
3.7.1 The Authority’s internal control environment comprises many systems, policies, procedures and operations. These can be broadly split into risk management, internal check/financial control and internal audit. Internal check and financial control are targeted towards financial matters whereas risk management has a much broader brief and is more associated with the risk of non-achievement of objectives and targets. The system cannot eliminate all risks of failure to achieve the Authority’s aims and objectives. Once a risk has been identified the Authority, where possible, will eliminate that risk. If this is not possible or not cost effective then procedures are established to manage the risk effectively, efficiently and economically. Some of the significant control processes are outlined below:
3.7.2 Policy and Decision Making Process
The Authority has democratic control over its activities via an approved committee structure with agreed powers and duties that are periodically reviewed. The Authority has a written constitution that sets out how the Authority operates, how decisions are made and the procedures which are followed to ensure these are efficient, transparent and accountable. There is a formal briefing process prior to reports being finalised for Committee or Fire Authority meetings thus allowing key Members an opportunity to scrutinise proposed reports in detail. The Authority also runs Member seminars and training sessions to help Members discuss issues in more detail and in an informal environment.
3.7.3 Management Structure
The Authority has a clear management structure with defined roles and responsibilities. The Strategic Leadership Team includes all department heads as well as the Principal Officers. The current structure empowers managers to make appropriate decisions but also places accountability at the centre of this process.
The Authority has an Executive Delivery Team which is comprised of all the Departmental Heads and augmented by specialists as required. As part of a more empowering style of management this group has decision making powers with only the most significant or challenging decisions reserved for the Strategic Leadership Team. These arrangements enable good quality decision-making.
The Authority has an approved scheme of delegation to officers that is reviewed periodically by the Chief Fire Officer and the Clerk to the Fire Authority, with any changes being approved by the Fire Authority.
3.7.4 Established Policies, Procedures & Regulations
The Authority ensures compliance with established policies, procedures, laws and regulations. The information regarding policies and procedures is held on the intranet, and these are continually enhanced and developed through the introduction of new policies and procedures as and when required. The Authority has established policies on anti-fraud and whistleblowing. The Authority carries out a regular review of financial regulations which clearly define how decisions are taken and the processes and controls required to manage risk. The list below outlines some of the key policies and process in place to enhance the internal control system, which are reviewed as and when required:
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- Treasury Management Strategy - Procurement Strategy - Financial Regulations & Standing Orders - Scheme of Delegation - Counter Fraud, Money Laundering, Corruption and Bribery Policy - Whistleblowing Policy - Complaints procedure - Code of Corporate Governance - Constitution - Code of Conduct - Equality and Diversity schemes - Workforce plan and establishment model - Full range of robust policies and procedures to underpin the conduct of staff from operational procedures, discipline processes, through to performance development reviews
3.7.5 Internal Audit Function
The Authority has a strong Internal Audit function arrangement with Nottinghamshire County Council, and has well-established protocols for working with External Audit.
3.7.6 Risk Management Strategy
The Authority has a well-established and embedded risk management strategy. This is managed at the corporate/strategic level by The Finance and Resources Committee which receive regular reports on risk exposures both in terms of existing and emergent risk. Members scrutinise risk registers and receive explanations for changes. The Committee is advised by the Head of Finance and the Service’s Risk Manager on behalf of the Chief Fire Officer.
The system of internal control is based on an ongoing process designed to identify and prioritise risks to the achievement of Service policies, aims and objectives, to evaluate the likelihood and impact of those risks being realised and facilitate a risk management culture to enable risks to be effectively assessed, managed, monitored and reported.
3.7.7 Best Value Duty
The Authority ensures the economical, effective and efficient use of resources, and secures continuous improvement in the way in which its functions are exercised, by having regard to a combination of economy, efficiency, and effectiveness as required by the Best Value duty. The requirement to deliver services within a reducing budget over recent years has increased the focus on Best Value and the Authority has procurement policies in place, providing a framework within which to buy goods and services which offer good value for money.
3.7.8 Financial Management
Financial management in the Authority and the reporting of financial standing is undertaken through a financial system which integrates the general ledger, sales ledger and purchase ledger functions and facilitates good budgetary control. Budget Managers are supported by Finance Officers in the use of this system for monitoring financial performance.
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4.0 REVIEW OF EFFECTIVENESS
4.1 The Authority has responsibility for conducting a review of the effectiveness of its governance framework including the system of internal control, at least annually. The review of effectiveness is informed by the work of the Strategic Leadership Team and other senior managers within the Authority who have responsibility for the development and maintenance of the governance environment, the Internal Audit annual report, and also by comments made by the external auditors and other review agencies and inspectorates.
4.2 Maintaining and reviewing the effectiveness of the governance framework throughout the financial year has been carried out by the following:
• The Authority and its Committees • Management Review • Internal audit • External bodies
4.3 The Authority and its Committees
4.3.1 The Authority has reviewed the vision and strategic service objectives as part of the development of the Strategic Plan, creation of the year 1 corporate plan and as part of the budgeting process. The budgeting process also had a measure of Member scrutiny with the Chair of the Finance and Resources Committee taking an active role.
4.3.2 At the annual general meeting in June the format and structure of its democratic decision process was reaffirmed and approval was given to the powers and make-up of the following committees:
The Policy and Strategy Committee The Finance and Resources Committee The Community Safety Committee The Human Resources Committee
4.3.3 In addition to the above there are also panels for appointments, Equalities, Personnel matters and the Firefighters’ Pension Schemes.
4.3.4 Terms of reference and responsibilities for all these Committees form part of the Authority’s Governance arrangements.
4.4 Management Review
4.4.1 Included in the day to day management of the organisation are a number of key officers, systems and procedures designed to provide core elements of the internal control mechanism, with a nominated lead officer responsible for reviewing the effectiveness of these systems.
4.4.2 There is a system of performance management and review embedded within the Authority’s management structure and processes. The 2014/19 Integrated Risk Management Plan and the 2019/22 Strategic Plan set out the Authority’s key objectives and these are reflected in annual departmental business plans. These plans are then monitored by Corporate Support and managed by the individual departmental management teams.
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4.4.3 Risk management at the strategic / corporate level forms part of the overall responsibilities of The Finance and Resources Committee and Members of this committee take a keen interest in Risk Management and receive update reports every six months. Risk Management is an integral part of project management and business planning within the Corporate Support department and both this and operational risk management are considered strong. The Service has a Risk Assurance Team which is responsible for corporate risk, operational risk and health and safety risk. The purpose of this is to enhance the co-ordination of assurance activities and management of risk within the Service.
4.4.4 The Authority employs appropriate professional staff:
- A Statutory Monitoring Officer is responsible for ensuring the legality of Authority actions and supporting the Committee decision making process. No actions of the Authority were deemed ultra vires in the year. All relevant laws and regulations are being complied with, although a correction of the tax treatment of car leasing arrangements and essential user lump sums was required during the year following an independent tax audit requested by the service. The monitoring officer is a qualified solicitor provided on a contractual basis to the Authority by the Legal Services Department of Nottingham City Council. This arrangement also includes support for the Authority’s wider governance structure.
- A Responsible Finance Officer is appointed as the independent Treasurer to the Authority to ensure the proper and effective administration of the financial affairs of the Authority. The Strategic Leadership Team ensures that the Authority approves a realistic and affordable financial plan for both revenue and capital expenditure which links to the IRMP / Strategic Plan. The Authority continued to ensure it had good arrangements for managing its finances including strong leadership throughout the year. The financial planning process is well embedded and understood across the Authority by staff and Members. An in house financial team managed by the Head of Finance maintains the correct competencies and ensures that the Strategic Leadership Team receives all appropriate information to support the key decisions and objectives of the service.
4.4.5 In addition to the Treasurer the Authority also employs a Head of Finance who fulfils the role of Chief Financial Officer. This post holder is responsible for advising both senior managers and elected members on all financial matters. This is a role shared with the Treasurer who is seen to act independently of the Strategic Leadership Team’s advice to the Fire Authority. In reality, these two officers work very closely together. Both officers are professionally qualified and have many years’ experience within Local Government finance.
4.4.6 A full review was most recently carried out in 2015 of the role of Chief Financial Officer and, always accepting that the key statutory responsibilities under Sections 114 of the Local Government and Finance Act 1988 are held by the Treasurer, all of the principles set out in the CIPFA document The Role of the Chief Financial Officer are met.
4.4.7 Budget monitoring remains robust at both strategic and service level via the production of monthly financial monitoring reports for both Capital and Revenue budgets. These reports as well as being scrutinised by budget managers are also reported to the Strategic Leadership Team and quarterly to the Finance and Resources Committee.
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4.4.8 Functional Heads also exercise a detailed degree of budget monitoring against the capital programme.
4.4.9 The External Auditor approved an unqualified Statement of Accounts for 2017/18 and it is anticipated this will be repeated in 2018/19. A presentation by the Head of Finance on the final accounts by way of a detailed year-end report to the Authority helped to communicate the year-end position to Members in a clear and understandable format.
4.4.10 Towards the end of the financial year, Internal Audit reviewed the Authority’s governance arrangements against the Local Code of Corporate Governance adopted by the Authority in February 2017. The audit judged the authority to have a reasonable level of assurance, with no recommendations being made requiring immediate action. Six lower priority recommendations were made, which are being addressed.
In all, 26 policies have been reviewed during the year. These were mostly operational, ICT and Human Resources related but did include the Counter Fraud and Money 4.4.11 Laundering Policy and the Business Continuity Management Policy.
Under the Civil Contingencies Act (2004) (Part 1. Para 2(1) (C)) and The Fire and Rescue Services Act 2004 there is a duty for all Category 1 Responders to prepare plans 4.4.12 to ensure so far as reasonably practicable, that if in an emergency the Service can perform its core functions. NFRS has been developing its Business Continuity Management System (BCMS) for many years. Business Continuity plans have been reviewed during the year and a table top exercise was undertaken in November 2018 to test BCM arrangements. These exercises will be undertaken at regular intervals to ensure that the service has the capability to meet its obligations.
Work continues on a new performance management framework. New software has been purchased and is in the process of being populated. The aim of this work is to 4.4.13 improve the management of organisational performance and to increase accountability to the community in respect of the way that services are delivered.
In addition to the usual Internal and External Audit reviews, the Authority has had its first inspection by Her Majesty’s Inspectorate of Constabulary and Fire and Rescue Services 4.4.14 (HMICFRS) which took place in January and February 2019. The inspection focused on Efficiency, Effectiveness and People and will provide a useful benchmarking opportunity against other Fire Authorities. The Inspection delivered an overall rating of Requires Improvement. Whilst some areas of perfomance were awarded a rating of Good (protecting the public through fire regulation and responding to national risks) other areas were judged to be requiring improvement. Many of these areas were already identified as areas requiring improvement in the Service's Strategic Plan. The Service will continue to monitor progress against the Strategic Plan and HMICFRS recommendations.
The Authority published its first Efficiency Plan (Sustainability Strategy) back in 2016/17 to cover the period up to 2019/20. The plan set out targets for achieving savings over 4.4.15 the period and update reports are regularly received by Fire Authority. In February 2018 Fire Authority approved the implementation of a mixed crewing model at both Ashfield and Retford fire stations which saw the replacement of overnight wholetime duty system cover with an on call duty system cover at the two stations from April 2019.
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4.5 Internal Audit
4.5.1 The Authority procures its internal audit service under a contract with Nottinghamshire County Council and the arrangement and service was in accordance with the UK Public Sector Internal Audit Standards. The internal audit plan for 2018/19, prioritised by a combination of the key internal controls, assessment and review on the basis of risk, was approved by the Finance and Resources Committee during the year. All internal audit reports included an assessment of the internal controls and prioritised action plans, if relevant, to address any areas needing improvement. These reports were submitted to the Chief Fire Officer, the Head of Finance and the relevant managers as appropriate. All finalised reports were submitted to the Finance and Resources Committee acting in its role as Audit Committee.
4.5.2 The Annual Internal Audit Report, which will be reported to the Finance and Resources Committee during 2018 concluded that:
“From the work carried out during the 2018/19 financial year, we have been able to satisfy ourselves that the overall level of internal control is satisfactory and provides a good basis for effective financial and resource management”.
4.6 External Review
The External Auditors are required by the International Standard on Auditing 260 (ISA 4.6.1 260) to communicate about the audit of the Authority’s financial statements with those charged with governance. This communication is in the form of a written report which was presented to Members in July 2018.
The principal purposes of the Auditors’ report are: 4.6.2 - To present key issues identified during the audit of the financial statements for the year ended 31 March 2018 and any material misstatements in the accounts - To report on any key issues for governance - To report on the Auditors’ Value for Money conclusion - To give an “audit opinion” on the financial statements - To report on the implementation of any recommendations in the previous year’s ISA 260 report - To seek approval to the management representation letter, which confirms the Authority’s responsibilities and actions in relation to the financial statements
The ISA 260 report for the 2017/18 Statement of Accounts from KPMG LLP confirmed 4.6.3 that the quality of the accounts was good. The audit did not identify any material or significant errors in the financial statements. There were no presentational corrections required and no adjustments required to accounting policies.
From 2018/19, the audit of the final accounts will be provided by Ernst & Young LLP. 4.6.4 Three risks were identified in their External Audit Plan for 2018/19. These related to the risk of management override in order to perpetrate fraud, valuation of assets and valuation of the pension liabilities. These areas will be reviewed as part of the 2018/19 audit.
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5 SIGNIFICANT ISSUES FOR GOVERNANCE IN 2019/20
5.1 The Fire and Rescue National Framework for England came into force on 1 June 2018. Every fire and rescue authority must have regard to the Framework in carrying out their functions. Every authority must publish an annual statement of assurance of compliance with the framework. This will be presented annually to Fire Authority in September.
5.2 The framework addresses the requirements of the Policing and Crime Act 2017. This Act has introduced the duty for emergency services to consider collaboration opportunities in all that they do and, although much collaborative work already takes place, this will drive further collaboration over the coming years. The Act also allows Police and Crime Commissioners to take over responsibility for fire and rescue where a local business case is made and this may lead to significant changes in governance for the fire sector in the future.
5.3 In September 2017 Members agreed NFRS’s collaboration strategy. The strategy identified that a Strategic Collaboration Board (SCB) should be established to provide oversight of the collaboration workstreams. The SCB should report into the existing Fire Authority structures and does not have autonomy as a decision-making body.
5.4 In February 2019 Fire Authority approved entering into a collaborative agreement with the Office of the Police and Crime Commissioner of Nottinghamshire for a joint headquarters. In June 2019, the Joint Control room will open which will provide the control room service for both Derbyshire and Nottinghamshire Fire and Rescue services. In addition to these projects, other collaboration opportunities are being identified and developed. This increased level of collaboration will also lead to changes in governance for these service areas.
5.5 Another feature of the new legislation was the creation of a new statutory inspectorate for fire and rescue services. The service has had its first inspection early in 2019 with the report due to be published in the summer. The service will need to ensure that governance arrangements are in place to deliver any required changes.
5.6 The National Framework contains the continued requirement for the authority to have an Integrated Risk Management Plan (IRMP). The Authority’s Strategic Plan sets out the strategic objectives of the organisation and how the service will aim to achieve them. The plan will help align resources to the corporate priorities when the Medium Term Financial Strategy is developed in the autumn.
5.7 The 2019/20 budget process identified an ongoing budget deficit in the region of £800k. The Authority has funding agreed for 2019/20, but beyond this, funding levels will be agreed as part of the spending review. In normal circumstances, this would provide the service with a 4 year funding projection. However, due to the ongoing Brexit negotiations, it is likely that there will be a delay in the spending review and a 1 year agreement will be negotiated over the summer. Work is ongoing on the revision of the Fire Funding Formula and the methodology for business rates distribution.
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5.8 There is a significant amount of uncertainty regarding pensions. The change in the discount rate applied to future payments into the pension scheme has increased the service’s employer liability by £2.57m. For 2019/20 the Home Office has provided additional grant of £2.34m but the future of this additional funding is uncertain. There is also an ongoing court case regarding the transition arrangements in the 2015 firefighter’s pension scheme. These have been judged to be discriminatory on the grounds of age. Depending on the remedy, there may be considerable additional costs which will need to be met.
5.9 The Service may also be affected by the UK’s exit from the European Union, but at this stage in the process the impacts are unclear. The risk associated with “Brexit” is on the Authority’s strategic risk register and will continue to be monitored and managed as appropriate.
5.10 With so much financial uncertainty, the Authority needs to ensure that the service continues to operate within a balanced budget. The Medium Term Financial Strategy will need to be a prudent but flexible document and identify different options for creating savings in future years, allowing for the impact of any budget reductions to be delivered in a manageable way.
5.11 During the coming year, the Service will seek to address the above matters through its current structures and processes to further enhance governance arrangements.
Signed…………………………………… Signed……………………………………
Councillor Michael Payne John Buckley CHAIR OF THE FIRE AUTHORITY CHIEF FIRE OFFICER
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GLOSSARY OF TERMS
Accruals
The concept that income and expenditure are recognised as they as earned or incurred, not as money is received or paid.
Budget
A statement of the policy of the Authority expressed in financial terms. The budget is the financial element of a range of plans adopted by the Authority which include the Medium Term Financial Strategy and the Community Safety Plan.
Capital Expenditure
Expenditure on the acquisition of assets or expenditure which adds to, and not merely maintains, the value of existing assets.
Capital Receipts
Income derived from the sale of capital assets.
Chartered Institute of Public Finance and Accountancy (CIPFA)
The principal accountancy body dealing with Local Authority and Public Sector finance.
Contingent Liability
A possible obligation arising from past events whose existence will be confirmed by the occurrence of an uncertain future event not wholly within the Authority’s control. It can also be a present obligation arising from past events where it is not probable that a transfer of economic benefits will be required or where the amount of the obligation is uncertain.
Creditors
Amounts owed by the Authority for which no payment has been made at the end of the financial year.
Debtors
Amounts due to the Authority for which no payment has been received at the end of the financial year.
Depreciation
The measure of the wearing out, consumption or other reduction in the useful economic life of an asset during an accounting period.
Finance Leasing
A method of financing the acquisition of assets. Legally the assets are owned by the lessor, although the risks and rewards of ownership of the asset pass to the lessee. The assets are shown on the Balance Sheet of the Authority.
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Financial Instrument
Any contract which gives rise to a financial asset of one entity and a financial liability of another. Typical financial instruments are: trade payables, borrowings, bank deposits, trade receivables and investments.
Non-Current Assets
Tangible or intangible assets which yield benefits to the Authority for a period of more than one year. Tangible assets include land and buildings and certain specialist vehicles and equipment. Intangible assets include software.
Impairment
A reduction in the value of an asset, which is additional to the expected depreciation of that asset. Impairment may be a result of, for example, physical damage or reducing prices.
Operating Leasing
A method of financing the acquisition of assets, notably vehicles, plant and equipment which involves the payment of an annual rental for a period which is usually less than the useful life of the asset.
Provision
A liability or loss which is likely or certain to be incurred but where the date and precise amount are uncertain.
Reserve
An amount set aside for purposes outside the definition of provisions. Reserves include earmarked reserves set aside for specific policy purposes and balances which represent resources set aside for general contingencies.
Revenue Contribution to Capital Outlay
A fixed asset purchased directly from revenue contributions.
Revenue Expenditure and Income
That expenditure and income which relates to the day to day activities of the Authority.
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Nottinghamshire and City of Nottingham Fire and Rescue Authority
EXTERNAL AUDITORS’ REPORT TO THOSE CHARGED WITH GOVERNANCE 2018/19
Joint Report of the Chief Fire Officer and the Treasurer to the Fire Authority
Date: 20 December 2019 Purpose of Report:
To present the External Auditors’ ISA 260 Report to Members, and to seek approval of the management representation letter to the External Auditors.
Recommendations:
• That Members note the contents of the External Auditors’ ISA 260 report, attached at Appendix A.
CONTACT OFFICER
Name : Becky Smeathers Head of Finance Tel : 0115 967 0880
Email : [email protected]
Media Enquiries Therese Easom Contact : (0115) 967 0880 [email protected]
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1. BACKGROUND
1.1 The External Auditors are required by the International Standard on Auditing 260 (ISA 260) to communicate about the audit of the Authority’s financial statements to those charged with governance. This communication is in the form of a written report, which is attached as Appendix A.
1.2 This covering report sets out the key points within the ISA 260 report. The principal purposes of the Auditors’ report are:
• To present key issues identified during the audit of the financial statements for the year ended 31 March 2019 and any material misstatements in the accounts;
• To report on any key issues for governance;
• To report on the Auditors’ Value for Money conclusion;
• To give an “audit opinion” on the financial statements;
• To report on the implementation of any recommendations in the previous year’s ISA 260 report;
• To seek approval to the management representation letter, which confirms the Authority’s responsibilities and actions in relation to the financial statements.
1.3 The Ernst Young manager of the Authority’s audit will be attending the meeting to present the report and answer any questions arising, and will also provide Members with an update on the audit work completed since this report was written.
2. REPORT
2.1 The annual audit is in the completion stage and the ISA 260 report sets out the key issues to be considered by Members prior to the audit opinion being issued.
2.2 The ISA 260 report confirms that the Auditors expect to issue an unqualified audit and an unqualified Value for Money conclusion.
2.3 The audit has identified a number of amendments to be made to the accounts. These are detailed on Page 23 of the ISA260 report. The most significant amendment relates to the revised actuarial calculations on both the Firefighters’ Pension Fund and the Local Government Pension Fund to reflect the recent McCloud judgment on
Page 140 the transition arrangements in the 2015 firefighter’s pension scheme which have been judged to be age discriminatory.
2.4 The amendments had no impact on the outturn position reported to Finance and Resources Committee on 28 June 2019, which reported the use of £1.377m of funding from general reserves.
2.5 The ISA 260 report identifies several audit differences which have not been amended on the grounds of materiality. These can be found on Page 24 of the report.
2.6 The audit identified a number of areas where the reporting function within the general ledger accounting system did not provide a sufficient breakdown of information to verify a number of fixed asset entries. Work has already commenced to correct this problem in order that it is resolved in time for the 2019/20 audit.
2.7 The valuation of assets is currently undertaken on a five-year rolling programme. The audit has identified that where assets have not been valued for several years, the valuation figure can be materially misstated. The accounting policy for valuing assets will be reviewed before the 2019/20 valuations are undertaken.
3. FINANCIAL IMPLICATIONS
The proposed Annual Audit Fee for 2018/19 was £23,909, although this may be subject to additional fees. The Fee for 2019/20 is expected to remain at £23,909.
4. HUMAN RESOURCES AND LEARNING AND DEVELOPMENT IMPLICATIONS
There are no human resources or learning and development implications arising from this report.
5. EQUALITIES IMPLICATIONS
An equality impact assessment has not been carried out because this is a report about the External Audit of the financial statements and not a new policy.
6. CRIME AND DISORDER IMPLICATIONS
There are no crime and disorder implications arising from this report.
7. LEGAL IMPLICATIONS
There are no legal implications arising from this report.
Page 141
8. RISK MANAGEMENT IMPLICATIONS
The work of the External Auditors in their audit of the Authority’s financial statements provides an independent view of the adequacy of internal controls, the accuracy of the final accounts and an assessment of the Authority’s arrangements for achieving value for money. This provides Members with some assurance about the quality of financial management and financial reporting within the Authority.
9. COLLABORATION IMPLICATIONS
There are no collaboration implications arising from this report.
10. RECOMMENDATIONS
That Members note the contents of the External Auditors’ ISA 260 report, attached as Appendix A.
11. BACKGROUND PAPERS FOR INSPECTION (OTHER THAN PUBLISHED DOCUMENTS)
None.
John Buckley Charlotte Radford CHIEF FIRE OFFICER TREASURER TO THE FIRE AUTHORITY
Page 142 Nottinghamshire Fire and Rescue Authority Audit results report Year ended 31 March 2019
5 December 2019 Page 143 Page Private and confidential
Page 144 Page Nottinghamshire Fire and Rescue Authority Headquarters Bestwood Lodge Drive Arnold Nottingham NG5 8PD 5 December 2019 Dear Members of the Nottinghamshire Fire and Rescue Authority We are pleased to attach our audit results report for the forthcoming meeting of the Fire Authority. This report summarises our preliminary audit conclusion in relation to the audit of Nottinghamshire Fire and Rescue Authority (the Authority) for 2018/19. Subject to concluding the outstanding matters listed in our report, we confirm that we expect to issue an unqualified audit opinion on the financial statements in the form at section 3. We also have no matters to report to date on your arrangements to secure economy, efficiency and effectiveness in your use of resources and we will finalise our conclusion once we have completed all our outstanding work.
This report is intended solely for the use of Members of The Authority and senior management. It should not be used for any other purpose or given to any other party without obtaining our written consent.
We would like to thank your staff for their help during the engagement. We welcome the opportunity to discuss the contents of this report with you at the Fire Authority meeting on 20 December 2019.
Yours faithfully
Neil Harris Associate Partner For and on behalf of Ernst & Young LLP Encl
2 Contents
Audit Value for Executive Areas of Audit Report 01 Summary 02 Audit Focus 03 04 Differences 05 Money
V F M Page 145 Page Other Assessment of Data Independence Appendices 06 reporting 07 Control 08 Analytics 09 10 issues Environment Public Sector Audit Appointments Ltd (PSAA) have issued a ‘Statement of responsibilities of auditors and audited bodies’. It is available from the Chief Executive of each audited body and via the PSAA website (www.psaa.co.uk). This Statement of responsibilities serves as the formal terms of engagement between appointed auditors and audited bodies. It summarises where the different responsibilities of auditors and audited bodies begin and end, and what is to be expected of the audited body in certain areas. The ‘Terms of Appointment (updated April 2018)’ issued by PSAA sets out additional requirements that auditors must comply with, over and above those set out in the National Audit Office Code of Audit Practice (the Code) and statute, and covers matters of practice and procedure which are of a recurring nature. This Audit Results Report is prepared in the context of the Statement of responsibilities. It is addressed to the Members of the audited body, and is prepared for their sole use. We, as appointed auditor, take no responsibility to any third party. Our Complaints Procedure – If at any time you would like to discuss with us how our service to you could be improved, or if you are dissatisfied with the service you are receiving, you may take the issue up with your usual partner or director contact. If you prefer an alternative route, please contact Steve Varley, our Managing Partner, 1 More London Place, London SE1 2AF. We undertake to look into any complaint carefully and promptly and to do all we can to explain the position to you. Should you remain dissatisfied with any aspect of our service, you may of course take matters up with our professional institute. We can provide further information on how you may contact our professional institute. 3 Page 146 Page
01 Executive Summary
4 Executive Summary
Scope update Our audit planning report, tabled at the 29 March 2019 Finance and Resources Committee meeting, provided you with an overview of our audit scope and approach for the audit of the financial statements. We carried out our audit in accordance with this plan. However, as communicated in our progress report dated 16 September 2019 we have extended our procedures in the following areas:
• Inclusion of a significant risk for the existence of Property, Plant and Equipment. This arose as our audit indicated that the Register for Property, Plant and Equipment did not reconcile to the relevant Note at gross asset and gross depreciation level with the relevant Note 15, in the financial statements; • Inclusion of a significant fraud risk as regards the capitalisation of revenue expenditure, given that capital expenditure within the draft financial statements is above our performance materiality; • Engagement of EY’s internal valuers, EY Real Estate, to review the valuations of higher risk assets valued at depreciated replacement cost; • Engagement of EY Real Estates to challenge the assumptions of the Authority’s own valuer in respect of a number of assets not revalued in the year, where our initial assessment of the valuation based on indices indicated that the estimate for depreciated replacement cost valuations were outside our acceptable range; • We extended our audit procedures to review management’s consideration of the judgment and apply sensitivity analysis to the local government actuarial amendments in response to the McCloud/Sargeant judgment, brought to address the impact of historical age discrimination in the treatment of pensioners. We have also considered actuarial assessments as regards Guaranteed Minimum Pension and the movement of pension assets between the original date of the actuarial valuation and the 31 March 2019; • Given the complexity of the Firefighter Pension Scheme Membership, we have engaged EY’s Pensions to review the Pension Fund’s actuaries calculations for the McCloud/Sargeant adjustment; and • In respect of our value for money conclusion we have identified three new significant risks: • The Authority’s Medium Term Financial Plan highlighted the continued use of significant General and Earmarked Reserves to support the budget is not sustainable and would result in the Authority falling below the £3.9m minimum level agreed if the identified budget gap of £1.576 million deficit (being £798k in 2020/21 and £778k in 2021/2) is not eliminated in 2020/21. we have included a significant risk to assess financial resilience; • In July 2018 Authority Members approved the establishment of a Strategic Collaboration Board with Derbyshire Fire & Rescue Service. Arising from this Page 147 Page collaboration was a Joint Fire Control Centre with Derbyshire located at Ascot Drive, Derby. The control centre became operational on 1 July 2019. However, given the disclosure of Termination Benefits for fourteen employees to the value of £0.648 million we have included a significant risk within our Value for Money Conclusion work to review the governance arrangements and decision-making process for the implementation of the joint control room; and • In February 2019, the Fire Authority agreed to enter into a collaboration agreement with the Police and Crime Commissioner CC of Nottinghamshire through a Limited Liability Partnership for a joint headquarters at Sherwood Lodge. We have included a significant risk within our Value for Money Conclusion work to review the governance arrangements and decision-making process for the joint Headquarters.
• We have reported the results of our work in Section 2 of this Report.
5 Executive Summary
Scope update
Changes in Materiality • We have updated our planning materiality assessment using the draft results and have also reconsidered our risk assessment. Based on our materiality measure of Page 148 Page gross expenditure on provision of services, we have updated our overall materiality assessment to £1.326m (Audit Planning Report — £1.071m). This results in updated performance materiality, at 50% of overall materiality, of £0.663m (£0.535), and an updated threshold for reporting unadjusted misstatements of £61,000 (£54,000). • We also updated our materiality in respect of the Firefighters’ Pension Fund Accounts. Based on our materiality measure using Benefits Payable, we have updated our overall materiality assessment to £0.329m (Audit Planning Report — £0.281m). This results in updated performance materiality, at 50% of overall materiality, of £0.165m (£0.140), and an updated threshold for reporting misstatements of £16,000 (£14,000).
Status of the audit
Our audit procedures are substantially complete. We received a revised set of financial statements on 21 November which contained revisions to the property, plant and equipment disclosures, expenditure and funding analysis (including prior period adjustment) and incorporation of the impact of the McCloud judgement in respect of the Pension Scheme Liabilities. We have performed the procedures outlined in our audit planning report except for the changes in scope referenced on the previous page. We have set out in Appendix B the remaining areas of work to be completed at the time of writing this report. Subject to satisfactory completion of those matters, we expect to issue an unqualified opinion on the Authority’s financial statements in the form which appears at Section 3. However until work is complete, further amendments may arise.
Audit differences We identified a number of unadjusted audit differences in the course of our audit which are set out in section 4 of this report. The net impact of these would be to reduce the reported outturn by £128k.
We have reported those adjusted audit differences above our audit performance materiality threshold in Section 4 Audit Differences.
Additionally, we identified differences in the draft financial statements which management has chosen not to adjust. We ask that they be corrected or a rationale as to why they are not corrected be approved by the Nottinghamshire Fire and Rescue Authority and included in the Letter of Representation.
6 Executive Summary
Areas of audit focus
Our Audit Planning Report identified key areas of focus for our audit of the Authority’s financial statements This report sets out our observations and conclusions, including our views on areas which might be conservative, and where there is potential risk and exposure. We summarise our consideration of these matters, and any others identified, including our work on the valuation of assets and the revised actuarial reports commissioned by the Authority in the "Key Audit Issues" section of this report. We ask you to review these and any other matters in this report to ensure: • There are no other considerations or matters that could have an impact on these issues • You agree with the resolution of the issue • There are no other significant issues to be considered. There are no matters, apart from those reported by management or disclosed in this report, which we believe should be brought to the attention of the Nottinghamshire Fire and Rescue Authority.
Control observations We have adopted a fully substantive approach, so have not tested the operation of controls. However, we wish to report the following area where improvements could be made to the control environment: • A rigorous quality control of the financial statements and supporting working papers before publication for 31 May 2019 deadline; • A review of the Property, Plant and Equipment Register to ensure that it is able to provide audit trails which support the financial statements; and • Collation of all documents relevant to the £8.6 million Lender option, Borrow Option (LOBO) loan, including the agreement to evidence break clauses and potential interest rate rises. Our key considerations are outlined in section 7.
Page 149 Page Value for money We have considered your arrangements to take informed decisions, deploy resources in a sustainable manner and work with partners and other third parties. In our Audit Planning Report we identified no significant risks around our Value for Money Conclusion. However, following the start of our audit we have identified three significant risks being: • Sustainable resource deployment: the Authority’s arrangements for the addressing the budget gap of £1.576 million by 31 March 2022, given the use of £1.595 million and £1.780 million General and Earmarked Reserves in 2018/19 to fund the budget and the anticipated £1.240 million use of General Fund Reserves highlighted in the February 2019 Medium Term Financial Plan to fund the 2019/20 budget; • Taking informed decisions and working with partners and third parties: the Authority’s arrangements for the governance and decision making processes concerning Joint Fire Control Centre with Derbyshire Fire and Rescue Authority located at Ascot Drive, Derby; and • Taking informed decisions and working with partners and third parties: the Authority’s arrangements for the governance and decision making processes concerning Joint Police and Fire Headquarters with the Police and Crime Commissioner for Nottinghamshire. We have undertaken appropriate procedures and concluded that we have no matters to include in the auditor’s report about your arrangements to secure economy efficiency and effectiveness in your use of resources and anticipate issuing an unmodified opinion. Our key considerations are outlined in section 5.
7 Executive Summary
Other reporting issues We have reviewed the information presented in the Annual Governance Statement for consistency with our knowledge of the Authority. The Authority has made a number of amendments to the Annual Governance Statement as a result of our work (See Section 6). We have no other matters to report as a result of this work.
We 150 Page have also reviewed the Authority’s Narrative Report for consistency with the financial statements and our knowledge. We have made observations about enhanced context within the Report and the highlighting the key performance indicators within the Report. We have no other matters to report as a result of this work.
We are not reporting any matters to the National Audit Office (NAO) regarding the Whole of Government Accounts submission as the Authority falls below the £500 million threshold for review as per the NAO’s group instructions.
We have no other matters to report.
Independence Please refer to Section 9 for our update on Independence. We have no independence issues to bring to your attention.
8 Page 151 Page 02 Areas of Audit Focus
9 Areas of Audit Focus Significant risk
What is the risk?
Page 152 Page Misstatements due to fraud or error The financial statements as a whole are not free of material misstatements whether caused by fraud or error. As identified in ISA (UK and Ireland) 240, management is in a unique position to perpetrate fraud because of its ability to manipulate accounting records directly or indirectly and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. We identify and respond to this fraud risk on every audit engagement.
What judgements are we focused on? What are our conclusions?
We have considered the risk of management override and the areas of the financial statements We have not identified any material weaknesses in controls or that may be most susceptible to this risk. For the Authority, we have identified the potential for the evidence of material management override. incorrect classification of revenue spend as capital where there is a risk of fraud or error. We have not identified any instances of inappropriate judgements being applied.
What did we do? We did not identify any other transactions during our audit which • Identified fraud risks during the planning stages; appeared unusual or outside the Authority‘s normal course of • Asked management about risks of fraud and the controls put in place to address those risks; business. • Understood the oversight given by those charged with governance of management’s processes over fraud; • Considered the effectiveness of management’s controls designed to address the risk of fraud; • Performing mandatory procedures regardless of specifically identified fraud risks, including testing of journal entries and other adjustments in the preparation of the financial statements. • Test the appropriateness of journal entries recorded in the general ledger and other adjustments made in the preparation of the financial statements • Assess accounting estimates for evidence of management bias, and • Evaluate the business rationale for significant unusual transactions.
10 Areas of Audit Focus Significant risk
Incorrect capitalisation of What is the risk? As identified in ISA 240, management is in a unique position to perpetrate fraud because of its ability to manipulate revenue expenditure accounting records directly or indirectly and prepare fraudulent financial statements by overriding controls that would otherwise appear to be operating effectively.
In considering how the risk of management override may present itself, we conclude that this is primarily through management taking action to override controls and manipulate in year financial transactions that impact the medium to longer term projected financial position.
A key way of improving the revenue position is through the inappropriate capitalisation of revenue expenditure. The Authority has a significant fixed asset base and had material capital expenditure of £0.893 million and therefore has the potential to impact the revenue position through inappropriate capitalisation.
What judgements are we focused on? What are our conclusions? How management decides on appropriate capitalisation of revenue expenditure. We have not identified any additions that were incorrectly
Page 153 Page capitalised. How the capital programme complies with proper capital strategy principles.
] What did we do?
Ø Sample testing additions to property, plant and equipment to ensure that they have been correctly classified as capital and included at the correct value in order to identify any revenue items that have been inappropriately capitalised.
11 Areas of Audit Focus Significant risk
What is the risk? Valuation of Land and Buildings Page 154 Page Valuation of Land and Buildings The fair value of land and buildings, assets under construction and investment properties represents significant balances in the accounts and are subject to valuation changes, impairment reviews and depreciation charges.
Management is required to make material judgemental inputs and apply estimation techniques to calculate the year- end balances recorded in the balance sheet
What judgements are we focused on? How management has valued its land and buildings, taking into account source documentation, useful economic lives and depreciation and is content that all valuations ae up to date. How management ensures the existence of all its assets.
What did we do? • Considered the work performed by the Authority’s valuer; District Valuation Service (DVS), including the adequacy of the scope of the work performed, their professional capabilities and the results of their work; • Sample tested key asset information used by the valuers in performing their valuation (e.g. floor plans to support valuations based on price per square metre); • Considered the annual cycle of valuations to ensure that assets have been valued within a 5 year rolling programme as required by the Code for PPE. We also considered if there are any specific changes to assets that have occurred and that these have been communicated to the valuer, for example on construction work with Fire Stations (e.g. at Hucknall, Newark and Worksop); • Reviewed assets not subject to valuation in 2018/19 to assess whether the remaining asset base is free from material misstatement; • Considered changes to useful economic lives as a result of the most recent valuation; and • Tested accounting entries have been correctly processed in the financial statements.
12 Areas of Audit Focus Significant risk
What is the risk? Valuation of Land and Valuation of Land and Buildings Buildings (continued) The fair value of land and buildings, assets under construction and investment properties represents significant balances in the accounts and are subject to valuation changes, impairment reviews and depreciation charges.
Management is required to make material judgemental inputs and apply estimation techniques to calculate the year- end balances recorded in the balance sheet
What are our conclusions? We engaged EY Real Estates to review in detail a sample of 4 specific assets: Former Newark Fire Station, New Newark Fire Station, Service Delivery Centre and Edwinstowe Fire Station. The results of this review were then used to provide assurance over the remaining valuations provided by DVS. EY Real Estate advised that the valuation of New Newark Fire Station of £3.25m was overstated by between £300k-£600k. This was primarily due to the method by which the associated land has been valued (incorrectly as 30% of the depreciated replacement cost of the building rather than on a market basis). As a result of this finding, we engaged EY Real Estate to further examine the land values of an additional sample of assets (Bingham fire station, Collingham fire station, Edwinstowe fire station, Harworth fire station and Warsop fire station). No issues were found in the extended sample, with the values being within an acceptable range. We have recorded the overstatement of the land value at the New Newark fire station of £600k on our summary of audit differences. Page 155 Page We traced the valuations provided by the valuer through to the fixed asset register. In doing so we noted that the Former Newark Fire Station (valued at £250k) is a surplus asset, but has not been disclosed as such in the financial statements. This is not in compliance with the CIPFA Code of Practice on Local Authority Accounting. It is a balance sheet reclassification misstatement only.
We considered whether the carrying value of those assets not valued during 2018/19 were materially misstated. Using indices provided by the consulting valuer, engaged by the national Audit office, we determined that the assets were undervalued by £3.5m. The Authority then sought further input from its valuer to consider whether the valuation of certain key assets had materially moved since last formal valuation. This concluded that the value of these 3 assets was understated by £1.9m. Management have adjusted the draft financial statements to reflect these revaluation increases. The remaining undervaluation of assets not valued in the year has been recorded on our summary of audit differences. Management do not consider this to be material to the users of the financial statements.
The CIPFA Code of Practice on Local Authority Accounting requires that revaluations should be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using the current value at the end of the reporting period. We requested that Management make a late adjustment to the 2018/19 financial statements to ensure this requirement is fulfilled. We therefore recommend that management ensure that as part of the annual financial statement preparation process, a formal assessment is undertaken as to the appropriateness of the carrying value of the assets not formally revalued in year. 13 Areas of Audit Focus Significant risk
What is the risk? Valuation of Land and Buildings Page 156 Page Valuation of Land and Buildings (continued) The fair value of land and buildings, assets under construction and investment properties represents significant balances in the accounts and are subject to valuation changes, impairment reviews and depreciation charges.
Management is required to make material judgemental inputs and apply estimation techniques to calculate the year- end balances recorded in the balance sheet
What are our conclusions? The CIPFA Code of Practice on Local Authority Accounting sets out that when the carrying amount of property, plant and equipment is increased as a result of a revaluation, the increase shall be recognised in the revaluation reserve, unless the increase is reversing a previous impairment loss or valuation decrease charged to the surplus or deficit on the provision of services on the same asset. The authority has recognised £419k within the CIES reversing previous downward revaluations and/or impairments. Our audit testing concluded that there was insufficient evidence that losses to this extent had been taken through the CIES in previous years and therefore that the CIES is overstated by £191k. This has been included on our summary of uncorrected misstatements in section 4.
14 Areas of Audit Focus Significant risk
What is the risk? Existence of Property, Although agreeing for the net book value of assets, the Property, Plant and Equipment Register did not agree to the Plant and Equipment financial statements at the Gross Book Value and Depreciation level. The Register was recording less assets than were shown in the financial statements,
This poses a risk that the financial statements contain assets which are not in operational use by the Authority.
What judgements are we focused on? What are our conclusions? How management ensures that all assets Our audit work identified differences at the Gross Book level and Depreciation level between the register for recorded in the financial statements exist. Property, Plant and Equipment and the financial statements.
The Authority have used a consultant to review the register to resolve the differences and to provide the relevant audit trails to check the integrity of the Register and to ensure that it supports the financial statements What did we do? • Undertaken work to agree the register for These procedures identified various errors in the financial statements going back previous years where the assets Page 157 Page Property, Plant and Equipment to the disclosed in the notes to the accounts were no longer in operational use and/or no longer existed. This impacted the financial statements; disclosed gross book value and accumulated depreciation of the assets, not the net book value. The errors were neither qualitatively nor quantitatively material to the financial statements and therefore have been corrected in the • Challenged whether the approach to 2018/19 financial year (rather than as a prior period adjustment). We concur with this treatment. correcting errors which were also present in the prior year(s) financial statements was in We have performed sample testing on the property, plant and equipment assets at a level responsive to our accordance with applicable accounting significant risk assessment; tracing back to source documentation/evidence to ensure that the sampled assets exist. standards; We have found no issues to report. • Sample tested assets to land registry records or other supporting information to demonstrate that assets exist, in a manner responsive to our significant risk assessment.
15 Areas of Audit Focus
Other areas of audit focus – Pension Fund Liability Page 158 Page What is the area of focus? What did we do? Our Conclusions
Pension Liability Valuation Local Government and Fire Fighters Pension Schemes The Authority requested an further actuarial report to We have: account for the impact on the pension liability from The Local Authority Accounting • Liaised with the auditors of the Pension Fund, to obtain assurances the effect of the McCloud/ Sargeant and GMP Code of Practice and IAS19 over the information supplied to the actuary in relation to the judgements and change in asset values. require extensive disclosures Authority for the Local Government Pension Scheme (LGPS); We assessed the assumptions within the Authority’s within the financial statements • Assessed the work of the Pension Fund actuary for the two schemes updated actuarial reports and reviewed the regarding membership of the Barnett Waddingham (LGPS) and the Mercer’s (Firefighters’ Pension movement on the total fund asset values. Local Government Pension Scheme), including the assumptions they have used by relying on the The impact of these changes has been to increase the Scheme administered by work of PWC - Consulting Actuaries commissioned by the National pension fund liability by £24.4 million from £544.3 Nottinghamshire County Council. Audit Office for all Local Government sector auditors, and considering million to £568.7 million. Management have amended any relevant reviews by the EY actuarial team; and the financial statements to reflect these increases, see The information disclosed is based • Reviewed and tested the accounting entries and disclosures made Section 4 for the adjustments. on the IAS 19 report issued to the within the Authority’s financial statements in relation to IAS19. Management has also removed the contingent liability PCC and CC by the actuaries to disclosure and updated other references relating to the Nottinghamshire Pension Fund Fire Fighters Pension Scheme (only) McCloud as the sums have now been accounted for and also the Firefighter Pension We have: through the Accounting for Pension Costs Notes in the Fund. Accounting for these • Tested a sample of lump sums and pension payments for new fire financial statements. schemes involves significant fighter pensioners; and estimation and judgement and • Completed a predictive analytical review for both the pensions We have not identified any issues with the accounting therefore management engages payroll and employees and employers pension contributions; entries and disclosures made within the financial an actuary to undertake the statements for the Local Government Pension McCloud/Sargeant, Guaranteed Minimum Pension (GMP) and Scheme. Our EY Pensions Team reviewed the calculations on their behalf. ISAs estimated and actual asset values. (UK and Ireland) 500 and 540 assumptions made for the McCloud impact on the Fire • We have applied sensitivity analysis to the local government actuarial require us to undertake Fighters Pension Schemes and concluded that these amendments in response to the McCloud/Sargeant judgments and procedures on the use of were reasonable. considered actuarial assessments as regards GMP and the movement management experts and the of pension assets; and assumptions underlying fair value estimates • Given the complexity of the Firefighter Pension Scheme Membership, we have engaged EY’s Pension’s to review the Pension Fund’s actuaries calculations for the McCloud/Sargeant adjustment
16 Page 159 Page 03 Audit Report
17 Audit Report
Our draft opinion on the financial statements
Page 160 Page INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF Basis for opinion NOTTINGHAMSHIRE FIRE AND RESCUE AUTHORITY We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards Opinion are further described in the Auditor’s responsibilities for the audit of the financial We have audited the financial statements and the firefighters’ pension fund statements section of our report below. We are independent of the Authority in financial statements of Nottinghamshire Fire and Rescue Authority for the accordance with the ethical requirements that are relevant to our audit of the year ended 31 March 2019 under the Local Audit and Accountability Act financial statements in the UK, including the FRC’s Ethical Standard and the 2014. The financial statements comprise the: Comptroller and Auditor General’s (C&AG) AGN01, and we have fulfilled our other • Movement in Reserves Statement ethical responsibilities in accordance with these requirements. • Comprehensive Income and Expenditure Statement, • Balance Sheet, We believe that the audit evidence we have obtained is sufficient and appropriate • Cash Flow Statement; to provide a basis for our opinion. • Related notes 1 to 42; and • The firefighters’ pension fund financial statements comprising the Pension Conclusions relating to going concern Statements, the Pension Net Assets Statement and the related notes 1 to We have nothing to report in respect of the following matters in relation to which 6. the ISAs (UK) require us to report to you where: • The Chief Financial Officer’s use of the going concern basis of accounting in The financial reporting framework that has been applied in their preparation is the preparation of the financial statements is not appropriate; or applicable law and the CIPFA/LASAAC Code of Practice on Local Authority • The Chief Financial Officer has not disclosed in the financial statements any Accounting in the United Kingdom 2018/19. identified material uncertainties that may cast significant doubt about the Authority’s ability to continue to adopt the going concern basis of accounting In our opinion the financial statements: for a period of at least twelve months from the date when the financial • Give a true and fair view of the financial position of Nottinghamshire statements are authorised for issue. Fire and Rescue Authority as at 31 March 2019 and of its expenditure and income for the year then ended; and Other information • Have been prepared properly in accordance with the CIPFA/LASAAC The other information comprises the information included in the Narrative Report Code of Practice on Local Authority Accounting in the United other than the financial statements and our auditor’s report thereon. The Chief Finance Officer (S151 Officer) is responsible for the other information. Kingdom 2018/19. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
18 Audit Report
Our opinion on the financial statements In connection with our audit of the financial statements, our responsibility is to Matters on which we report by exception read the other information and, in doing so, consider whether the other We report to you if: information is materially inconsistent with the financial statements or our • in our opinion the annual governance statement is misleading or inconsistent knowledge obtained in the audit or otherwise appears to be materially with other information forthcoming from the audit or our knowledge of the misstated. If we identify such material inconsistencies or apparent material Authority; misstatements, we are required to determine whether there is a material • we issue a report in the public interest under section 24 of the Local Audit and misstatement in the financial statements or a material misstatement of the Accountability Act 2014; other information. If, based on the work we have performed, we conclude that • we make written recommendations to the audited body under Section 24 of there is a material misstatement of the other information, we are required to the Local Audit and Accountability Act 2014; report that fact. • we make an application to the court for a declaration that an item of account is contrary to law under Section 28 of the Local Audit and Accountability Act We have nothing to report in this regard. 2014; • we issue an advisory notice under Section 29 of the Local Audit and Opinion on other matters prescribed by the Local Audit and Accountability Accountability Act 2014; or Act 2014 • we make an application for judicial review under Section 31 of the Local Audit and Accountability Act 2014. Arrangements to secure economy, efficiency and effectiveness in the use of resources We have nothing to report in these respects. In our opinion, based on the work undertaken in the course of the audit, having regard to the guidance issued by the Comptroller and Auditor General Responsibility of the Treasurer (C&AG) in November 2017, we are satisfied that, in all significant respects, Page 161 Page Nottinghamshire Fire and Rescue Authority put in place proper arrangements As explained more fully in the Statement of the Treasurer’s Responsibilities set to secure economy, efficiency and effectiveness in its use of resources for the out on page 17, the Treasurer is responsible for the preparation of the Statement year ended 31 March 2019 of Accounts, which includes the Authority financial statements and the firefighters pension fund financial statements, in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2018/19, and for being satisfied that they give a true and fair view.
19 Audit Report Draft audit report Page 162 Page
Our opinion on the financial statements In preparing the financial statements, the Treasurer is responsible for Scope of the review of arrangements for securing economy, efficiency and assessing the Authority’s ability to continue as a going concern, disclosing, as effectiveness in the use of resources applicable, matters related to going concern and using the going concern We have undertaken our review in accordance with the Code of Audit Practice, basis of accounting unless the Authority either intends to cease operations, or having regard to the guidance on the specified criterion issued by the Comptroller have no realistic alternative but to do so. and Auditor General (C&AG) in November 2017, as to whether Nottinghamshire Fire and Rescue Authority had proper arrangements to ensure it took properly The Authority is responsible for putting in place proper arrangements to informed decisions and deployed resources to achieve planned and sustainable secure economy, efficiency and effectiveness in its use of resources, to ensure outcomes for taxpayers and local people. The Comptroller and Auditor General proper stewardship and governance, and to review regularly the adequacy and determined this criterion as that necessary for us to consider under the Code of effectiveness of these arrangements. Audit Practice in satisfying ourselves whether Nottinghamshire Fire and Rescue Authority put in place proper arrangements for securing economy, efficiency and Auditor’s responsibilities for the audit of the financial statements effectiveness in its use of resources for the year ended 31 March 2019. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to We planned our work in accordance with the Code of Audit Practice. Based on our fraud or error, and to issue an auditor’s report that includes our opinion. risk assessment, we undertook such work as we considered necessary to form a view on whether, in all significant respects, Nottinghamshire Fire and Rescue Reasonable assurance is a high level of assurance, but is not a guarantee that Authority had put in place proper arrangements to secure economy, efficiency an audit conducted in accordance with ISAs (UK) will always detect a material and effectiveness in its use of resources. misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could We are required under Section 20(1)(c) of the Local Audit and Accountability Act reasonably be expected to influence the economic decisions of users taken on 2014 to satisfy ourselves that the Authority has made proper arrangements for the basis of these financial statements. securing economy, efficiency and effectiveness in its use of resources. The Code of Audit Practice issued by the National Audit Office (NAO) requires us to report A further description of our responsibilities for the audit of the financial to you our conclusion relating to proper arrangements. statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part We report if significant matters have come to our attention which prevent us from of our auditor’s report. concluding that the Authority has put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources. We are not required to consider, nor have we considered, whether all aspects of the Authority’s arrangements for securing economy, efficiency and effectiveness in its use of resources are operating effectively.
20 Audit Report Draft audit report
Our opinion on the financial statements Certificate The maintenance and integrity of the Nottinghamshire Fire and Rescue Authority We certify that we have completed the audit of the accounts of web site is the responsibility of the directors; the work carried out by the auditors Nottinghamshire Fire and Rescue Authority in accordance with the does not involve consideration of these matters and, accordingly, the auditors requirements of the Local Audit and Accountability Act 2014 and the Code of accept no responsibility for any changes that may have occurred to the financial Audit Practice issued by the National Audit Office. statements since they were initially presented on the web site.
Use of our report Legislation in the United Kingdom governing the preparation and dissemination of This report is made solely to the members of Nottinghamshire Fire and Rescue financial statements may differ from legislation in other jurisdictions. Authority as a body, in accordance with Part 5 of the Local Audit and Accountability Act 2014 and for no other purpose, as set out in paragraph 43 of the Statement of Responsibilities of Auditors and Audited Bodies published by Public Sector Audit Appointments Limited. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Authority and the Authority’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Neil Harris (Key Audit Partner)
Page 163 Page Ernst & Young LLP (Local Auditor) Luton
Date
21 Page 164 Page
04 Audit Differences
22 Audit Differences
In the normal course of any audit, we identify misstatements between amounts we believe should be recorded in the financial statements and the disclosures and amounts actually recorded. These differences are classified as “known” or “judgemental”. Known differences represent items that can be accurately quantified and relate to a definite set of facts or circumstances. Judgemental differences generally involve estimation and relate to facts or circumstances that are uncertain or open to interpretation.
Summary of adjusted differences
There have been a number of amendments which management have agreed to adjust. We highlight the following misstatements greater than our performance materiality of £0.663m which have been corrected by management that were identified during the course of our audit.
• £24.4 million additional pensions deficit in relation to pension liabilities following the receipt of a further actuarial report to take account of the impact arising from changes from McCloud/Sargeant judgement, guaranteed minimum pensions and pension assets. The sum affects the total comprehensive income and expenditure and balance sheet reported for 2018-19.
• Note 8: Expenditure and Income Analysis by Nature for the current year and prior year to show the gross balances for Employee Benefits Expenses and Government Grants, Depreciation, Amortisation and Impairment and Income to accounting for Gain on Disposal gross to bring the Note in line with the Income and Expenditure figures per the Comprehensive Income and Expenditure Statement (CIES).
• Related to the amendment above, the CIES has also been amended for the current and prior periods to reclassify income and expenditure over the service areas.
In respect of disclosure notes, the Authority has amended:
• 165 Page Note 15: Property, Plant and Equipment to bring the disclosure note in line with the Authority’s fixed asset register; and
• Note 32: Officers’ Remuneration: to record an employee within banding 110,000 - 114,999 and to separate out individuals rather than posts and to name staff earning over £150,000 to comply with the CIPFA Code of Accounting Practice employee.
There were also some minor disclosures which have been adjusted by management.
23 Audit Differences
Summary of unadjusted differences Valuation of Property, Plant and Equipment (PPE): As reported in section 2 above, judgemental differences were noted in the valuation of PPE. The new Newark Fire Station is overvalued by a maximum of £600k. The assets not formally revalued in the 2018/19 financial year are undervalued by a maximum of £1.6m. The impact of these errors is to (net) understate PPE and the value of 166 Page the revaluation reserve. There is no impact on the CIES.
Pension Top-Up Grant: We discovered that the pension top-up grant stated in the CIES (note 14) did not agree to the information provided by the home office (nor the pension fund memorandum account). Grant income should be increased by £183k with a corresponding increase to employer contribution expenditure. No impact on the reported outturn for the year.
Misstatements of income/expenditure: In our sample testing of other expenditure, we identified an error relating to a transaction recorded in the 2018/19 financial year where part of the expenditure related to 2019/20 but had not been recorded as a prepayment. Expenditure was therefore overstated. We extrapolated this error over the population subject to sample testing and concluded that in our judgement other expenditure is overstated by £250k.
In our sample testing of fees, charges and other service income, we noted income of £69k relating to the Prince’s Trust which had been recorded in the wrong year, and related to 2017/18. The impact of this error is to increase 2018/19 revenue and decrease the opening general fund balance.
Revaluation increases recognised in comprehensive income and expenditure: As reported in section 2 above, our testing concluded that there was insufficient evidence that losses taken through the CIES in previous years were sufficient to cover the full amount being credited in 2018/19 and that the CIES is overstated by £191k.
Reclassification Misstatements: As reported in section 2 above, the land valued at £250k relating to the old Newark fire station site is misclassified as ‘land and buildings’ and should be reclassified as a ‘surplus asset’.
Short term liabilities include £117k of 2017/18 costs still payable with respect to the ESN Grant and Tri-Service travel costs. This should be reclassified to long term liabilities.
The unadjusted differences set out above do not lead to a modification of our audit opinion in respect of the 2018/19 financial statements as we are comfortable that the cumulative effect on the CIES, the general fund and each affected financial statement line item is not material. However, we will consider the impact of these misstatements (and those which management has adjusted) in our 2019/20 audit which will impact our risk assessments and testing thresholds.
24 Audit Differences
Summary of unadjusted differences Uncorrected misstatements in the statement of cash flows There are no further uncorrected errors in the statement of cash flows.
Uncorrected disclosure misstatements
There are no uncorrected disclosure note misstatements. Page 167 Page
25 Page 168 Page
05 Value for Money Risks 01
26 V F M Value for Money
Background We are required to consider whether the Authority has put in place ‘proper arrangements’ to secure economy, efficiency and effectiveness on its use of resources. This is known as our value for money conclusion. Informed decision making For 2018/19 this is based on the overall evaluation criterion:
“In all significant respects, the audited body had proper arrangements to ensure it took properly informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people”
Proper arrangements are defined by statutory guidance issued by the National Audit Office. They comprise
Proper arrangements for your arrangements to: securing value for money § Take informed decisions; § Deploy resources in a sustainable manner; and Sustainable Working with § Work with partners and other third parties. resource partners and deployment third parties In considering your proper arrangements, we will draw on the requirements of the CIPFA/SOLACE framework for local government to ensure that our assessment is made against a framework that you are already required to have in place and to report on through documents such as your annual governance statement.
Overall conclusion Page 169 Page
At the planning stage of the audit we did not identify a significant risk as regards financial resilience around these arrangements. Since undertaking our planning procedures we increased the scope of our VFM Conclusion work to include three significant risks around taking informed decisions and working with partners and third parties, concerning the Authority’s arrangements for: • Addressing the budget gap of £1.576 million by 31 March 2022; • The governance and decision making processes concerning Joint Fire Control Centre with Derbyshire Fire and Rescue Authority located at Ascot Drive, Derby; and • The governance and decision making processes concerning Joint Police and Fire Headquarters with the Police and Crime Commissioner for Nottinghamshire.
We have undertaken appropriate procedures and concluded that we have no matters to include in the auditor’s report about your arrangements to secure economy efficiency and effectiveness in your use of resources and anticipate issuing an unmodified opinion.
Our findings are in the tables below.
27 V F M Value for Money Value for Money Risks We are only required to determine whether there are any risks that we consider significant within the Code of Audit Practice, where risk is defined as: “A matter is significant if, in the auditor’s professional view, it is reasonable to conclude that the matter would be of interest to the audited body or the wider public” Page 170 Page Our risk assessment supports the planning of enough work to deliver a safe conclusion on your arrangements to secure value for money, and enables us to determine the nature and extent of any further work needed. If we do not identify a significant risk we do not need to carry out further work. The table below presents the findings of our work in response to the risks areas in our Audit Planning Report.
What What is the significant value for arrangements did What are our findings? money risk? the risk affect? Achievement of Savings Needed Sustainable We consider the process for setting the Authority’s budget is sound. We concluded that the MTFP identifies the over the Medium Term resource key assumptions expected to underpin the 2019/20 budget. Management use scenario planning effectively to deployment In common with other Fire and provide guidance to the Authority to make decisions on the level of precept to set. Rescue services, the Authority is However, for both 2017/18 and 2018/19, the Authority reported overspends against budget of £1.166 and facing significant financial £0.488 million respectively. The Authority balanced the budgets through use of £1.595 million and £1.780 pressures in the medium term. million General and Earmarked Reserves. The February 2019 Medium Term Financial Plan anticipated the use of £1.240 million General Fund Reserves to fund the 2019/20 budget. The Plan highlighted a budget gap of Review of the updated MTFS in £1.576 million by 31 March 2022 and indicated if savings were not made General Reserves would fall to £2.693 February 2019, shows that the million and therefore below the minimum level of £3.9 million. organisation has identified of Subsequently, the May 2019 budget monitoring report indicated that a favourable Non-Domestic Rates grant cumulative gross budget deficits settlement, spend on day crewing no longer required and the accounting for joint control room redundancy across 2019/20, 2020/21 and costs in 2018/19 reduced the need to draw on General and Earmarked Funds to £0.232 million in 2019/20. 2021/22, of £1.576 million. The We have tested the sensitivity of reserves by taking into account the Authority’s history of under and deficits are predicated to overspends, past savings achieved, planned use of reserves in 2019/20 to 2021/22 and dependency on increases in Council Tax precept innovative income streams. Using the May 2019 forecast and assuming all earmarked reserves could be used to of 2.95% and 1.95% in future support the budget, the Authority would just have sufficient reserves to cover the budget gap above its years. minimum level of set at £3.9 million. The MTFS indicates that action is We therefore do not propose to qualify the value for money conclusion. However, the Authority needs to be being taken to identify plans to vigilant in taking action to reduce the overspends of the last two years, recognising that the recent extensive mitigate the risk. use of reserves to support the budget is unsustainable and to develop robust plans to achieve ongoing savings to address the budget gap We note that Her Majesty’s Inspectorate of Constabulary and Fire and Rescue Authorities rated the Authority as requiring improvement across areas covering Effectiveness, Efficiency and People. The inspectorate also noted that he Authority should ensure it has sufficiently robust plans in place which fully consider the medium-term financial challenges beyond 2020 so it can prepare to secure the right level of savings.
28 V F M Value for Money
Our Assessment
Page 171 Page In our assessment we considered: • The Authority’s level of savings requirement to balance the General Fund budget in each of the next 3 years of £1.576 million; • The Authority’s history of over or under spending on the General Fund budget, and the impact this trajectory would have on the use of General Fund reserves; • The Authority’s planned use of reserves to support the General Fund budget in each of the next 3 years; • The Authority’s history of delivering savings plans and therefore the potential to call upon reserves to make up a shortfall in future savings plan delivery; and • Reliance upon any income other than grant income which has not been confirmed post 2018/19, upon which the Authority is reliant.
The graph shows borrowing increasing over the next three years.
As a result of our assessment, we note that the Authority’s ‘s calculated General Fund reserve balance at the 31 March 2022 of £5.62 million would remain just above the Authority’s approved minimum level of £3.9 million, should the Authority not be able to deliver the savings to bridge the budget gap of £1.576 million.
29 V F M Value for Money Value for Money Risks We are only required to determine whether there are any risks that we consider significant within the Code of Audit Practice, where risk is defined as: “A matter is significant if, in the auditor’s professional view, it is reasonable to conclude that the matter would be of interest to the audited body or the wider public” Page 172 Page Our risk assessment supports the planning of enough work to deliver a safe conclusion on your arrangements to secure value for money, and enables us to determine the nature and extent of any further work needed. If we do not identify a significant risk we do not need to carry out further work. We present below the findings of our work in response to additional risks identified since our audit planning report.
What is the significant What arrangements What are our findings? value for money risk? did the risk affect? In July 2018 Members Take informed Our audit work has focussed on: approved the decisions and Work with The decision-making arrangements surrounding the implementation of the joint control room. establishment of a partners and other Strategic Collaboration third parties Our review of the arrangements found that to deliver the implementation of the joint control room both Fire Board with Derbyshire Authorities have: Fire & Rescue Service. One of the initial • Held informal and formal meetings involving finance, human resources and legal representation to determine workstreams identified the best option and scoped a road map; was a potential Joint Fire Control with • Sought and received written legal advice to consider: Nottinghamshire located o The process for assigning staff roles from the two control rooms; at Ascot Drive, Derby. o The governance structures might be appropriate for the operation of the Joint Control including The overall cost of 14 powers to establish joint control, and governance options available; and redundancies is £0.7 o The Agreement for Services to formalise joint decision-making rights; million to the Fie Authority. • Developed a Business case for Fire Authority approval for the new control centre detailing the imperatives for the change, governance structures and the reasonableness and role matching, criteria, supported by detailed In progressing significant employment policies, to effect the move; projects there are risks around arrangement for • Detailed the financial consequences of the move within the Business Plan; governance and coming to an informed decision. • Managed the process through the Joint Collaboration Board of the two Authorities;
• Reported progress to Members of the Authority.
We concluded therefore that there was evidence of reasonable arrangements to inform the decision-making process.
30 V F M Value for Money Value for Money Risks We are only required to determine whether there are any risks that we consider significant within the Code of Audit Practice, where risk is defined as: “A matter is significant if, in the auditor’s professional view, it is reasonable to conclude that the matter would be of interest to the audited body or the wider public” Our risk assessment supports the planning of enough work to deliver a safe conclusion on your arrangements to secure value for money, and enables us to determine the nature and extent of any further work needed. If we do not identify a significant risk we do not need to carry out further work. We present below the findings of our work in response to additional risks identified since our audit planning report.
What is the significant What arrangements What are our findings? value for money risk? did the risk affect? In September 2018 and Take informed Our audit work has focussed on the decision-making arrangements surrounding the decisions to redevelop the site February 2019 , decisions and Work with at Sherwood Lodge and progress to the delivery model through an LLP. Our review of the arrangements found Members approved the partners and other that to deliver the implementation of the joint control room the Authority has: development of a third parties • Sought specialist financial and legal advice to consider: business case for a joint • Five options for the future Fire Headquarters including remaining at the current site, a new build or Fire and Police redevelopment of a proposed site located at Sherwood Lodge; Headquarters at • The governance structures which may be appropriate for the delivery of the joint Headquarters Sherwood Lodge, Arnold covering a contractual joint venture, a special purpose vehicles either for a company limited by shares through a Limited and/or guarantee or through an LLP; and Liability Partnership • Taxation and legal consequences of the preferred option for an LLP. (LLP) for a joint • Set out reasons for not proceeding with the new build as advised but to progress a re-development of the site; headquarters site. • Reviewed the financial consequences of the move; • Managed the process through the Strategic Collaboration Board supported by the Collaborative Delivery Board Page 173 Page The total estimated costs and working group comprising Members, Chief Officers and officers of both organisations; for the redevelopment of • Reported progress to Members of the Authority. Sherwood Lodge is circa £18.5m, of which the We concluded therefore that there was evidence of reasonable arrangements to inform the decision-making Authority is to contribute process. However, we note that the February 2019 report to Authority Members: £4 million to be offset by • reported that the Authority’s legal advisors had recommended the LLP as the most appropriate legal the sale of the current Fire framework for collaboration between the Authority and PCC but the basis and detail of decision was not set out Headquarters. for Members to consider; and • Asked Members to approve the move to the LLP. However, an LLP involves complex legal and taxation In progressing significant considerations of which Members need to be aware before final decisions are taken. projects there are risks around arrangement for We recommend that Authority Members in 2019/20 consider a summary of the final taxation and legal guidance governance and coming received and the reasons for not pursuing other governance delivery options before pursuing the LLP model. to an informed decision.
31 Page 174 Page
06 Other reporting issues 01
32 Other reporting issues
Consistency of other information published with the financial statements, including the Annual Governance Statement We must give an opinion on the consistency of the financial and non-financial information in the 2018/19 Statement of Accounts with the audited financial statements. We must also review the Annual Governance Statement for completeness of disclosures, consistency with other information from our work, and whether it complies with relevant guidance.
Financial information in the 2018/19 Statement of Accounts and published with the financial statements was consistent with the audited financial statements. We have reviewed the Annual Governance Statement (AGS) and can confirm it is consistent with other information from our audit of the financial statements.
We requested amendments to ensure that Statement complies with the Code of Practice by including that period the AGS covers, reference to the responsibility for ensuring there is a sound system of governance, inclusion of limited opinion Internal Audit reports covering the Prince’s Trust and Redkite Training, specifying which are the significant governance issues that the Authority faces with an action plan to address and a conclusion.
For 2019/20 the Authority is to update the Annual Government statement so that it addresses the seven principles of within Delivering Good Governance in Local Government: Framework (CIPFA/Solace, 2016) and enhance the Head of internal Audit opinion by including reference to internal control, governance and risk management as required by the Internal Audit Standards.
As regards the Narrative Report, we made suggestions to the Authority for improvements to the context to the Report. The Authority declined to amend the Report but has noted the comment for future years. The authority may wish to consider also highlighting its key performance indicators by which it measures itself and giving an indication of the extent it is meeting its performance targets.
Whole of Government Accounts . Alongside our work on the financial statements, we also review and report to the National Audit Office on your Whole of Government Accounts return. The extent of our review, and the nature of our report, is specified by the National Audit Office. Page 175 Page As the Authority falls below the £500 million threshold for review as per the NAO’s group instructions, we are not reporting any matters to the National Audit Office (NAO) regarding the Whole of Government Accounts submission.
Other powers and duties We have a duty under the Local Audit and Accountability Act 2014 to consider whether to report on any matter that comes to our attention in the course of the audit, either for the Authority to consider it or to bring it to the attention of the public (i.e. “a report in the public interest”). We did not identify any issues which required us to issue a report in the public interest.
We also have a duty to make written recommendations to the Authority, copied to the Secretary of State, and take action in accordance with our responsibilities under the Local Audit and Accountability Act 2014. We did not identify any issues.
33 Other reporting issues
Other matters
As required by ISA (UK&I) 260 and other ISAs specifying communication requirements, we must tell you significant findings from the audit and other matters if they are significant to your oversight of the Authority’s financial reporting process. They include the following: Page 176 Page
• Significant qualitative aspects of accounting practices including accounting policies, accounting estimates and financial statement disclosures; • Any significant difficulties encountered during the audit; • Any significant matters arising from the audit that were discussed with management; • Written representations we have requested; • Expected modifications to the audit report; • Any other matters significant to overseeing the financial reporting process; • Findings and issues around the opening balance on initial audits (if applicable); • Related parties; • External confirmations; • Going concern; • Consideration of laws and regulations; and • Group audits
We have no other matters to report:
.
34 Page 177 Page Assessment of Control 07 Environment
35 Assessment of Control Environment
Financial controls
It is the responsibility of the Authority to develop and implement systems of internal financial control and to put in place proper arrangements to monitor their
adequacy 178 Page and effectiveness in practice. Our responsibility as your auditor is to consider whether the Authority has put adequate arrangements in place to satisfy itself that the systems of internal financial control are both adequate and effective in practice. As part of our audit of the financial statements, we obtained an understanding of internal control sufficient to plan our audit and determine the nature, timing and extent of testing performed. As we have adopted a fully substantive approach, we have therefore not tested the operation of controls. Although our audit was not designed to express an opinion on the effectiveness of internal control we are required to communicate to you significant deficiencies in internal control. We have not identified any significant deficiencies in the design or operation of an internal control that might result in a material misstatement in your financial statements of which you are not aware. However, wish to report the following areas where improvements could be made to the operation or design of controls. Quality Control Review of the Financial Statements The Authority would benefit from more rigorous quality control of the financial statements and supporting working papers before publication for 31 May 2019 deadline. The finance team is relatively small, each with defined functions which limits sharing of knowledge, responsibilities and oversight. The impact for the Authority is that that if a member of the team is absent, the extent to which others can progress that individual's area of responsibility is limited. The impact for the audit is that audit queries can only be responded to by certain individuals meaning if they are absent, then work is slow to progress. Property, Plant and Equipment Register The Property, Plant and Equipment Register did not agree to the financial statements at the Gross Book Value and Depreciation level. This poses a risk that the financial statements contain assets which are not in operational use by the Authority. The Authority has used a consultant to review the Register and appropriate audit trails for 2018/19. However, the Authority needs to check the integrity of the Register to ensure that it supports the financial statements going forward, and ensure that it has a thorough understanding of how the Fixed Asset system posts entries to the ledgers. Lender Option, Borrow Option (LOBO) As part of our audit we determine whether the Authority has considered the repayment terms within LOBOs. The LOBO is material to the Authority’s financial statements at £8.6 million, as valued using PWLB premature repayment rates. However, the Authority did not have copies of the key agreement to evidence break clauses and potential interest rate rises and the authority had to contact the investment house to provide this. The Authority should ensure that all entries within the financial statements are supported by the key agreements and formal documents.
36 Page 179 Page 08 Data Analytics
37 Use of Data Analytics in the Audit
► Data analytics
Page 180 Page Analytics Driven Audit Data analytics We used our data analysers to enable us to capture entire populations of your financial data. These analysers:
• Help identify specific exceptions and anomalies which can then be the focus of our substantive audit tests; and • Give greater likelihood of identifying errors than traditional, random sampling techniques.
In 2018/19, our use of these analysers in the authority’s audit included testing journal entries, to identify and focus our testing on those entries we deem to have the highest inherent risk to the audit.
We capture the data through our formal data requests and the data transfer takes place on a secured EY website. These are in line with our EY data protection policies which are designed to protect the confidentiality, integrity and availability of business and personal information.
Journal Entry Analysis We obtain downloads of all financial ledger transactions posted in the year. We perform completeness analysis over the data, reconciling the sum of transactions to the movement in the trial balances and financial statements to ensure we have captured all data. Our analysers then review and sort transactions, allowing us to more effectively identify and test journals that we consider to be higher risk, as identified in our audit planning report.
Payroll Analysis We also use our analysers in our payroll testing. We obtain all payroll transactions posted in the year from the payroll system and perform completeness analysis over the data, including reconciling the total amount to the General Ledger trial balance. We then analyse the data against a number of specifically designed procedures. These include analysis of payroll costs by month to identify any variances from established expectations, as well as more detailed transactional interrogation.
Page 38 Data Analytics Journal Entry Data Insights The graphic outlined below summarises the journal population for 2018/19. We review journals by certain risk based criteria to focus on higher risk transactions, such as journals posted manually by management, those posted around the year-end, those with unusual debit and credit relationships, and those posted by individuals we would not expect to be entering transactions. The purpose of this approach is to provide a more effective, risk focused approach to auditing journal entries, minimising the burden of compliance on management by minimising randomly selected samples. Page 181 Page
Page 39 Data Analytics Journal Entry Testing
What is the risk? What judgements are we focused on? In line with ISA 240 we are required to test the appropriateness of journal Using our analysers we are able to take a risk based approach to identify entries recorded in the general ledger and other adjustments made in the journals with a higher risk of management override, as outlined in our Page 182 Page preparation of the financial statements. audit planning report. Journal entry data criteria — 31 March 2019
What did we do? We obtained general ledger journal data for the period and have used our analysers to identify characteristics typically associated with inappropriate journal entries or adjustments, and journals entries that are subject to a higher risk of management override. We then performed tests on the journals identified to determine if they were appropriate and reasonable.
What are our conclusions? We isolated a sub set of journals for further investigation and obtained supporting evidence to verify the posting of these transactions and concluded that they were appropriately stated. Page 183 Page 09 Independence
41 Independence Confirmation Page 184 Page We confirm that there are no changes in our assessment of independence since our confirmation in our audit planning report tabled at the 29 March 2019 Finance and Resources Committee meeting.
We complied with the FRC Ethical Standards and the requirements of the PSAA’s Terms of Appointment. In our professional judgement the firm is independent and the objectivity of the audit engagement partner and audit staff has not been compromised within the meaning of regulatory and professional requirements.
We consider that our independence in this context is a matter which you should review, as well as us. It is important that Nottinghamshire Fire and Rescue Authority consider the facts known to you and come to a view.
If you would like to discuss any matters concerning our independence, we will be pleased to do this at the meeting of the Nottinghamshire Fire and Rescue Authority on 20 December 2019
42 Independence Relationships, services and related threats and safeguards
The FRC Ethical Standard requires that we provide details of all relationships between Ernst & Young (EY) and your Authority, and its directors and senior management and its affiliates, including all services provided by us and our network to your Authority, its directors and senior management and its affiliates, and other services provided to other known connected parties that we consider may reasonably be thought to bear on the our integrity or objectivity, including those that could compromise independence and the related safeguards that are in place and why they address the threats. There are no relationships from 1 April 2018 to the date of this report, which we consider may reasonably be thought to bear on our independence and objectivity.
Services provided by Ernst & Young
Below includes a summary of the fees that you have paid to us in the year ended 31 March 2019 in line with the disclosures set out in FRC Ethical Standard and in statute. We confirm that none of the services listed below has been provided on a contingent fee basis. As at the date of this report, there are no future services which have been contracted and no written proposal to provide non-audit services has been submitted. Page 185 Page
43 Independence Fee analysis
As part of our reporting on our independence, we set out below a summary of the fees paid for the year ended 31 March 2019. Page 186 Page We confirm that we have not undertaken non-audit work outside the NAO Code requirements
Final Fee Planned Fee Scale Fee 2018/19 2018/19 2018/19 £ £ £
To be Total Audit Fee – Code work 23,909 23,909 confirmed*
*The final fee for 2018/19 will be subject to additional fees for work carried out in response to significant risks and change of scope, specifically the work identified in this report, covering: • The new fraud and significant risks concerning the existence of Property, Plant and Equipment and capitalisation of revenue expenditure; • Additional pensions procedures as a result of the McCloud and GMP judgements, as well as the actual asset position compared with the estimated position and the engagement of EY Pensions; • The engagement of EY Real Estates to assess the calculation of assets and challenge the Authority’s valuer in respect of the valuation of land; • The VFM Conclusion significant risks covering financial resilience, the joint control room with Nottinghamshire Fire and Rescue Authority and the proposed joint Headquarters with the PCC for Nottinghamshire; and • The additional audit work resulting from weaknesses in control environment arising from the lack of a quality review of the financial statements before publication and in particular concerning Property, Plant and Equipment and the prior period adjustments required to the expenditure and income analyses.
We will discuss these fees with management in the first instance, before agreeing them with you and requesting approval from Public Sector Audit Appointments (PSAA).
44 Page 187 Page 10 Appendices
45 Appendix A Required communications with the Audit Committee
There are certain communications that we must provide to the Audit Committees of UK clients. We have detailed these here together with a reference of when and where they were covered: Page 188 Page
Our Reporting to you
Required What is reported? When and where communications
Terms of engagement Confirmation by the Nottinghamshire Fire and Rescue Authority of acceptance of The statement of responsibilities serves as terms of engagement as written in the engagement letter signed by both parties. the formal terms of engagement between the PSAA’s appointed auditors and audited bodies Our responsibilities Reminder of our responsibilities as set out in the engagement letter. Audit Planning Report – 29 March 2019 Planning and audit Communication of the planned scope and timing of the audit, any limitations and Audit Planning Report – 29 March 2019 approach the significant risks identified. Significant findings • Our view about the significant qualitative aspects of accounting practices Audit Results Report – 27 September from the audit including accounting policies, accounting estimates and financial statement 2019 and 5 December 2019 disclosures • Significant difficulties, if any, encountered during the audit • Significant matters, if any, arising from the audit that were discussed with management • Written representations that we are seeking • Expected modifications to the audit report • Other matters if any, significant to the oversight of the financial reporting process • Findings and issues regarding the opening balance on initial
46 Appendix A
Our Reporting to you
Required What is reported? When and where communications
Going concern Events or conditions identified that may cast significant doubt on the entity’s ability No conditions or events were identified, to continue as a going concern, including: either individually or together to raise any • Whether the events or conditions constitute a material uncertainty doubt about Nottinghamshire Fire and • Whether the use of the going concern assumption is appropriate in the Rescue Authority’s ability to continue for preparation and presentation of the financial statements the 12 months from the date of our report. • The adequacy of related disclosures in the financial statements Misstatements • Uncorrected misstatements and their effect on our audit opinion Audit Results Report – 27 September • The effect of uncorrected misstatements related to prior periods 2019 and 5 December 2019 • A request that any uncorrected misstatement be corrected • Material misstatements corrected by management
Subsequent events • Enquiry of the audit committee where appropriate regarding whether any Audit Results Report – 27 September subsequent events have occurred that might affect the financial statements. 2019 and 5 December 2019
Fraud • Enquiries of the Nottinghamshire Fire and Rescue Authority to determine Audit Results Report – 27 September whether they have knowledge of any actual, suspected or alleged fraud affecting 2019 and 5 December 2019 the Authority Page 189 Page • Any fraud that we have identified or information we have obtained that indicates that a fraud may exist • Unless all of those charged with governance are involved in managing the Authority, any identified or suspected fraud involving: a. Management; b. Employees who have significant roles in internal control; or c. Others where the fraud results in a material misstatement in the financial statements. • The nature, timing and extent of audit procedures necessary to complete the audit when fraud involving management is suspected • Any other matters related to fraud, relevant to the Nottinghamshire Fire and Rescue Authority responsibility. 47 Appendix A
Our Reporting to you
Required What is reported? When and where communications Page 190 Page Related parties Significant matters arising during the audit in connection with the Authority’s Audit Results Report – 27 September related parties including, when applicable: 2019 and 5 December 2019 • Non-disclosure by management • Inappropriate authorisation and approval of transactions • Disagreement over disclosures • Non-compliance with laws and regulations • Difficulty in identifying the party that ultimately controls the Authority Independence Communication of all significant facts and matters that bear on EY’s, and all Audit Planning Report – 29 March 2019 individuals involved in the audit, objectivity and independence. and Communication of key elements of the audit engagement partner’s consideration of Audit Results Report – 27 September independence and objectivity such as: 2019 and 5 December 2019 • The principal threats • Safeguards adopted and their effectiveness • An overall assessment of threats and safeguards • Information about the general policies and process within the firm to maintain objectivity and independence Communications whenever significant judgments are made about threats to objectivity and independence and the appropriateness of safeguards put in place.
48 Appendix A
Our Reporting to you
Required What is reported? When and where communications
External confirmations • Management’s refusal for us to request confirmations We have received all requested external • Inability to obtain relevant and reliable audit evidence from other procedures. confirmations.
Consideration of laws • Subject to compliance with applicable regulations, matters involving identified or Audit Results Report – 27 September and regulations suspected non-compliance with laws and regulations, other than those which are 2019 and 5 December 2019 clearly inconsequential and the implications thereof. Instances of suspected non- compliance may also include those that are brought to our attention that are expected to occur imminently or for which there is reason to believe that they may occur Significant deficiencies • SignificantEnquiry of thedeficiencies audit committee in internal into controls possible identified instances during of non-compliance the audit. with Audit Results Report – 27 September in internal controls laws and regulations that may have a material effect on the financial statements 2019 and 5 December 2019 identified during the and that the audit committee may be aware of audit Page 191 Page
49 Appendix A
Our Reporting to you
Required What is reported? When and where communications Page 192 Page Written representations • Written representations we are requesting from management and/or those Audit Results Report – 27 September charged with governance 2019 and 5 December 2019
Material inconsistencies • Material inconsistencies or misstatements of fact identified in other information Audit Results Report – 27 September or misstatements which management has refused to revise 2019 and 5 December 2019
Auditors report • Any circumstances identified that affect the form and content of our auditor’s Audit Results Report – 27 September report 2019 and 5 December 2019
Fee Reporting • Breakdown of fee information when the audit planning report is agreed Audit Planning Report – 29 March 2019 • Breakdown of fee information at the completion of the audit and • Any non-audit work Audit Results Report – 27 September 2019 and 5 December 2019
50 Appendix B Outstanding matters
The following items relating to the completion of our audit procedures are outstanding at the date of the release of this report: Item Actions to resolve Responsibility Preparation of version 3 (final) financial At the date of the release of this report, management are Management Itemstatements Actionspreparing to aresolve final version of the financial statements which Responsibility we anticipate will include amendments to the property, [E.g., Annual Report and accounts] [E.g., Review of the Annual Report and associated support [E.g., EY and management] plant & equipment note (note 15) to ensure reconciliation for disclosures] with the fixed asset register, the uplift in asset values for those[E.g. Incorporation assets not revalued of EY review in year comments (refer section on disclosure 2 above) andnotes to ensure that the 2017/18 CIES agrees to the prior year published accounts at the total comprehensive income and expenditure level. [E.g., Management representation letter] [E.g., Receipt of signed management representation letter] [E.g., Management and audit committee] Review of final version of financial statements Upon receipt of the final statement of accounts, EY to EY [E.g., Subsequent events review] [E.g.,review Completion changes, and of subsequentcheck casting events / cross-referencing. procedures to the [E.g., EY and management] Signed management representation letter dateAt the of same signing time the as audit the final report] financial statements are Management & EY approved for issue, we will require a signed management representation letter to be prepared on the Authority's letterhead (a draft is provided within this report). Subsequent event review We will perform procedures to ensure that we are aware of EY all subsequent events up to the date of our audit opinion which are relevant for the 2018/19 financial statements. Page 193 Page Whole of Government Accounts submission Completion of procedures required by the National Audit EY Office (NAO) regarding the Whole of Government Accounts submission.
51 Appendix C Management representation letter Page 194 Page Draft Management Rep Letter Accordingly, we make the following representations, which are true to the best To be placed on headed letter paper of our knowledge and belief, having made such inquiries as we considered [Date] necessary for the purpose of appropriately informing ourselves. Ernst & Young 400 Capability Green Luton A. Financial Statements and Financial Records Bedfordshire 1. We have fulfilled our responsibilities, under the relevant statutory authorities, LU1 3LU for the preparation of the financial statements in accordance with the Accounts and Audit Regulations 2015 and CIPFA LASAAC Code of Practice on Local Dear Neil Authority Accounting in the United Kingdom 2018/19. 2. We acknowledge, as members of management of the Authority, our Nottinghamshire Fire and Rescue Authority - Audit for the year ended 31 responsibility for the fair presentation of the Authority financial statements. We March 2019 believe the Authority financial statements referred to above give a true and fair This letter of representations provided in connection with your audit of the view of the financial position, financial performance (or results of operations) and Authority financial statements of Nottinghamshire Fire and Rescue Authority cash flows of the Authority in accordance with the CIPFA LASAAC Code of (“the Authority”) for the year ended 31 March 2019. We recognise that Practice on Local Authority Accounting in the United Kingdom 2018/19 and are obtaining representations from us is concerning the information contained in free of material misstatements, including omissions. We have approved the this letter is a significant procedure in enabling you to form an opinion as to Authority financial statements. whether the Authority financial statements give a true and fair view of the 3. The significant accounting policies adopted in the preparation of the Authority financial position of Nottinghamshire Fire and Rescue Authority as of 31 financial statements are appropriately described in the Authority financial March 2019 and of its financial performance (or operations) and its cash flows statements. for the year then ended in accordance with the CIPFA LASAAC Code of 4. As members of management of the Authority, we believe that the Authority Practice on Local Authority Accounting in the United Kingdom 2018/19. have a system of internal controls adequate to enable the preparation of accurate financial statements in accordance with the CIPFA LASAAC Code of Practice on We understand that the purpose of your audit of our Authority financial Local Authority Accounting in the United Kingdom 2018/19 that are free from statements is to express an opinion thereon and that your audit was material misstatement, whether due to fraud or error. conducted in accordance with International Standards on Auditing, which involves an examination of the accounting system, internal control and related data to the extent you considered necessary in the circumstances, and is not designed to identify - nor necessarily be expected to disclose - all fraud, shortages, errors and other irregularities, should any exist.
ourselves: : 52 Appendix C Management representation letter
Management Rep Letter 5. We believe that the effects of any unadjusted audit differences, summarised • related to laws and regulations that have an indirect effect on amounts and in the accompanying schedule, accumulated by you during the current audit disclosures in the financial statements, but compliance with which may be and pertaining to the latest period presented are immaterial, both individually fundamental to the operations of the Authority’s activities, its ability to and in the aggregate, to the Authority financial statements taken as a whole. continue to operate, or to avoid material penalties; We have not corrected these differences identified and brought to our • involving management, or employees who have significant roles in internal attention by the auditor because [specify reasons for not correcting controls, or others; or misstatement]. • in relation to any allegations of fraud, suspected fraud or other non- compliance with laws and regulations communicated by employees, former B. Non-compliance with law and regulations, including fraud employees, analysts, regulators or others. 1. We acknowledge that we are responsible for determining that the Authority’s activities are conducted in accordance with laws and regulations C. Information Provided and Completeness of Information and Transactions and that we are responsible for identifying and addressing any non- 1. We have provided you with: compliance with applicable laws and regulations, including fraud. • Access to all information of which we are aware that is relevant to the 2. We acknowledge that we are responsible for the design, implementation preparation of the financial statements such as records, documentation and and maintenance of internal controls to prevent and detect fraud. other matters; 3. We have disclosed to you the results of our assessment of the risk that the • Additional information that you have requested from us for the purpose of the Authority’s financial statements may be materially misstated as a result of audit; and • Unrestricted access to persons within the entity from whom you determined it Page 195 Page fraud. 4. We have no knowledge of any identified or suspected non-compliance with necessary to obtain audit evidence. laws or regulations, including fraud that may have affected the Authority 2. All material transactions have been recorded in the accounting records and are (regardless of the source or form and including without limitation, any reflected in the Authority financial statements. allegations by “whistleblowers”), including non-compliance matters: 3. We have made available to you all minutes of the meetings of the Fire and • involving financial statements; Rescue Authority and Finance and Resources Committee held through the year to • related to laws and regulations that have a direct effect on the the most recent meeting on the following date: [list date]. determination of material amounts and disclosures in the Authority’s financial statements;
53 Appendix C Management representation letter Page 196 Page
Management Rep Letter 4. We confirm the completeness of information provided regarding the F. Other information identification of related parties. We have disclosed to you the identity of the 1. We acknowledge our responsibility for the preparation of the other Authority’s related parties and all related party relationships and transactions information. The other information comprises the Narrative report and Annual of which we are aware, including sales, purchases, loans, transfers of assets, Governance statement. liabilities and services, leasing arrangements, guarantees, non-monetary 2. We confirm that the content contained within the other information is transactions and transactions for no consideration for the year ended, as well consistent with the financial statements. as related balances due to or from such parties at the year end. These transactions have been appropriately accounted for and disclosed in the G. Ownership of Assets Authority financial statements. 1. Except for assets capitalised under finance leases, the Authority has 5. We believe that the significant assumptions we used in making accounting satisfactory title to all assets appearing in the balance sheets, and there are no estimates, including those measured at fair value, are reasonable. liens or encumbrances on the Authority’s assets, nor has any asset been pledged 6. We have disclosed to you, and the Authority has complied with, all aspects as collateral. All assets to which the Authority has satisfactory title appear in the of contractual agreements that could have a material effect on the Authority balance sheets. financial statements in the event of non-compliance, including all covenants, 2. All agreements and options to buy back assets previously sold have been conditions or other requirements of all outstanding debt. properly recorded and adequately disclosed in the Authority financial statements. 3. We have no plans to abandon lines of product or other plans or intentions that D. Liabilities and Contingencies will result in any excess or obsolete inventory, and no inventory is stated at an 1. All liabilities and contingencies, including those associated with guarantees, amount in excess of net realisable value. whether written or oral, have been disclosed to you and are appropriately 4. There are no formal or informal compensating balance arrangements with any reflected in the Authority financial statements. of our cash and investment accounts. 2. We have informed you of all outstanding and possible litigation and claims, whether or not they have been discussed with legal counsel. H. Reserves 1.We have properly recorded or disclosed in the Authority financial statements E. Subsequent Events the useable and unusable reserves. 1.There have been no events subsequent to year end which require adjustment of or disclosure in the Authority financial statements or notes I. Contingent Liabilities thereto. We are unaware of any violations or possible violations of laws or regulations the effects of which should be considered for disclosure in the financial statements or as the basis of recording a contingent loss.
54 Appendix C Management representation letter
Management Rep Letter We are unaware of any known or probable instances of non-compliance with 3. We confirm that the disclosures made in the Authority financial statements the requirements of regulatory or governmental authorities, including their with respect to the accounting estimate(s) are complete and made in accordance financial reporting requirements, and there have been no communications with the CIPFA LASAAC Code of Practice on Local Authority Accounting in the from regulatory agencies or government representatives concerning United Kingdom 2018/19. investigations or allegations of non-compliance. 4. We confirm that no adjustments are required to the accounting estimate(s) and disclosures in the Authority financial statements due to subsequent events. J. Use of the Work of a Specialist We agree with the findings of the specialists that we engaged to evaluate the L. Retirement benefits value of property, plant and equipment and the IAS19 actuarial valuations of On the basis of the process established by us and having made appropriate pension liabilities and have adequately considered the qualifications of the enquiries, we are satisfied that the actuarial assumptions underlying the scheme specialists in determining the amounts and disclosures included in the liabilities are consistent with our knowledge of the business. All significant Authority financial statements and the underlying accounting records. We did retirement benefits and all settlements and curtailments have been identified and not give or cause any instructions to be given to the specialists with respect to properly accounted for. the values or amounts derived in an attempt to bias their work, and we are not otherwise aware of any matters that have had an effect on the independence Yours sincerely or objectivity of the specialists.
K. Estimates ______Page 197 Page Pension Liability and PPE Valuations Estimate (Treasurer to Nottinghamshire Fire and Rescue Authority) 1. We believe that the measurement processes, including related assumptions and models, used to determine the accounting estimate(s) have been consistently applied and are appropriate in the context of the CIPFA LASAAC ______Code of Practice on Local Authority Accounting in the United Kingdom (Chair of the Nottinghamshire Fire and Rescue Authority) 2018/19. 2. We confirm that the significant assumptions used in making the estimates appropriately reflect our intent and ability to carry out specific courses of action on behalf of the entity. Schedule of Uncorrected Misstatements
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Nottinghamshire and City of Nottingham Fire and Rescue Authority
TREASURY MANAGEMENT MID YEAR REVIEW 2019/20
Report of the Treasurer to the Fire Authority
Date: 20 December 2019
Purpose of Report: To provide Members with an update on treasury management activity during the first half of the 2019/20 financial year.
Recommendations: That Members note the contents of this report.
CONTACT OFFICER Becky Smeathers Name : Head of Finance Tel : 0115 967 0880
Email : [email protected]
Media Enquiries Therese Easom Contact : (0115) 967 0880 [email protected]
Page 199
1. BACKGROUND
1.1. The purpose of the treasury management function is to effectively manage the day to day cashflow of the organisation and to manage the borrowing required to finance the capital programme.
1.2 Accordingly, treasury management is defined as:
“The management of the local authority’s borrowing, investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks.”
1.3 The CIPFA (Chartered Institute of Public Finance and Accountancy) Code of Practice on Treasury Management was adopted by the Fire Authority on 9 April 2010. The primary requirements of the Code are as follows:
1. The creation and maintenance of a Treasury Management Policy Statement which sets out the policies and objectives of the Authority’s treasury management activities. 2. The creation and maintenance of Treasury Management Practices which set out the manner in which the Authority will seek to achieve those policies and objectives. 3. Receipt by the Fire Authority of an annual Treasury Management Strategy Statement for the year ahead, a mid-year review report and an annual report covering activities during the previous year. 4. Delegation by the Authority of responsibilities for implementing and monitoring treasury management policies and practices and for the execution and administration of treasury management decisions.
1.4 The CIPFA Delegation by the Authority of the role of scrutiny of treasury management strategy and policies to a specific named body. For this Authority, the delegated body is the Finance and Resources Committee.
1.5 This mid-year report has been prepared in compliance with CIPFA’s Code of Practice, and covers the following:
An economic update for the first part of the 2019/20 financial year; The Authority’s capital expenditure and prudential indicators; A review of the Treasury Management Strategy Statement; A review of the Authority’s investment portfolio for 2019/20; A review of the Authority’s borrowing strategy for 2019/20; A review of any debt rescheduling undertaken during 2019/20; A review of compliance with Treasury and Prudential Limits for 2019/20.
1.6 The Authority has appointed Link Asset Services as its external treasury management adviser.
Page 200 1.7 In December 2017 CIPFA issued revised Prudential and Treasury Management Codes. From 2019/20, all fire authorities are required to prepare a Capital Strategy which is intended to provide the following:
A high-level overview of how capital expenditure, capital financing and treasury management activity contribute to the provision of services. An overview of how the associated risk is managed. The implications for future financial sustainability.
1.8 A report setting out the Authority’s Capital Strategy was approved by the Fire Authority on 14 December 2018.
2. REPORT
ECONOMIC UPDATE
2.1 2019 has been year of political upheaval, as Theresa May resigned as Prime Minister to be replaced by Boris Johnson on a platform of the UK leaving the EU on 31 October 2019. However, MPs blocked leaving on that date and the EU agreed an extension to 31 January 2020. In late October, MPs approved an outline of a Brexit deal to enable the UK to leave the EU on 31 January; however, even if a Conservative Government gains an overall majority in the general election on 12 December, there will still be much uncertainty as the detail of a trade deal will need to be negotiated by the current end of the transition period in December 2020.
2.2 The first half of 2019/20 has seen economic growth fall as Brexit uncertainty took its toll. In its inflation report of 1 August, the Bank of England was notably downbeat about the outlook for both the UK and major world economies. The MPC meeting of 19 September reemphasised their concern about the downturn in world growth and expressed concern that prolonged Brexit uncertainty would contribute to a build-up of spare capacity in the UK economy, especially in the context of a downturn in world growth. This mirrored investor concerns around the world which are now expecting a significant downturn or possibly even a recession in some major developed economies. The Monetary Policy Committee (MPC) has so far left Bank Rate unchanged at 0.75% throughout 2019 and is expected to hold off on changes until there is some clarity on what is going to happen over Brexit.
2.3 The consumer price index (CPI) rate of inflation has been hovering around the Bank of England’s target of 2% during 2019, but fell to 1.7% in August. It is likely to remain close to 2% over the next two years and so does not pose any immediate concern to the MPC at this time. However, if there were to be a no deal Brexit, inflation could rise towards 4%, primarily as a result of imported inflation due to a weakened pound.
2.4 It was against this backdrop uncertainty that the Bank of England produced its quarterly inflation report (now renamed the Monetary Policy Report) on 7 November. The Bank made a change in their Brexit assumptions to now include a deal being eventually passed. Possibly the biggest message that is
Page 201 worth taking note of from the Monetary Policy Report, was an increase in concerns among Monetary Policy Committee (MPC) members around weak global economic growth and the potential for Brexit uncertainties to become entrenched and so delay UK economic recovery. Consequently, the MPC voted 7-2 to maintain Bank Rate at 0.75% but two members were sufficiently concerned to vote for an immediate Bank Rate cut to 0.5%. The MPC warned that if global growth does not pick up or Brexit uncertainties intensify, then a rate cut was now more likely. Conversely, if risks do recede, then a more rapid recovery of growth will require gradual and limited rate rises. The speed of recovery will depend on the extent to which uncertainty dissipates over the final terms for trade between the UK and EU and by how much global growth rates pick up. The Bank revised its inflation forecasts downwards to 1.25% in 2019, 1.5% in 2020, and 2.0% in 2021; hence the MPC views inflation as causing little concern in the near future.
2.5 A more detailed economic update can be found in Appendix A, and interest rate forecasts can be found in Appendix B.
REVIEW OF THE TREASURY MANAGEMENT STRATEGY
2.6 The Treasury Management Strategy approved by the Authority sets out the policies for managing investments and for giving priority to the security and liquidity of those investments. The risk appetite of this Authority is low in order to give priority to security of its investments. Accordingly, the following types of low risk investments may be made:
Deposits with the Debt Management Office (Government); Term deposits with Banks and Building Societies; Call deposits with Banks and Building Societies; Term Deposits with uncapped English and Welsh local authority bodies; Triple-A rated Money Market Funds (CNAV, LVNAV and VNAV); UK Treasury Bills; Certificates of Deposit.
2.7 The Treasury Management Strategy includes a limit of £4m to be invested with any single counterparty, although this limit is only used in exceptional circumstances and a maximum of £2m is normally adhered to. No term deposits will be made for more than 1 year without the prior approval of the Treasurer and the Chair of Finance and Resources Committee. The selection of counterparties with a high level of creditworthiness will be achieved by selection of institutions down to a minimum durational band within Link’s weekly credit list of potential counterparties. The Authority will therefore use counterparties within the following durational bands:
Blue 1 year (only applies to nationalised or semi nationalised UK Banks); Orange 1 year; Red 6 months; Green 100 days.
Page 202 2.8 The Authority will avoid locking into longer term deals whilst investment rates are down at such low levels unless exceptionally attractive rates are available which make longer term deals worthwhile.
2.9 In terms of cash resources, the strategy is to maintain a bank overdraft facility of £200,000, to continue to use cash flow forecasting to predict cash surpluses and shortfalls so that these can be managed and to invest small bank account balances in the Business Premium Account on a daily basis if the interest rate is favourable.
2.10 In the first half of the year, the current account was overdrawn on 4 occasions. As a result, the Authority incurred interest charges of £209.
REVIEW OF THE INVESTMENT PORTFOLIO
2.11 The Authority’s priority is to ensure security of capital and liquidity, and to obtain an appropriate level of return which is consistent with its risk appetite. As shown by interest rate forecasts in Appendix A, investment returns are currently low when compared with rates commonly seen in previous decades. The current economic environment prompts a low risk and short term investment strategy.
2.12 The Authority held £12m of investments at 31 October 2019, up from £9.05m at 31 March 2019. The weighted average rate of return at 31 October 2019 was 0.92%. The weighted average rate of return has consistently been above the benchmark 3 month LIBID rate throughout the year. Details of the Authority’s investments can be found in Appendix C.
2.13 The approved limits within the Authority’s Annual Investment Strategy have not been breached during the period from 1 April 2019 to 31 October 2019.
2.14 The Authority’s budget for investment interest for 2019/20 is £66k. £41k has been received during the period to 31 October 2019. The forecast outturn for the 2019/20 financial year is £101k.
REVIEW OF THE BORROWING STRATEGY
2.15 The strategy for 2019/20 is to use a combination of capital receipts, borrowing and internal funds to finance capital expenditure.
2.16 In the Treasury Management Strategy, it was predicted that the Authority would need to borrow up to £9m during the 3-year period from 2019/20 to finance the capital programme and replace £1.5m of maturing loans. The Authority took a £4m short term loan for cash flow purposes at the end of the 2018/19 financial year. This loan was repaid in July 2019. No long-term maturity loans are due to be repaid during 2019/20.
2.17 On 9 October 2019, the Treasury and Public Works Loans Board (PWLB) announced an increase in the margin over gilt yields of 100 basis points on top of the current margin of 80 basis points which this authority has paid prior to this date for new borrowing from the PWLB. There was no prior warning
Page 203 that this would happen and it now means that every local authority must reassess how to finance their external borrowing needs, and assess the extent to which the financial viability of their capital programmes has been affected due to this unexpected increase in the cost of borrowing. Whereas the Authority has previously relied on the PWLB as its main source of funding, alternative cheaper sources of borrowing may now be considered. It is likely that various financial institutions will enter the market or make products available to local authorities in response to the sudden increase in PWLB rates. Officers will work with treasury advisors to carefully consider all funding options before undertaking any further long term borrowing. The Authority’s current Treasury Management Strategy permits fixed rate market borrowing when rates are lower than PWLB rates. The Authority is also permitted to take loans from the Municipal Bond Agency should any be offered in the future.
2.18 Prior to the decision to increase PWLB rates on 9 October, rates had been on a falling trend during the period from 1 April 2019. Longer term rates almost halved during the first 6 months of the financial year to reach historic lows. Current forecasts provided by the Authority’s treasury advisor show that PWLB rates are expected to rise slowly but steadily over the next few years, with the 25-year rate forecast to reach 4.00% by March 2022, up from 3.06% at 31 October 2019. Further detail about the interest rate forecasts can be found in Appendix B.
2.19 The Authority’s capital financing requirement (CFR) as at 31 March 2019 was £25.74m. The CFR denotes the Authority’s underlying need to borrow for capital purposes. Current borrowing stands at £25.56m. As borrowing rates are currently higher than investment rates the Authority can avoid carrying costs by not borrowing too far in advance of expenditure, however a balance needs to be struck between avoiding unnecessary carrying costs and managing the interest rate risk which arises from delaying borrowing while interest rates are at relatively low levels.
2.20 Current cash flow forecasts show that the Authority may require some short term borrowing for cash flow purposes towards the end of the financial year. Further long term borrowing is not anticipated.
2.21 No rescheduling of debt has taken place to date, as the interest rate climate has not resulted in an advantageous environment for rescheduling.
2.22 All aspects of the borrowing strategy remain in place at this mid-point in the year.
REVIEW OF COMPLIANCE WITH TREASURY AND PRUDENTIAL LIMITS
2.23 The following indicators were approved by Members for the 2019/20 financial year. As at 31 October, the actual performance was as shown in the final column of the table below.
Page 204
Treasury or Prudential Approved for 2019/20 Actual as at 31/10/19 Indicator or Limit
Estimate of Ratio of Financing 5.5% Not available until year Costs to Net Revenue Stream end
Estimate of Total Capital £5,448,000 £1,285,000 Expenditure to be Incurred
Estimate of Capital Financing £30,098,000 Actual not available until Requirement year end. Estimate not exceeded.
Operational Boundary £30,600,000 Not exceeded
Authorised Limit £33,660,000 Not exceeded
Upper limit for fixed rate 100% 100% interest exposures
Upper limit for variable rate 30% 0% interest exposures
Loan Maturity: Limits:
Under 12 months Upper 20% Lower 0% 11.9%
12 months to 5 years Upper 30% Lower 0% 14.3%
5 years to 10 years Upper 75% Lower 0% 9.3%
10 years to 20 years Upper 100% Lower 0% 9.3%
Over 20 years Upper 100% Lower 30% 55.2%
Upper Limit for Principal Sums £2,000,000 Not applicable Invested for Periods Longer than 364 Days
3. FINANCIAL IMPLICATIONS
The financial implications of this report are set out in full within the body of the report.
4. HUMAN RESOURCES AND LEARNING AND DEVELOPMENT IMPLICATIONS
There are no human resources or learning and development implications arising from this report.
Page 205
5. EQUALITIES IMPLICATIONS
An equality impact assessment has not been undertaken because this report gives a review of activities rather than introducing a new policy.
6. CRIME AND DISORDER IMPLICATIONS
There are no crime and disorder implications arising directly from this report.
7. LEGAL IMPLICATIONS
There are no legal implications arising directly from this report, other than the requirement to act within the Authority’s powers when undertaking treasury management borrowings and investments.
8. RISK MANAGEMENT IMPLICATIONS
The investment of local authority funds cannot be achieved without some element of risk. Careful choice of borrowers using creditworthiness indices will minimise this risk. This prudent approach will undoubtedly result in some interest rate loss but the principles of security and liquidity are paramount.
9. COLLABORATION IMPLICATIONS
There are no collaboration implications arising from this report.
10. RECOMMENDATIONS
That Members note the contents of this report.
11. BACKGROUND PAPERS FOR INSPECTION (OTHER THAN PUBLISHED DOCUMENTS)
None.
Charlotte Radford TREASURER TO THE FIRE AUTHORITY
Page 206 APPENDIX A
ECONOMICS UPDATE
Source: Link Asset Services
UK
This first half year has been a time of upheaval on the political front as Theresa May resigned as Prime Minister to be replaced by Boris Johnson on a platform of the UK leaving the EU on or 31 October, with or without a deal. However, MPs blocked leaving on that date and the EU agreed an extension to 31 January 2020. In late October, MPs approved an outline of a Brexit deal to enable the UK to leave the EU on 31 January. However, even if a Conservative Government gains an overall majority in the general election on 12 December, there will still be much uncertainty as the detail of a trade deal will need to be negotiated by the current end of the transition period in December 2020. If the UK is able to agree a deal with the EU by the end of transition period then it is possible that growth could recover relatively quickly. The Monetary Policy Committee (MPC) could then need to address the issue of whether to raise Bank Rate at some point in the coming year when there is little slack left in the labour market; this could cause wage inflation to accelerate which would then feed through into general inflation. On the other hand, if there was a no deal Brexit and there was a significant level of disruption to the economy, then growth could weaken even further than currently and the MPC would be likely to cut Bank Rate in order to support growth.
The first half of 2019/20 has seen UK economic growth fall as Brexit uncertainty took a toll. In its Inflation Report of 1 August, the Bank of England was notably downbeat about the outlook for both the UK and major world economies. The MPC meeting of 19 September reemphasised their concern about the downturn in world growth and also expressed concern that prolonged Brexit uncertainty would contribute to a build-up of spare capacity in the UK economy, especially in the context of a downturn in world growth. This mirrored investor concerns around the world which are now expecting a significant downturn or possibly even a recession in some major developed economies. It is therefore no surprise that the Monetary Policy Committee (MPC) has left Bank Rate unchanged at 0.75% so far during 2019, and is expected to hold off on changes until there is some clarity on what is going to happen over Brexit.
While the Bank of England went through the routine of producing another quarterly Inflation Report, (now renamed the Monetary Policy Report), on 7 November, it is very questionable how much all the writing and numbers are worth when faced with the uncertainties of where the UK will be after the general election. The Bank made a change in their Brexit assumptions to now include a deal being eventually passed. Possibly the biggest message that is worth taking note of from the Monetary Policy Report, was an increase in concerns among MPC members around weak global economic growth and the potential for Brexit uncertainties to become entrenched and so delay UK economic recovery. Consequently, the MPC voted 7-2 to maintain Bank Rate at 0.75% but two members were sufficiently concerned to vote for an immediate Bank Rate cut to 0.5%. The MPC warned that if global growth does not pick up or Brexit uncertainties intensify, then a rate cut was now more likely.
Page 207 Conversely, if risks do recede, then a more rapid recovery of growth will require gradual and limited rate rises. The speed of recovery will depend on the extent to which uncertainty dissipates over the final terms for trade between the UK and EU and by how much global growth rates pick up. The Bank revised its inflation forecasts down to 1.25% in 2019, 1.5% in 2020, and 2.0% in 2021; hence the MPC views inflation as causing little concern in the near future.
If economic growth were to weaken considerably, the MPC has relatively little room to make a big impact with Bank Rate still only at 0.75%. It would therefore, probably suggest that it would be up to the Chancellor to provide help to support growth by way of a fiscal boost by e.g. tax cuts, increases in the annual expenditure budgets of government departments and services and expenditure on infrastructure projects, to boost the economy. The Government has already made moves in this direction and both of the largest parties have made significant promises in their election manifestos to increase government spending. The Chancellor has also amended the fiscal rules in November to allow for an increase in government expenditure. In addition, it has to be borne in mind that even if the post-election Parliament agrees the deal on 31 January 2020, the current transition period for negotiating the details of the terms of a trade deal with the EU only runs until 31 December 2020. This could prove to be an unrealistically short timetable for such major negotiations which leaves open two possibilities; one the need for an extension of negotiations, probably two years, or a no deal Brexit in December 2020.
As for inflation itself, CPI has been hovering around the Bank of England’s target of 2% during 2019, but fell to 1.7% in August. It is likely to remain close to 2% over the next two years and so it does not pose any immediate concern to the MPC at the current time. However, if there was a no deal Brexit, inflation could rise towards 4%, primarily as a result of imported inflation on the back of a weakening pound.
With regard to the labour market, despite the contraction in quarterly GDP growth of -0.2% q/q, (+1.3% y/y), in quarter 2, employment continued to rise, but at only a muted rate of 31,000 in the three months to July after having risen by no less than 115,000 in quarter 2 itself: the latter figure, in particular, suggests that firms are preparing to expand output and suggests there could be a return to positive growth in quarter 3. Unemployment continued at a 44-year low of 3.8% on the Independent Labour Organisation measure in July and the participation rate of 76.1% achieved a new all-time high. Job vacancies fell for a seventh consecutive month after having previously hit record levels. However, with unemployment continuing to fall, this month by 11,000, employers will still be having difficulty filling job vacancies with suitable staff. It was therefore unsurprising that wage inflation picked up to a high point of 3.9% in June before easing back slightly to 3.8% in July, (3-month average regular pay, excluding bonuses). This meant that in real terms, (i.e. wage rates higher than CPI inflation), earnings grew by about 2.1%. As the UK economy is very much services sector driven, an increase in household spending power is likely to feed through into providing some support to the overall rate of economic growth in the coming months. The latest GDP statistics also included a revision of the savings ratio from 4.1% to 6.4% which provides reassurance that consumers’ balance sheets are not over stretched and so will be able to support growth going forward. This would then mean that the MPC will need to consider carefully at what point to take action to raise Bank Rate if there is an agreed Brexit deal, as the recent pick-up
Page 208 in wage costs is consistent with a rise in core services inflation to more than 4% in 2020.
In the political arena, the outcome of the general election is likely to result in a loosening of monetary policy and therefore medium to longer dated gilt yields could rise on the expectation of a weak pound and concerns around inflation picking up although, conversely, a weak international backdrop could provide further support for low yielding government bonds and gilts.
USA
President Trump’s massive easing of fiscal policy in 2018 fuelled a temporary boost in consumption in that year which generated an upturn in the rate of strong growth to 2.9% y/y. Growth in 2019 has been falling back after a strong start in quarter 1 at 3.1%, (annualised rate), to 2.0% in quarter 2. Quarter 3 is expected to fall further. The strong growth in employment numbers during 2018 has reversed into a falling trend during 2019, indicating that the economy is cooling, while inflationary pressures are also weakening. The Federal Reserve finished its series of increases in rates to 2.25 – 2.50% in December 2018. In July 2019, it cut rates by 0.25% as a ‘midterm adjustment’ but flagged up that this was not to be seen as the start of a series of cuts to ward off a downturn in growth. It then cut rates again in September to 1.75% - 2.00% and is thought likely to cut another 25 bps in December. Investor confidence has been badly rattled by the progressive ramping up of increases in tariffs President Trump has made on Chinese imports and China has responded with increases in tariffs on American imports. This trade war is seen as depressing US, Chinese and world growth. In the EU, it is also particularly impacting Germany as exports of goods and services are equivalent to 46% of total GDP. It will also impact developing countries dependent on exporting commodities to China.
EUROZONE
Growth has been slowing from +1.8 % during 2018 to around half of that in 2019. Growth was +0.4% q/q (+1.2% y/y) in quarter 1 and then fell to +0.2% q/q (+1.0% y/y) in quarter 2; there appears to be little upside potential to the growth rate in the rest of 2019. German GDP growth fell to -0.1% in quarter 2; industrial production was down 4% y/y in June with car production down 10% y/y. Germany would be particularly vulnerable to a no deal Brexit depressing exports further and if President Trump imposes tariffs on EU produced cars. The European Central Bank (ECB) ended its programme of quantitative easing purchases of debt in December 2018, which meant that the central banks in the US, UK and EU had all ended the phase of post financial crisis expansion of liquidity supporting world financial markets by purchases of debt. However, the downturn in Eurozone (EZ) growth in the second half of 2018 and into 2019, together with inflation falling well under the upper limit of its target range of 0 to 2%, (but it aims to keep it near to 2%), has prompted the ECB to take new measures to stimulate growth. At its March meeting it said that it expected to leave interest rates at their present levels “at least through the end of 2019”, but that was of little help to boosting growth in the near term. Consequently, it announced a third round of Targeted Longer-Term Refinancing Operations (TLTROs); this provides banks with cheap borrowing every three months from September 2019 until March 2021 which means that, although they will have only a two-year maturity, the Bank is making funds available until 2023, two years later
Page 209 than under its previous policy. However, since then, the downturn in EZ and world growth has gathered momentum so at its meeting on 12 September, it cut its deposit rate further into negative territory, from -0.4% to -0.5%, and announced a resumption of quantitative easing purchases of debt. It also increased the maturity of the third round of TLTROs from two to three years. However, it is doubtful whether this loosening of monetary policy will have much impact on growth and unsurprisingly, the ECB stated that governments will need to help stimulate growth by fiscal policy. On the political front, Austria, Spain and Italy are in the throes of forming coalition governments with some unlikely combinations of parties i.e. this raises questions around their likely endurance. The recent results of two German state elections will put further pressure on the frail German CDU/SDP coalition government.
CHINA
Economic growth has been weakening over successive years, despite repeated rounds of central bank stimulus; medium term risks are increasing. Major progress still needs to be made to eliminate excess industrial capacity and the stock of unsold property, and to address the level of non-performing loans in the banking and credit systems. Progress also still needs to be made to eliminate excess industrial capacity and to switch investment from property construction and infrastructure to consumer goods production. The trade war with the US does not appear currently to have had a significant effect on GDP growth as some of the impact of tariffs has been offset by falls in the exchange rate and by transhipping exports through other countries, rather than directly to the US.
JAPAN has been struggling to stimulate consistent significant GDP growth and to get inflation up to its target of 2%, despite huge monetary and fiscal stimulus. It is also making little progress on fundamental reform of the economy.
WORLD GROWTH
The trade war between the US and China is a major concern to financial markets and is depressing worldwide growth, as any downturn in China will spill over into impacting countries supplying raw materials to China. Concerns are focused on the synchronised general weakening of growth in the major economies of the world compounded by fears that there could even be a recession looming up in the US, though this is probably overblown. These concerns have resulted in government bond yields in the developed world falling significantly during 2019. If there were a major worldwide downturn in growth, central banks in most of the major economies will have limited ammunition available, in terms of monetary policy measures, when rates are already very low in most countries, (apart from the US), and there are concerns about how much distortion of financial markets has already occurred with the current levels of quantitative easing purchases of debt by central banks. The latest PMI survey statistics of economic health for the US, UK, EU and China have all been sub 50 which gives a forward indication of a downturn in growth; this confirms investor sentiment that the outlook for growth during the rest of this financial year is weak.
Page 210 APPENDIX B INTEREST RATE FORECASTS
Source: Link Asset Services
This forecast includes the increase in margin over gilt yields of 100bps introduced on 9.10.19. Link Asset Services Interest Rate View Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Bank Rate View 0.75 0.75 0.75 0.75 1.00 1.00 1.00 1.00 1.00 1.25 3 Month LIBID 0.70 0.70 0.70 0.80 0.90 1.00 1.00 1.00 1.10 1.20 6 Month LIBID 0.80 0.80 0.80 0.90 1.00 1.10 1.10 1.20 1.30 1.40 12 Month LIBID 1.00 1.00 1.00 1.10 1.20 1.30 1.30 1.40 1.50 1.60 5yr PWLB Rate 2.30 2.50 2.60 2.70 2.70 2.80 2.90 3.00 3.00 3.10 10yr PWLB Rate 2.60 2.80 2.90 3.00 3.00 3.10 3.20 3.30 3.30 3.40 25yr PWLB Rate 3.30 3.40 3.50 3.60 3.70 3.70 3.80 3.90 4.00 4.00 50yr PWLB Rate 3.20 3.30 3.40 3.50 3.60 3.60 3.70 3.80 3.90 3.90
The above forecasts have been based on an assumption that a Brexit deal will be agreed at some point in time. Given the current level of uncertainties, this is a huge assumption and so forecasts may need to be materially reassessed in the light of events over the next few weeks or months.
BOND YIELDS/PWLB RATES
While inflation targeting by the major central banks has been successful over the last thirty years in lowering inflation expectations, the real equilibrium rate for central rates has fallen considerably due to the high level of borrowing by consumers: this means that central banks do not need to raise rates as much now to have a major impact on consumer spending, inflation, etc. This has pulled down the overall level of interest rates and bond yields in financial markets over the last thirty years. We have therefore seen over the last year, many bond yields up to ten years in the Eurozone actually turn negative. In addition, there has, at times, been an inversion of bond yields in the US whereby ten year yields have fallen below shorter term yields. In the past, this has been a precursor of a recession. The other side of this coin is that bond prices are elevated as investors would be expected to be moving out of riskier assets i.e. shares, in anticipation of a downturn in corporate earnings and so selling out of equities. However, stock markets are also currently at high levels as some investors have focused on chasing returns in the context of dismal ultra-low interest rates on cash deposits. What we saw during the last half year up to 30 September 2019 is a near halving of longer term PWLB rates to completely unprecedented historic low levels. The Treasury has since taken action to increase PWLB rates (see paragraph 2.17 of the main report for details). There is though, an expectation that financial markets have gone too far in their fears about the degree of the downturn in US and world growth. If, as expected, the US only suffers a mild downturn in growth, bond markets in the US are likely to sell off and that would be expected to put upward pressure on bond yields, not only in the US but also in the UK. However, the timing of this and how strong the correlation is likely to be between the movement in the US and UK bond markets is very difficult to forecast with any degree of confidence.
Page 211 There is a danger that unconventional monetary policy post 2008, (ultra-low interest rates plus quantitative easing) may end up doing more harm than good through prolonged use. Low interest rates have encouraged a debt fuelled boom which now makes it harder for economies to raise interest rates. Negative interest rates could damage the profitability of commercial banks and so impair their ability to lend and / or push them into riskier lending. Banks could also end up holding large amounts of their government’s bonds and so create a potential doom loop. (A doom loop would occur where the credit rating of the debt of a nation was downgraded which would cause bond prices to fall, causing losses on debt portfolios held by banks and insurers, so reducing their capital and forcing them to sell bonds – which, in turn, would cause further falls in their prices etc.). In addition, the financial viability of pension funds could be damaged by low yields on holdings of bonds.
THE BALANCE OF RISKS TO THE UK
The overall balance of risks to economic growth in the UK is probably to the downside due to the weight of all the uncertainties over Brexit, as well as a softening global economic picture.
The balance of risks to increases in Bank Rate and shorter term PWLB rates are broadly similarly to the downside.
One risk that is both an upside and downside risk is that all central banks are now working in very different economic conditions than before the 2008 financial crash. There has been a major increase in consumer and other debt due to the exceptionally low levels of borrowing rates that have prevailed for eleven years since 2008. This means that the neutral rate of interest in an economy, (i.e. the rate that is neither expansionary nor deflationary), is difficult to determine definitively in this new environment, although central banks have made statements that they expect it to be much lower than before 2008. Central banks could, therefore, over or under-do increases in central interest rates.
Downside risks to current forecasts for UK gilt yields and PWLB rates currently include:
Brexit – if it were to cause significant economic disruption and a major downturn in the rate of growth.
Bank of England takes action too quickly, or too far, over the next three years to raise Bank Rate and causes UK economic growth, and increases in inflation, to be weaker than we currently anticipate.
A resurgence of the Eurozone sovereign debt crisis. In 2018, Italy was a major concern due to having a populist coalition government which made a lot of anti-austerity and anti-EU noise. However, in September 2019 there was a major change in the coalition governing Italy which has brought to power a much more EU friendly government; this has eased the pressure on Italian bonds. Only time will tell whether this new alliance of two very different parties will endure.
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Weak capitalisation of some European banks, particularly Italian banks.
Minority EU governments. Germany, Austria, Sweden, Spain, Portugal, Netherlands and Belgium all have minority governments dependent on coalitions which could prove fragile.
Italy, Austria, the Czech Republic and Hungary now form a strongly anti- immigration bloc within the EU. There has also been rising anti-immigration sentiment in Germany and France.
There are concerns around the level of US corporate debt which has swollen massively during the period of low borrowing rates in order to finance mergers and acquisitions. This has resulted in the debt of many large corporations being downgraded to a BBB credit rating, close to junk status. Indeed, 48% of total investment grade corporate debt is rated at BBB. If such corporations fail to generate profits and cash flow to reduce their debt levels as expected, this could tip their debt into junk ratings which will increase their cost of financing and further negatively impact profits and cash flow.
Geopolitical risks, for example in North Korea, but also in Europe and the Middle East, which could lead to increasing safe haven flows.
Upside risks to current forecasts for UK gilt yields and PWLB rates:
Brexit – if agreement was reached all round that removed all threats of economic and political disruption between the EU and the UK.
The Bank of England is too slow in its pace and strength of increases in Bank Rate and, therefore, allows inflationary pressures to build up too strongly within the UK economy, which then necessitates a later rapid series of increases in Bank Rate faster than we currently expect.
UK inflation, whether domestically generated or imported, returning to sustained significantly higher levels causing an increase in the inflation premium inherent to gilt yields.
Page 213 INVESTMENT DETAILS APPENDIX C
April May June July August September October Investment £000k Interest £000k Interest £000k Interest £000k Interest £000k Interest £000k Interest £000k Interest rate % rate % rate % rate % rate % rate % rate %
Page 214 Page Bank of Scotland 32 day 1,050 0.80% 1,050 0.80% 2,000 0.95% 3,000 0.95% 3,000 0.95% 1,000 0.95% 1,000 0.95%
Barclays 95 day 1,500 0.95% 1,500 0.95% 1,500 0.95% 2,500 0.95% 1,500 0.95% 1,500 0.95% 1,500 0.95% Barclays fixed term deposit 1,000 0.75% 1,000 0.75% 1,000 0.75% Goldman Sachs 185 day 2,000 0.87% 2,000 0.87% 2,000 0.87% 2,000 0.87% 2,000 0.87% 2,000 0.87% 2,000 0.87%
Lloyds 32 day 1,000 0.80% 1,000 0.80% 2,000 0.95% 2,000 0.95% 2,000 0.95% 2,000 0.95% 2,000 0.95%
Lloyds 95 day 1,000 1.10% 1,000 1.10% 1,000 1.10% 1,000 1.10% 1,000 1.10% 1,000 1.10% Nationwide 1 day 600 0.40% 600 0.40% 600 0.40% 600 0.40% 600 0.40% 600 0.40% 600 0.40% Nationwide 125 day 1,000 1.20% 1,000 1.20% 1,000 1.20% Nationwide 95 day 1,400 0.90% 1,400 0.90% 1,400 0.90% 1,400 0.90% 1,400 0.90% 400 0.90% 400 0.90% Santander 95 day 500 0.85% 500 0.85% 500 0.85% 1,500 0.90% 1,500 0.90% 1,500 0.90% 1,500 0.90% Total invested 9,050 9,050 10,000 14,000 15,000 12,000 12,000 £000k Weighted average rate of return 0.87% 0.87% 0.89% 0.92% 0.92% 0.92% 0.92% 3 Month LIBID rate (for benchmarking) 0.70% 0.68% 0.66% 0.65% 0.64% 0.65% 0.66% Weighted 94 days 94 days 82 days 81 days 84 days 92 days 92 days average life
Agenda Item 8
Nottinghamshire and City of Nottingham Fire and Rescue Authority
MEDIUM TERM FINANCIAL STRATEGY 2020/21 TO 2023/24 AND BUDGET GUIDELINES 2020/21
Joint Report of the Chief Fire Officer and the Treasurer
Date: 20 December 2019
Purpose of Report:
To present an update to the Medium Term Financial Strategy to the Fire Authority for approval.
To inform Members of the likely budget position for 2020/21 and to request that the Fire Authority set general guidelines within which the Finance and Resources Committee will develop a detailed budget proposal for 2020/21.
Recommendations:
It is recommended that Members:
• Approve the Medium Term Financial Strategy (MTFS) as set out in Appendix A.
• Approve the Capital Strategy and Flexible Use of Capital Receipts Strategy contained within the MTFS.
• Task the Finance and Resources Committee with providing guidance to the Fire Authority in February in respect of:
• The options for Council Tax limited to either a Council Tax freeze or an increase in Council Tax within the referendum limit;
• The options for addressing any budget deficit to enable the Fire Authority to approve a balanced budget, as required by law.
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CONTACT OFFICER
Name : Becky Smeathers Head of Finance Tel : 0115 967 0880
Email : [email protected]
Media Enquiries Therese Easom Contact : (0115) 967 0880 [email protected]
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1. BACKGROUND
1.1 The Fire Authority has a number of strategies in place to support good financial management and governance of the Authority.
1.2 The Medium Term Financial Strategy (MTFS) provides an overarching view of the way in which the Authority’s finances will be managed and it brings together various related financial strategies in one cohesive document. It demonstrates how the Authority’s resources are used to support the Authority’s Strategic Plan and other key strategies and plans.
1.3 The updated MTFS builds on the strategy approved by the Fire Authority in December 2018 and covers the four-year period from 2020/21 through to 2023/24.
1.4 Government funding for the four-year period is uncertain at present. The 2020/21 spending review announced in September 2019 was very high level. A more detailed funding announcement would normally have been made at this point in the year providing estimated grant levels for the forthcoming year. This is now not expected until after the general election, and will probably be announced in January. For this reason, the Strategy considers several funding scenarios. The outcome of the general election on 12 December 2019 will also determine the length and content of any future year spending reviews.
1.5 In addition to funding, there are many other areas of uncertainty inherent in budget planning and the budget requirement figures contained within this report will be estimates. Nevertheless, the Authority must consider its budgetary position going forward and provide the Finance and Resources Committee with guidance as to the parameters within which to develop a budget proposal for 2020/21 and beyond, before final budget proposals are considered by the Fire Authority in February 2020.
2. REPORT
FINANCIAL POSITION
2.1 The MTFS is attached in full to this covering report. It considers the current financial position of the Authority and looks at the estimated budgetary position over the next four years against a backdrop of both the national and local financial position, including the levels of reserves that the Authority holds.
2.2 When the Authority set the budget in February 2019, there remained a deficit position for 2020/21 onwards in the region of £800k. The Service has worked hard during the year to identify savings to bridge this gap. Carefully scrutinising areas of consistent underspends in the budget along with
Page 217 procurement savings, have allowed the deficit to be cut without impacting on front line services.
2.3 The level of general reserves is estimated to be £5.5m at 31 March 2020, with a risk-assessed minimum level of general reserves proposed at £3.9m for consideration as a separate report on the agenda for this meeting.
2.4 The general fund currently exceeds the minimal level by £1.6m.
EXTERNAL FUNDING
2.5 There is no detailed funding announcement at present, and this is not expected until January 2020 due to the General Election. The high level 2020/21 spending review announced in September indicated that government funding would be protected in real terms. It has been assumed that government grant will include inflation for 2020/21, but that anticipated funding levels for 2021/22 onwards will remain flat for the purpose of planning. The Strategy also provides for several alternative funding scenarios given the current level of uncertainty.
2.6 The referendum limit currently stands at 2% for the four years covered by the Strategy. A Council Tax increase above 2% will trigger a local referendum on the level of Council Tax.
REVENUE BUDGETS
2.7 The budget process this year has continued to focus on the need to find savings and efficiencies wherever possible. The Chair of the Finance and Resources Committee is working closely with Officers to gain assurances as to the robustness of budget estimates.
2.8 Work on the budget requirement, which is the amount the Authority is required to spend to deliver its services, is nearing completion and covers the next four years. However, there are still some variables which may affect the overall budgetary position, and these will not be notified to the Authority by the Billing Authorities until the end of January. In summary, these unknown elements are:
• The level of base line funding from Central Government (revenue support grant and business rates top up grant);
• The level of the Council Tax base;
• Council Tax and business rates surpluses and/or deficits from prior years.
2.9 Current inflation stands at 1.8%. The Bank of England has revised inflation rates downwards to between 1.25% and 2% over the next four years, although it is difficult to predict for the future as it is dependent on the outcome of the Brexit negotiations. Any increases in inflation will create additional pressure during this medium-term period with an increased level of risk relating to economic factors outside of the Authority’s control. The
Page 218 increased level of financial risk caused by Brexit has been built into the financial risk register which forms the basis for calculating the general fund minimum level.
2.10 A number of scenarios have been considered in the MTFS due to the uncertainty of funding over the forthcoming years.
SCENARIO 1 – 2% RISE IN GRANT FUNDING FOR 2020/21 ONLY
2.11 The first scenario considers a 2% rise in grant funding for 2020/21 only. This includes:
• Base line funding (revenue support grant) and business rates top up grant) receive an inflationary increase for 2020/21 as indicated in the spending review announced in September;
• Base line funding remains flat for 2021/22 to 2023/24;
• Pension grant remains flat at £2.3m throughout;
• Council Tax is increased at 1.95% for each year.
2.12 This will result in a break even position as shown in the table below:
2% Increase in Base Line Funding for 2020/21, No Increase Thereafter
2019/20 2020/21 2021/22 2022/23 2023/24 £’000 £’000 £’000 £’000 Government 18,504 18,790 18,790 18,846 18,903 Funding Budget (45,037) (44,926) (45,802) (46,705) (47,639) Requirement Balance to be Met 26,534 26,136 27,012 27,859 28,736 Locally Strategic Use of 1,240 0 0 0 0 Reserves Council Tax Yield 25,293 26,136 27,007 27,905 28,834 Budget Surplus / 0 0 (5) 46 98 (Deficit)
2.13 If no Council Tax increases are approved in each of the years above, then the forecast cumulative deficit by 2023/24 increases to £2.0m.
2.14 The Authority would be in a similar break even position if base line funding were to be increased by inflation for each year, but the pension grant were to be cut by 10% per year, given that indications have been that this was a temporary support and would not be guaranteed in future years.
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2.15 This scenario enables the £200k increase in support staff superannuation costs to be funded (Section 4.5 of the MTFS).
2.16 The budget requirement for future years cannot be accurately estimated at this point, as the full budget is still to be determined. It has been amended for known major pressures, but figures are likely to change. More detailed figures will be provided for Finance and Resources Committee in January 2020 and Fire Authority in February 2020.
SCENARIO 2 – ZERO RISE IN GRANT FUNDING FOR ALL YEARS
2.17 This scenario assumes that:
• Base line funding remains flat for 2020/21 to 2023/24; • Pension grant remains flat at £2.3m throughout; • Council Tax is increased at 1.95% for each year.
2.18 This scenario would result in a deficit position for the Authority as detailed in the table below:
Zero Increase in Base Line Funding for 2020/21 to 2023/24
2019/20 2020/21 2021/22 2022/23 2023/24 £’000 £’000 £’000 £’000 Government 18,504 18,540 18,540 18,596 18,653 Funding Budget Requirement (45,037) (44,926) (45,802) (46,705) (47,639) Balance to be Met 26,534 26,386 27,262 28,109 28,986 Locally Strategic Use of 1,240 0 0 0 0 Reserves Council Tax Yield 25,293 26,136 27,007 27,905 28,834 Budget Surplus / 0 (250) (260) (204) (152) (Deficit)
2.19 If no Council Tax increases are approved in each of the years above, then the forecast cumulative deficit by 2023/24 increases to £2.3m.
2.20 If there is no increase in base line funding then there will be a deficit in the region of £250k, largely attributable the £200k additional support staff superannuation costs (Section 4.5 of the MTFS).
5% increase or decrease in Base Line Funding
2.21 Two further scenarios have been considered (Appendix 4 of MTFS) – a 5% increase or decrease in base line funding.
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2.22 A 5% increase in funding would result in a surplus of £375k in 2020/21 which could be reinvested in services.
2.23 A 5% decrease in funding would result in a deficit of £874k in 2020/21 which could be reinvested in services.
PROPOSED GUIDELINES
2.24 The meeting of the Finance and Resources Committee in January 2020 will be presented with the latest budgetary position. Although funding levels, Council Tax base and business rate estimations will not have been finalised by then, the Authority should have more detailed expenditure estimates. Therefore, the Committee will have some information about the overall three- year budgetary plan to provide guidance to the Fire Authority meeting in February.
2.25 The Authority’s total funding for the revenue budget comprises the external funding elements, as well as Council Tax precept. Whilst the amount of external funding cannot be directly influenced by the Fire Authority, the amount of the Council Tax precept will be set by the Fire Authority in February. It would seem appropriate therefore for the Finance and Resources Committee to focus on two areas:
a. The options for Council Tax to be recommended to the Fire Authority in February.
b. The options for eliminating any budget deficit to enable the Fire Authority to approve a balanced budget, as required by law.
2.26 The Authority has a number of options for Council Tax:
a. Reduce Council Tax;
b. Maintain Council Tax at the 2019/20 level;
c. Increase Council Tax by an amount lower than the referendum limit (assumed to be 2%, but may be changed as part of the finance settlement – see Section 12 of the MTFS);
d. Increase Council Tax by an amount higher than the referendum limit.
2.27 The option to reduce Council Tax would present the Authority with an increased budgetary deficit to manage, as would the option to increase Council Tax by an amount higher than the referendum limit. For the latter option this is because a referendum would be triggered which would result in increased costs to the Authority. In the current financial environment, the options in Paragraphs 2.26 b) and c) are considered to be the most appropriate parameters within which the Finance and Resources Committee should work.
Page 221 2.28 If a budgetary position which shows a funding deficit is presented to the Finance and Resources Committee, then this will require consideration of suitable options to eliminate this deficit. The options would depend upon the size of any deficit but may include:
• Tasking the Chief Fire Officer with proposing further savings for consideration by the Fire Authority.
• Planning the use of general reserves to support the budget whilst further budgetary savings are planned and implemented.
3. FINANCIAL IMPLICATIONS
The financial implications are set out in full within the body of the report.
4. HUMAN RESOURCES AND LEARNING AND DEVELOPMENT IMPLICATIONS
There are no human resources or learning and development implications arising from this report.
5. EQUALITIES IMPLICATIONS
An equality impact assessment has not been undertaken because there are no equality implications.
6. CRIME AND DISORDER IMPLICATIONS
There are no crime and disorder implications arising from this report.
7. LEGAL IMPLICATIONS
There are no legal implications arising from this report.
8. RISK MANAGEMENT IMPLICATIONS
The primary corporate risk is that sufficient financial resources are not available to the Authority. An early guide for the Finance and Resources Committee in terms of the development of the budget will help to manage this risk.
9. COLLABORATION IMPLICATIONS
There are no collaboration implications arising from this report.
Page 222 10. RECOMMENDATIONS
It is recommended that Members:
10.1 Approve the MTFS as set out in Appendix A.
10.2 Approve the Capital Strategy and Flexible Use of Capital Receipts Strategy contained within the MTFS.
10.3 Task the Finance and Resources Committee with providing guidance to the Fire Authority in February in respect of:
• The options for Council Tax limited to either a Council Tax freeze or an increase in Council Tax within the referendum limit;
• The options for addressing any budget deficit to enable the Fire Authority to approve a balanced budget, as required by law.
11. BACKGROUND PAPERS FOR INSPECTION (OTHER THAN PUBLISHED DOCUMENTS)
None.
Charlotte Radford John Buckley TREASURER TO THE FIRE AUTHORITY CHIEF FIRE OFFICER
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APPENDIX A
MEDIUM TERM
FINANCIAL STRATEGY
2020/ 21 to 2023/24
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CONTENTS
Section 1 Purpose and Objectives of the Strategy
Section 2 Economic Context
Section 3 Unpredictability of Future Years Public Funding
Section 4 Local Issues Impacting on the Strategy
Section 5 Medium Term Risks
Section 6 Financial Management
Section 7 Components of the Medium Term Strategy
Section 8 Collaborative Working
Section 9 Savings Strategy
Section 10 Outlook for 2020/21, 2021/22 and Beyond
Section 11 Reserves
Section 12 Council Tax
Section 13 Summary
Appendix 1 Strategic Plan – Year 1 Action Plan
Appendix 2 Capital Strategy 2020/21
Appendix 3 Ten Year Capital Plan 2020/21 – 2029/30
Appendix 4 5% Increase or Decrease in Base Line Funding
Other References • Strategic Plan • Property Strategy • Fleet Strategy • ICT Strategy • Community Safety Plan • Workforce Plan
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SECTION 1: PURPOSE AND OBJECTIVES OF THE STRATEGY
PURPOSE OF THE STRATEGY
1.1 The purpose of the Authority’s financial strategy is to provide clear and understandable information on actions which are needed to ensure the long term financial sustainability of the Authority. It supports affordable, sustainable service delivery through the planned use of revenue budgets, capital budgets and reserves.
1.2 A medium-term financial strategy (MTFS) sets out how finances are to be managed in such a way as to manage levels of Council Tax, reserves and balances. In simple terms, it will set out how a stable and robust financial platform can be created such that developments and improvements in services set out in the Strategic Plan can both be achieved and sustained over time.
1.3 The Strategy should reflect the priorities outlined in the Strategic Plan and link together with all other strategies of the organisation such as the Capital Strategy, Treasury Management Strategy and Reserves Strategy.
1.4 The objectives of the Authority’s financial strategy are as follows:
a) To provide a stable financial foundation to assist in decision making.
b) To be fully cognisant of other supporting plans and strategies such as the Strategic Plan, Workforce Plan, equalities objectives and ICT strategies to provide a cohesive framework.
c) To enable the Authority to be proactive rather than reactive in terms of financing.
d) To support the continuance of the Authority’s core service strategies.
e) To support sustainable service delivery using revenue budgets and reserves.
f) To seek to minimise the impacts on the Council Tax payer of fluctuations in demand for resources.
g) To hold a working balance of cash and reserves sufficient to respond to unexpected events and/or opportunities.
h) To be flexible and responsive to changes in needs and legislation.
i) To take account of the wider economic climate and local influences.
j) To ensure that the capital base of the Authority can be maintained within affordable and sustainable limits.
k) To provide forward looking indications of Council Tax levels.
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1.5 Within this overall set of objectives, the Strategy must seek to find creative ways of using resources to minimise the impact of reducing funding from Central Government.
1.6 A number of principles have been developed to underpin these objectives:
a) Resources will be prioritised to meet the core aims of the Service as set out in the Strategic Plan and other strategies which flow from this overarching document. This will include departmental business plans and the Corporate Risk Register.
b) Priorities will be reviewed in the light of available resources and financial performance.
c) Capital receipts will mainly be applied to the redemption of debt or the financing of additional capital assets subject to the Flexible Use of Capital Receipts Strategy (Appendix 2).
d) Capital will be financed using the most advantageous method prevailing at the time finance is required within the requirements of the Prudential Code. A full options appraisal will be carried out before financing decisions are taken.
e) Capital development will only be carried out where there is a synergy with corporate strategies and where clear benefits can be identified.
f) The return on investments will take account of the advice received from the Authority’s external advisors.
g) Investment decisions will be based on a balance of risk and return, remain biased towards low risk activity and follow the CIPFA principles of security, liquidity, and yield in that order.
h) Council Tax rates will be transparent and sustainable. This means that budgets will not be lowered and supported by reserves unless this is part of a long-term sustainable strategy and approved by Members.
i) Charging for services will remain sensitive to the needs of communities and their expectations of the Service.
j) Sponsorship funding will not be sought to underpin front line or core service delivery unless a long-term plan for sustainability has been developed.
k) The Authority will continue to direct resources to the areas of greatest need within communities and seek to address the wider safety agenda. This will be influenced by the Fire Cover Review which will be updated in 2020/21 and reviewed in its entirety in 2021/22.
l) The Authority will actively seek to collaborate with partner organisations in both setting and delivering priorities, as set out in the Collaboration Strategy.
m) The Authority will apply any year end surpluses to general fund reserves.
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n) Longer term financial planning will take account of the possible use of reserves to minimise the effect of reductions in funding as a means of transition, but not of permanent support.
1.7 There are a number of key outputs which will help to both assure and monitor the effectiveness of this strategy and the underlying principles. The following list is not exhaustive but provides a flavour of the outputs that may be expected:
a) Production of four-year revenue budgets.
b) The production of a 10-year capital budget to reflect the Capital Strategy and long-term strategies for ICT, transport, property and equipment such that financial planning can be carried out both within and beyond the window of the medium term financial strategy.
c) Production of quarterly monitoring statements for both capital and revenue, including project based performance as appropriate.
d) Supporting information provided to all Council Tax payers via the Internet.
e) Capital Strategy.
f) Treasury Management Strategy.
g) Prudential Code monitoring reports produced quarterly.
h) External audit reports.
i) Risk based approach to the maintenance of reserves in the Reserves Strategy.
j) Internal audit reports reviewed by the Finance and Resources Committee.
SECTION 2: ECONOMIC CONTEXT OF THE STRATEGY
2.1 2019 has been year of political upheaval, as Theresa May resigned as Prime Minister to be replaced by Boris Johnson on a platform of the UK leaving the EU on 31 October 2019. However, MPs blocked leaving on that date and the EU agreed an extension to 31 January 2020. In late October, MPs approved an outline of a Brexit deal to enable the UK to leave the EU on 31 January. However, even if a Conservative Government gains an overall majority in the general election on 12 December, there will still be much uncertainty as the detail of a trade deal will need to be negotiated by the current end of the transition period in December 2020.
2.2 The first half of 2019/20 has seen economic growth fall as Brexit uncertainty took its toll. In its inflation report of 1 August, the Bank of England was notably downbeat about the outlook for both the UK and major world economies. The Monetary Policy Committee (MPC) meeting of 19 September re-emphasised their concern about the downturn in world growth and expressed concern that prolonged Brexit uncertainty would contribute to a build-up of spare capacity in Page 228
the UK economy, especially in the context of a downturn in world growth. This mirrored investor concerns around the world, which are now expecting a significant downturn or possibly even a recession in some major developed economies. The MPC has so far left Bank Rate unchanged at 0.75% throughout 2019 and is expected to hold off on changes until there is some clarity on what is going to happen over Brexit.
2.3 The consumer price index (CPI) rate of inflation has been hovering around the Bank of England’s target of 2% during 2019, but fell to 1.7% in August. It is likely to remain close to 2% over the next two years and so does not pose any immediate concern to the MPC at this time. However, if there were to be a no deal Brexit, inflation could rise towards 4%, primarily as a result of imported inflation due to a weakened pound.
2.4 It was against this backdrop uncertainty that the Bank of England produced its quarterly inflation report (now renamed the Monetary Policy Report) on 7 November. The Bank made a change in their Brexit assumptions to now include a deal being eventually passed. Possibly the biggest message that is worth taking note of from the Monetary Policy Report, was an increase in concerns among MPC members around weak global economic growth and the potential for Brexit uncertainties to become entrenched and so delay UK economic recovery. Consequently, the MPC voted 7-2 to maintain Bank Rate at 0.75%, but two members were sufficiently concerned to vote for an immediate Bank Rate cut to 0.5%. The MPC warned that if global growth does not pick up or Brexit uncertainties intensify, then a rate cut was now more likely. Conversely, if risks do recede, then a more rapid recovery of growth will require gradual and limited rate rises. The speed of recovery will depend on the extent to which uncertainty dissipates over the final terms for trade between the UK and EU and by how much global growth rates pick up. The Bank revised its inflation forecasts downwards to 1.25% in 2019, 1.5% in 2020, and 2.0% in 2021; hence the MPC views inflation as causing little concern in the near future.
SECTION 3: UNPREDICTABILITY OF FUTURE YEARS PUBLIC FUNDING
3.1 The funding for 2020/21 is still uncertain pending the outcome of the General Election. The September spending review was very high level, but indicated that Fire Sector funding would be protected in real terms for 2020/21. Baseline funding, which determines grant levels, was expected to include inflation. The £2.3m pension grant that the Authority received in 2019/20 to part cover the increases in firefighter superannuation costs was expected to continue into 2020/21, but the level may be reduced in future years. A more detailed finance settlement will not be announced until after the General Election on 12 December 2019. The settlement will need to be approved by Parliament which means the settlement is most likely to be announced in January. This could be delayed further in the case of a hung parliament.
3.2 A new three-year spending review is expected for 2021/22 however, this will be determined by the incoming Government.
3.3 The reforms to the business rates retention scheme have been further delayed until 2021/22. The final details of the scheme are still to be determined but it is anticipated that the level of business rates being retained by local government Page 229
will increase from the current 50% to the equivalent of 75%. As part of the review, it is expected that Revenue Support Grant will be withdrawn. It is still to be determined whether Fire will continue to receive funding from business rates or whether this will be replaced with a Fire Grant in a similar way to the Police.
3.4 The fire funding formula, which determines the breakdown of Government funding between fire authorities, is currently under review with a view to implementing a revised formula for 2021/22 onwards. Temporary arrangements will be put in place to protect fire authorities from significant changes in their funding levels.
3.5 The firefighter pension scheme employer superannuation rates increased significantly in 2019/20 following the scheme valuation exercise. This had the impact of increasing superannuation costs for the service in excess of £2.5m. In response, the Treasury issued an additional Section 31 grant of £2.3m to part cover the costs. Initial indications were that this would continue into 2020/21, but this may be reviewed depending on the outcome of the election. In 2021/22 onwards it is expected that this grant will either decrease or be moved into the Basic Needs Assessment and will be funded by the Business Rates top up grant.
3.6 The impact of the potential changes outlined above will be significant given that the Authority is expecting to receive in excess of £18m from RSG and Business rates in 2020/21 (assuming flat level funding), which represents 40% of the Authority’s total funding. A breakdown is provided in the table below.
Estimates of Government Funding Levels for 2020/21
Government Funding Estimates 2020/21 £ Revenue Support Grant 5,335,308
Business Rates 3,704,627
Business Rates Top Up Grant 7,160,355
Pension Top Up Grant 2,339,932
Total External Funding 18,540,223
3.7 Clearly there are many uncertainties around funding projections for 2020/21 onwards. For the purposes of forecasting, the MTFS will consider various funding scenarios in section 10 of this report.
3.8 A 5% change in government funding levels would be in the region of £625k. Likely scenarios that would lead to a change in the order of this level would be a 27% cut in the pension grant or a flat pension grant and a change in Revenue Support Grant of 12%.
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SECTION 4: LOCAL ISSUES IMPACTING ON THE MTFS
STRATEGIC PLAN – YEAR 2 ACTION PLAN
4.1 The Strategic Plan 2019 to 2022 was adopted by the Authority on 15 February 2019. The Year 1 Action Plan for 2019/20 is attached at Appendix 1 and the 2020/21 Action Plan is in the process of being agreed.
4.2 All new investment proposals are evaluated against the Strategic Plan objectives and the Action Plans.
PAY AWARD
4.3 The budgets will assume a 2% pay award for both uniformed and non- uniformed staff for 2020/21 to 2022/23. Should pay awards be agreed higher than this level the additional cost will be in the region of £350k for every 1% increase in pay.
FIREFIGHTER RECRUITMENT
4.4 It is anticipated that there will be 1 further full-time recruit intake during 2020/21 and up to 3 on-call intakes. There will be additional costs involved in training firefighters as ridership numbers will be increased while newly qualified firefighters gain their competent status. Additional costs will also be incurred on uniform and Personal Protective Equipment. These will be reflected in the budgets presented to Fire Authority in February 2020.
PENSIONS
4.5 The service has received draft revised Local Government Pension Scheme (LGPS) superannuation rates following the revaluation of the fund. These have increased from 14.8% to 18.4%. This will increase costs by approximately £200k per year from 2020/21.
4.6 The Employment Tribunal are still considering the remedy following the McCloud case, where the transition arrangements into the 2015 firefighters’ pension scheme were found to be discriminatory. There are likely to be significant increase in the cost of the firefighters’ pension scheme as a result of the case. These are expected to be largely funded by Central Government but additional costs falling to the Fire Authority cannot be ruled out. This has been added to the General Fund reserves risk register.
4.7 Another risk area is that of Ill Health retirements. All the costs from such retirements now fall directly on to Authority budgets and costs per early retiree could be as high as £120,000. With firefighters now expected to work longer before retirement there may be an increase in ill health retirements if staff are unable to meet fitness standards. The Authority continues to maintain a budget for ill health retirements based on historical data but any spikes in payment levels will need to be met from the General Reserve if no other funding can be identified.
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EMERGENCY SERVICES MOBILE COMMUNICATION PROGRAMME (ESMCP)
4.8 Set up by the Home Office, ESMCP will replace the current communication service provided by Airwave. The new service will be called the Emergency Services Network (ESN). ESN aims that the functionality, coverage, security and availability needs of the UK’s emergency services are fully met.
4.9 A Regional Strategic Board has been established and a Regional Coordinator has been appointed to work with Service leads and to enable collaboration across the regions.
4.10 There have been significant delays to the programme and funding has been similarly been subject to delay. ESN continues to place increasing demands upon most support departments and this has resulted in many fixed term arrangements being put in place, specifically across the Procurement, Corporate and ICT functions. These costs will only be partially funded from the government and costs continue to be closely monitored.
HMICFRS INSPECTION
4.11 The Service was inspected by Her Majesty’s Inspectorate of Constabulary and Fire and Rescue Services (HMICFRS) in January 2019. The inspection report judged the service to be requiring improvement and identified 24 areas for improvement. An improvement plan was approved by Fire Authority on 27 September 2019. Many of the areas covered in the plan were already in the year 1 Action Plan (Appendix 1) which forms part of the service’s Strategic Plan and others have been captured in the year 2 action plan. Some associated costs were built into the 2019/20 budgets but there will be additional costs needing to be built into 2020/21.
4.12 The inspection process required a significant amount of data collection and additional investment in this area will also be included in the 2020/21 budget.
SECTION 5: MEDIUM TERM RISKS
5.1 The Authority’s Strategic Risk register has identified that there are a number of risks over and above budget reductions which can affect this strategy in the medium term, some of which are beyond the direct control of the Authority. The rapidly changing political and economic climate at the present time, for example, brings with it a number of risks any one of which could significantly impact upon this strategy.
INVESTMENT INTEREST RATES
5.2 The Authority has accumulated reserves of cash both in respect of working balances and other reserves. These cash balances are invested to generate income from interest. The outlook for rates is still very low which means that vetting and the choice of investment counterparty is becoming more important. The process for managing these funds is set out in the Treasury Management Strategy document which is approved by the Fire Authority in February of each year.
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LOAN INTEREST RATES
5.3 The Authority predominantly funds its capital investments through borrowing. A general policy of using fixed interest rate vehicles is included in the Treasury Management Strategy in order to minimise this risk to interest rate increases. However, in the longer term there is still an exposure from the loan charges on new capital being greater than anticipated.
5.4 It is common in the Public Sector to use maturity loans as the most appropriate vehicle for capital financing. These loans do not repay any capital until maturity but interest charges only, and they therefore present a refinancing risk at the end of their term. They are currently the most cost effective way of borrowing but it is considered essential that the Authority has sufficient accumulated cash to repay principal at term. This ensures that the authority retains control of overall debt levels.
5.5 The authority will also take opportunities to make voluntary Minimum Revenue Provision (MRP) contributions as they arise.
5.6 The Authority has adopted a medium-term strategy to hold long term debt at low rates but reschedule this at a later date if rates are more advantageous. The overall strategy for borrowing is set out in the Treasury Management Strategy document and in the Prudential Code Report. This strategy needs to “follow through” in terms of eventually seeking to mirror the debt outstanding profile with the profile of asset lives. This will be possible by rescheduling debt again if shorter term interest rates fall in relation to long rates however there is no sign of this at present.
COUNCIL TAX SUPPORT
5.7 Since 2014/15, Council Tax Benefit has been paid from the collection fund administered by the billing authorities. Costs therefore are shared between the billing authorities and the precepting authorities of which Fire is one. In return for this Government made a grant which is the equivalent of 90% of 2012/13 spending on council tax benefit to help authorities fund this change. Whist the system is now well embedded, any change in the economic prosperity of the region may have an impact on levels of Council Tax Benefit being claimed. This will fall as a cost to the Authority. This is recognised as a financial risk and is included in the General Fund Risk Register.
LONG TERM CAPITAL SUSTAINABILITY
5.8 The Capital Strategy for each year is approved by Fire Authority alongside the MTFS. The updated Capital Strategy for 2020/21 is attached at Appendix 2 for approval. It sets out how the Authority intends to optimise the use of available capital resources to help achieve its objectives in such a way that it ensures that the programme is affordable, prudent and sustainable. It also includes the flexible use of capital receipts strategy.
5.9 The Authority has set a limit for the ratio of debt costs to revenue budget of 8%. This “credit ceiling” for affordable borrowing, which is covered within the principles of the Prudential Code, will be more closely matched to the profile of the asset base going forward. This strategy is to ensure that the credit ceiling Page 233
is not reached before the requirement to undertake major capital schemes is exhausted. The Authority has considered the sustainability of its capital plans in terms of the ICT Strategy, the Fleet Strategy and the Property Strategy and these have been mapped out over future years to assist in the revenue budget planning process.
5.10 These individual plans have been brought together to form a 10-year capital programme to assist financial planning and monitoring of debt costs. This is attached at Appendix 3. The programme assumes investment in a new headquarter provision and investment into 2 new fire stations over the 10-year period. This will see the estimated debt cost ratio increase to 7.5% by the end of the 10 years which is close to the maximum ratio of 8% identified in 5.9. The programme will need to be kept under close review as it has been built on assumptions around build costs, service needs and future interest rates. If these were to change, then the programme may need to be adjusted.
SECTION 6: FINANCIAL MANAGEMENT
6.1 The External Auditors of the Authority have consistently issued unqualified audit reports and positive management letters to the Fire Authority in respect of their audit of accounts and their conclusion on the effective arrangements in place to achieve value for money.
6.2 Ernst & Young took over from KPMG as the Authority’s external auditor for the 2019/20 Accounts. Work has been ongoing in developing good working relationships with the new auditors.
6.3 The prevailing economic climate has caused increased financial pressures to be placed upon all public sector bodies and the Fire Service is no exception. There have been a number of significant changes to the funding mechanism and it is clear that the overall funding position remains uncertain over the next three years.
6.4 The challenge to the organisation however is not how to survive in this period of uncertainty but how to continue to both provide and develop high quality services for the communities it serves. Finance is a clear enabler in this context and sound financial management is essential to ensure that maximum value can be achieved with the resources available.
6.5 The organisation will continue to manage its financial resources to the highest professional standards and back this up with a strong governance framework which will include scrutiny by the Finance and Resources Committee (both generally and as an Audit Committee), regular reporting to elected members and the Strategic Leadership Team. In addition, an independent Internal Audit function is maintained to give additional assurances to both Members and Senior Officers.
6.6 The post of Head of Finance is responsible for developing and maintaining the Medium Term Financial Strategy and this post reports directly to the Chief Fire Officer.
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6.7 The Authority continues to have the support and advice of an independent Treasurer who will work closely with the Head of Finance to advise the Fire Authority on financial matters and provide an independent source of advice when required. The Treasurer plays a key role in financial strategy and this again strengthens the financial management role.
6.8 The financial planning process allows budget holders, service managers, Finance, Human Resources and other support functions to work together to develop plans which consider interdependencies, pressure on both financial and non-financial resources, and relative priority of proposed developments and their relevance to the strategic plan. This process has also made a positive contribution to medium term revenue and capital planning.
6.9 Developments in the Service will be resourced from several sources including:
• Recycling resources released by efficiency savings; • Re-assessment of service priorities; • Additional revenue budget allocation where appropriate; • The use of reserves, where appropriate; • Government Grant Funding; • From efficiency savings arising from collaborative working; • Sponsorship (where resources are temporary or not core activity).
SECTION 7: COMPONENTS OF THE MEDIUM TERM STRATEGY
7.1 This section briefly explains some of the processes and key components that underpin the medium term financial strategy.
REVENUE AND CAPITAL BUDGETS
7.2 The process for the preparation of revenue and capital budgets is now mature but continues to develop each year to accommodate the changing financial environment. There is now positive involvement of business plan owners in the development of the budgets which have been drawn up side by side with business plans. The Finance and Resources Committee has full involvement in the process and the Chair of the Finance and Resources Committee plays an active part in interviewing budget managers to fully understand the underlying detail within the budgets. The Finance and Resources Committee makes recommendations to the Fire Authority.
7.3 Both the Strategic Plan and other plans and strategies are used to drive the budget. The strategic objectives have been used to prioritise requests for additional funding. Retirement and recruitment profiles from the workforce plan have informed the revenue budget process and the strategies for ICT, Fleet and Property have enabled a cohesive Capital Programme to be developed. It is important to understand that the process of constructing a revenue and capital budget is an iterative one which is driven by organisational priorities. Of course, affordability is a key consideration hence the iterative nature of the process but it is important that when financial constraints are imposed the impacts on service development and/or delivery are fully transparent. Therefore, there is a direct relationship between, for example, the Fleet Strategy and the Capital Programme because the Capital
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Programme was developed from that strategy and the two are in complete alignment. The same is true for other strategies also.
7.4 The 10-year capital plan is considered to ensure long term affordability and is attached at Appendix 3. The first 4 years of this programme will be approved alongside revenue by Fire Authority on 28 February 2020. The programme consists of longer term projects which cross over the financial year end boundaries. This means that projects may overspend or underspend within a single year, and historically the position has been one of underspending which has an impact on debt repayment costs in the revenue budget. In order to alleviate this issue, it has been accepted that there will be an element of “over programming” but that revenue to support the capital programme will take this into account.
COUNCIL TAX
7.5 As part of the budget setting for 2019/20 to 2021/22 the Authority agreed a budget for 2019/20 of £42.697m. This required a rise in Council Tax of 2.95% to £79.80 at Band D.
FEES AND CHARGES
7.6 The Authority is permitted to make charges for the provision of a range of services to the public and to commerce. It has however been the practice of the Authority to avoid making charges for services which the public have a reasonable expectation of receiving free of charge. Revised scales for Fees and Charges are approved by Fire Authority as part of the Budget Setting report in February of each year. An example of where a charge would be made is for the containment and clearance of debris, spillages, discharges or leaks from a vehicle or storage tank where the owner can be readily identified. Charges are made on the basis of recovering costs only i.e. with no profit element and no charges are made in situations where there is a risk to life or property, nor where vulnerable persons are involved. The amount of income which can be raised from these charges is relatively low.
TREASURY STRATEGY
7.7 The Treasury Strategy for the Authority was set out in full in a report to the Fire Authority on 15 February 2019. This strategy complies fully with the Chartered Institute of Public Finance and Accountancy code of practice on Treasury Management which the Authority has adopted. The strategy relies for its success on the appointment of financial advisors who enable the Authority to lend and borrow as prudently as possible. Efforts will continue to be made to ensure a sufficient spread of investment counterparties to minimise risk exposures. The Authority’s Prudential Strategy, sets out the prudential indicators approved for 2019/20.
EXTERNAL FUNDING
7.8 Efforts will continue to be made to secure as much external funding as possible either from Government Grant or from sponsorship and partnerships. These are managed carefully to ensure that the sudden withdrawal of funding does not have a negative impact on revenue budget nor cause the Authority Page 236
embarrassment from having to close down successful projects due to lack of external funding.
7.9 There are no plans at the present time to enter into any Private Finance Initiative (PFI) funding for capital projects unless there is a strong indication that such a vehicle might prove cost effective.
RESERVES AND PROVISIONS
7.10 The Local Government Act 2003 requires that Authorities maintain adequate reserves and provisions to help ensure that the medium-term policy programme is sustainable and that it can be delivered. In accordance with good accounting and financial practice, reserves and provisions will always be made in the accounts where appropriate. In simple terms, the difference between a reserve and a provision is that a provision is made for a known liability arising from a legal obligation whereas a reserve is created for a discretionary purpose. The Authority’s Reserves Strategy will be approved by Fire Authority alongside the MTFS.
7.11 The reserves position is further considered in Section 11.
THE PRUDENTIAL CODE
7.12 The freedoms provided by the Prudential Code for Capital Accounting are to be fully used to make the best possible investment decisions in relation to capital spending in order that meaningful choices can be made between borrowing, leasing and the use of capital receipts. Nevertheless, it is still considered important that the Authority should not expose itself to unduly high levels of debt and it is necessary for a view to be taken as to how much debt is sustainable in the longer term. This position has been reviewed and it is clear that given the strategies in place for Fleet and Property over the next 20 years’ levels of debt should be able to be maintained to a level where the revenue effects of borrowing do not exceed 8% of overall revenue resources available. The risk to this is that as revenue budgets fall this underlying percentage will begin to rise.
VALUE FOR MONEY
7.13 The Authority continues to show its commitment to achieving Value for Money through continual budget scrutiny, good project management and improved procurement processes.
SECTION 8: COLLABORATIVE WORKING
8.1 The Policing and Crime Act 2017 has introduced a duty to collaborate with the three emergency services where it is in the interest of efficiency and effectiveness. To this end, a Collaboration Strategy was approved by Fire Authority on 22 September 2017. This will not preclude collaboration with other types of organisation where there are benefits to be achieved.
8.2 Collaboration is not something new to the organisation. The authority has taken advantage of many opportunities to reduce costs and increase
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resilience and effectiveness through joint procurement, joint use of estates and shared specialist vehicles.
8.3 The Authority remains committed to supporting joint and collaborative working with fire and other emergency service sector colleagues across the region, including on the Tri Control and Emergency services Network projects.
SECTION 9: SAVINGS STRATEGY
9.1 The Authority has had in place a Sustainability Strategy covering the four-year period from 2016/17 to 2019/20. The Strategy aimed to deliver savings in the region of £2.5m over the four-year period. This was necessary due to the reduced level of Central Government funding that the Authority was expecting to receive.
9.2 Gross savings of £2.2m has been generated. This allowed in excess of £250k to be reinvested into the service, leaving net savings of £1.935m. A report on the outcome of the Sustainability Strategy was considered by Fire Authority on 27 September 2019.
9.3 14 posts have been removed from establishment following the realignment of operational resources to take account of a reduction in the number of Fire Appliances and reintegration of the standalone Specialist Rescue Teams. This resulted in the saving of £590k.
9.4 The Day Shift Crewing model at Ashfield and Retford Fire Stations has been delivered. This resulted in the reduction of 28 wholetime operational posts which were partially offset by an increase in the number of On-Call units by 12. This has delivered savings in the region of £1.2m per annum.
9.5 Multiple avenues of collaboration have commenced. The largest of these to date is the Joint Command and Control Centre now operational in Derbyshire. This joint venture has led to the closure of Nottinghamshire control room delivering savings of approximately £300k for each Service.
9.6 The Authority approved a new Joint Head Quarters project with Nottinghamshire Police on 15 February 2019. Whilst savings were not the original objectives of this project, this investment should see some reductions to ongoing estates related expenditure. The opportunity for increased levels of collaborative working may enable further savings to be delivered in the medium term.
9.7 When the Authority set the budget in February 2019, there remained a deficit position for 2020/21 onwards in the region of £800k. The service has worked hard during the year to identify savings to bridge this gap. Carefully scrutinising areas of consistent underspends in the budget have allowed savings to be made without impacting on front line services.
9.8 Several improvement areas have been identified for 2020/21 which contribute towards meeting targets set in the Strategic Plan and other key corporate documents. Any further savings identified within the budget process for 2020/21 will be re-invested in these areas.
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9.9 A Transformation and Efficiency Strategy will be presented to Fire Authority in February 2020. This will outline areas of change in the organisation required to deliver the key objectives of the Strategic Plan and HMICFRS Action Plan. It will also address the outcomes of the Grenfell Tower Enquiry and the Hackitt Enquiry (Review of Building Regulations). Any additional funding required is likely to be project based and will be met from earmarked reserves.
SECTION 10: OUTLOOK FOR 2020/21, 2021/22 AND BEYOND
10.1 The Authority set a budget in February 2019 which for 2019/20, is balanced by way of a contribution from reserves of £1.2m. The estimate for 2020/21 was indicating a shortfall of the order of £800, assuming a Council Tax increase of 1.95%.
10.2 After updating the February 2019 expenditure projections for savings already identified in the 2020/21 budget process, including £200k additional superannuation for support staff in the Local Government Pension Scheme (section 4.5), an initial estimate of budget requirements going forward are:
Year £’000 2019/20 45,037 2020/21 44,926 2021/22 45,802 2022/23 46,705 2023/24 47,639
10.3 Section 3 of this report discussed the uncertainty of funding for the Authority over the forthcoming years. For this reason, a number of scenarios have been considered.
Scenario 1 - 2% rise in grant funding for 2020/21 only
10.4 The first scenario assumes that:
• Base Line funding (Revenue Support Grant (RSG) and Business Rates top up grant) receive an inflationary increased for 2020/21 as indicated in the spending review announced in September (see 3.1); • Base Line funding remains flat for 2021/22 to 2023/24; • Pension grant remains flat at £2.3m throughout; • Council Tax is increased at 1.95% for each year.
10.5 This scenario would result in a break-even position for the Authority as detailed in the table below:
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2% Increase in Base Line Funding for 2020/21, No Increase Thereafter
2019/20 2020/21 2021/22 2022/23 2023/24 £’000 £’000 £’000 £’000 Government Funding 18,504 18,790 18,790 18,846 18,903 Budget Requirement (45,037) (44,926) (45,802) (46,705) (47,639) Balance to be met 26,534 26,136 27,012 27,859 28,736 locally
Strategic use of 1,240 0 0 0 0 Reserves Council Tax Yield 25,293 26,136 27,007 27,905 28,834
Budget Surplus 0 0 (5) 46 98 /(Deficit)
10.6 If no council tax increases are approved in each of the years above, then the forecast cumulative deficit by 2023/24 increases to £2.0m.
10.7 The Authority would be in a similar break even position if Base Line funding were to be increased by inflation for each year but the pension grant were to be cut by 10% per year, given that indications have been that this was a temporary support and would not be guaranteed in future years.
10.8 This scenario enables the £200k increase in support staff superannuation costs to be funded (section 4.5).
10.9 The budget requirement for future years cannot be accurately estimated at this point as the full budget is still to be determined. It has been amended for known major pressures, but figures are likely to change. More detailed figures will be provided for Finance and Resources Committee in January 2020 and Fire Authority in February 2020.
Scenario 2 - Zero rise in grant funding for all years.
10.10 This scenario assumes that:
• Base Line funding remains flat for 2020/21 to 2023/24; • Pension grant remains flat at £2.3m throughout; • Council Tax is increased at 1.95% for each year.
10.11 This scenario would result in a deficit position for the Authority as detailed in the table below:
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Zero Increase in Base Line Funding for 2020/21 to 2023/24
2019/20 2020/21 2021/22 2022/23 2023/24 £’000 £’000 £’000 £’000 Government Funding 18,504 18,540 18,540 18,596 18,653 Budget Requirement (45,037) (44,926) (45,802) (46,705) (47,639) Balance to be met 26,534 26,386 27,262 28,109 28,986 locally
Strategic use of 1,240 0 0 0 0 Reserves Council Tax Yield 25,293 26,136 27,007 27,905 28,834
Budget Surplus 0 (250) (260) (204) (152) /(Deficit)
10.12 If no council tax increases are approved in each of the years above, then the forecast cumulative deficit by 2023/24 increases to £2.3m.
10.13 If there is no increase in base line funding then there will be a deficit in the region of £250k, largely attributable the £200k additional support staff superannuation costs (section 4.5).
5% increase or decrease in Base Line Funding
10.14 Two further scenarios are considered in Appendix 4 – a 5% increase or decrease in base line funding.
10.15 A 5% increase in funding would result in a surplus of £375k in 2020/21 which could be reinvested in services.
10.16 A 5% decrease in funding would result in a deficit of £874k in 2020/21 which could be reinvested in services.
SECTION 11: RESERVES
11.1 The Authority’s Reserves Strategy is included on the agenda for this meeting. Total estimated Reserve levels as at 31 March 2020 are £10.0m, consisting of £5.5m General Reserve and £4.4m Earmarked Reserves.
11.2 The authority reviews the levels of reserves and working balances it requires as part of the Reserves Strategy. A minimum level of £3.9m has been proposed for 2020/21. This is based on assessing the risks to the Authority and calculating the potential financial impact of those risks.
11.3 Any unplanned expenditure or overspends may need to be met from the General Reserve or existing Earmarked Reserves. With the current pressures on budgets it is not anticipated that there will be underspends which could be used to top up reserves in the coming years.
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SECTION 12: COUNCIL TAX
12.1 As part of the Local Government Finance Settlement Consultation for 2020/21, the government has proposed a maximum limit for the amount Council Tax can be increased before invoking a referendum of 2%. As part of the consultation, the Fire sector have requested a £5 increase in Council Tax be considered. If approved, this would provide an additional £1.1m which could be invested in services.
12.2 If Council Tax levels remain at current levels with no increases from 2020/21 onwards, then the Authority will have insufficient funds to maintain expenditure levels. Assuming a 2% increase in funding for 2020/21 only and no Council Tax increases, there would be a deficit of £2.0m for 2023/24 (section 10.4). This would reduce the General Fund Reserve to below its minimum level of £3.9m.
12.3 The deficit and reserve figures identified above do not take account of the many other influences outlined in this report, and it is acknowledged that the whilst potential savings discussed will reduce the shortfall there are also additional pressures that will increase the budget requirement. Budget profiles will continue to be updated as more information becomes available.
12.4 At its meeting on 28 February 2020 the Fire Authority will consider the budget report with the objective of setting Council Tax levels for 2020/21.
SECTION 13: SUMMARY
13.1 Whilst there remain clear challenges ahead, the Authority starts this journey in a relatively positive position whereby it has sufficient reserves to underpin the changes required in the coming years.
13.2 With careful budgetary planning and resource maximisation it is anticipated that the Authority will be able to forge a future path that will enable it to meet priorities and balance the budget.
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2019/20 ACTION PLAN APPENDIX 1
Link to Risk Register Programme Strategic Aims Lead SLT Member (mitigation and impacts)
Develop joint headquarters collaboration programme 1, 3, 15, 4, 13, 9 HQS, GGFS Head of Procurement and Resources
Implement Joint Fire Control with Derbyshire Fire & Rescue Service 1, 2, 3, 15, 4, 6 HQS, GGFS Head of Corporate Support
Implement outcomes of Equipment Review 1, 7, 9, 15, 4, 10 HQS, EMW, GGFS Head of Procurement and Resources
Respond to the outcomes of HMICFRS inspection 14, 3, 9 HQS, EMW, GGFS Head of Corporate Support
Implement the Performance Management Framework 14, 3, 4, 6, 10 HQS, EMW, GGFS Head of Corporate Support
Head of Organisational Assurance & Embed National Operational Guidance Products 10, 3, 6, 2, 15 HQS, EMW, GGFS Training
Implement the Emergency Services Network in line with the National Plan 2, 8, 1, 7, 9 GGFS Head of Corporate Support Page 243 Page
Head of Organisational Assurance & Review and test Service Wide Business Continuity arrangements 9 GGFS Training
Commence alignment of all information management processes to ISO 27001 (Cyber 9, 14, 8, 1 GGFS Head of ICT Security)
Complete the SharePoint strategy and delivery programme 9, 14, 3 GGFS Head of ICT
APPENDIX 2
CAPITAL STRATEGY
2020/21
Date Considered by Fire Authority: December 2019
Page 244
TABLE OF CONTENTS
Section 1 Introduction and Background
Section 2 Governance
Section 3 The Capital Programme
Section 4 Capital Financing
Section 4 Summary
Appendix A Flexible Use of Capital Receipts Strategy
Page 245
1 INTRODUCTION AND BACKGROUND
1.1 This Capital Strategy is a key corporate document that outlines how the Authority intends to optimise the use of available capital resources to help achieve its objectives. Capital expenditure is a major cost to the Authority and as a result it is necessary to ensure that key programmes of work requiring capital expenditure have been properly identified, evaluated and prioritised.
1.2 This document sets out the framework for planning and financing capital in order to ensure the broad requirements set out above can be consistently met by the Authority. The Strategy sits alongside the Medium Term Financial Strategy (MTFS) and the proposed 10-year capital programme is included in the MTFS. The strategy is supported by the Authority’s property strategy, asset management plans and the Capital Programme which, in combination, lay out how the Authority will use its assets and its capital investments in pursuit of the key goals set out in the Strategic Plan 2019-2022.
1.3 There are several influences which feed into the capital investment process, the main ones being:
• Strategic Plan • Treasury Management Strategy • Medium Term Financial Strategy • Property Strategy • Corporate Asset Management Plans (buildings, vehicles and equipment) • Procurement Strategy • ICT Strategy • Transport Strategy • Community Safety Strategy • Human Resources Strategy • Learning & Development Strategy • Risk Register
2 GOVERNANCE
2.1 The Local Government Act 2003 sets out a framework for the financing of capital investments in local authorities which came into operation from April 2004. Alongside this, the Prudential Code was developed by the Chartered Institute of Public Finance and Accountancy (CIPFA) as a professional code of practice to support local authorities’ decision making in the areas of capital investment and financing. Authorities are required by regulation to have regard to the Prudential Code.
2.2 CIPFA released an updated version of the Prudential Code in December 2017. The revised code is in a similar format to the previous 2011 edition, but included a new requirement for authorities to produce a Capital Strategy with effect from 2019/20.
2.3 The objectives of the Prudential Code are to ensure that the capital investment plans of authorities are affordable, prudent and sustainable. This is achieved through the use of a number of prudential indicators covering affordability, Page 246
prudence, capital expenditure, debt levels and treasury management. These indicators are included in the Prudential Code for Capital Finance which is approved by the Fire Authority each year and monitored throughout the year by the Finance and Resources Committee. A 10-year Capital Programme is included in the MTFS which includes a projection of future year debt costs to ensure that they are affordable in the long term.
FIRE AUTHORITY
2.4 The Capital Programme is an aggregation of the approved schemes which will help ensure that the Authority can deliver on its strategic objectives. The Capital Programme approved by Fire Authority as part of the annual budget process covers a 4-year period in line with revenue budget forecasting. Estimating expenditure beyond 4 years is more difficult, although still important in determining the affordability of capital expenditure in future years. For this reason, a proposed 10-year Capital Programme is included in the Medium Term Financial Strategy for planning and cost projection purposes.
2.5 The full revenue implications of the Capital Programme are presented to members prior to each financial year within the Revenue Budget. Fire Authority is also responsible for approving the Treasury Management Strategy and Prudential Code prior to the start of each year to ensure that the Capital Programme is affordable, prudent and sustainable.
FINANCE AND RESOURCES COMMITTEE
2.6 The Finance and Resources Committee are responsible for receiving quarterly monitoring reports on the Capital Programme and Prudential Code.
CORPORATE GOVERNANCE
2.7 Corporate Governance is ensured throughout the process through the Authority’s:
• Internal Audit; • Service Plans; • Performance Management; • Service Procedures; • Financial Regulations and Procedures; • Standing Orders.
STRATEGIC LEADERSHIP TEAM (SLT)
2.8 SLT have oversight of and make appropriate decisions relating to the revenue and capital budgets set by the Fire and Rescue Authority in order to operate within the delegated financial authority agreed by the Authority to deliver a balanced budget position.
EXECUTIVE DELIVERY TEAM (EDT)
2.9 EDT have responsibility for managing project performance and receive regular monitoring updates. EDT also receives project closure reports to ensure that any lessons learned are shared across the organisation. Page 247
TREASURER
2.10 Under section 25 of the Local Government Act 2003, the Treasurer is specifically required to report to the Authority regarding the estimates for the purposes of calculations in order that Fire Authority can make informed decisions about future years’ budgets. The Treasurer also has responsibility to ensure compliance with regulatory frameworks and to report on unlawful expenditure or on an unbalanced budget.
FINANCE EMPLOYEES
2.11 The Authority ensures that the Finance team contains staff who are appropriately trained in Capital Accounting and Treasury Management. In addition, the service employs external treasury management advisors who provide specialist advice and resources.
3 THE CAPITAL PROGRAMME
3.1 The capital expenditure recommendations are determined from an assessment of the Authority’s Asset Management plans for buildings, equipment and vehicles. As the impact of capital expenditure, and associated borrowing, is spread over years, it is important to consider the effects of any proposals in both the forthcoming and future financial years.
3.2 The Authority’s approach to developing capital investment is to evaluate projects against criteria such as:
• Fire Authority objectives; • Funding requirements; • Statutory obligations; • Reserve savings and implications; • Any surplus assets for which a receipt will subsequently be available; • Any special considerations; • Affordability; • Sustainability (by considering whole life costs); • Evaluation of condition, suitability, and sufficiency information from the Asset Management system; • Collaborative Opportunities.
3.3 Where there is a possibility to take a collaborative approach to purchasing or using assets it will be pursued providing that the partnership or sharing arrangements are financially viable and in the best interests of Nottinghamshire Fire & Rescue Service.
3.4 Where collaborative projects are undertaken consideration will be given to the most appropriate delivery vehicle, whether it be leasing arrangements or the setting up partnership arrangements such as a Limited Liability Partnership (LLP).
3.5 The purpose of the capital investment programme is to support the strategic plan which at present does not include investment in commercial activities due to the Authority not wishing to undertake undue risk. Page 248
3.6 Establishing the level and type of investment available, which is currently projected for up to ten years in advance enables the revenue implications of the capital programme to be considered in detail including repair and maintenance costs, energy efficiencies and economies for scale. The debt charges (Minimum Revenue Provision and interest charges) are built into the revenue budget and monitored to ensure that they remain affordable.
3.7 The Finance and Resources Committee recommend a draft Capital Programme to Fire Authority who approve the final programme at its budget setting meeting in February of each year. Additional approval is sought from Finance and Resources Committee before major building projects are commenced.
3.8 Projects utilise the principles of Prince 2 methodology, where appropriate, and are subject to a review following completion where clients, occupiers and consultants establish how far the project has achieved objectives and outcomes against targets (as detailed in the original investment appraisal) and evaluate areas of good practice/areas for improvement of suitability for purpose, quality, design, sufficiency and flexibility.
4 CAPITAL FINANCING
4.1 The Capital Programme is currently constrained by the availability of finance, which continues at present to be provided by traditional methods including:
• Borrowing under the Prudential Code; • Revenue Funding; • Capital Receipts; • Capital Grant; • Leasing.
4.2 Funding is expected to be limited in the medium term and the Comprehensive Spending Review (CSR) expected in autumn 2019 will set the funding limits in future years. The capital programme will be updated accordingly as part of a revised Medium Term Financial Strategy.
4.3 Surplus Assets are disposed of and all receipts are treated as a corporate resource and used to underpin and support the Capital Strategy in line with the Flexible Use of Capital Receipts Strategy which will be approved alongside the Capital Strategy (see Appendix A).
4.4 The main limiting factor on the Authority’s ability to undertake capital expenditure is whether the revenue resource is available to support in full the implications of capital expenditure, both borrowing costs and running costs, after allowing for any support provided by central government.
4.5 Capital financing charges now represent 5.5% (2019/20) of the Authority’s revenue budget which is considered within prudent limits. On 24 October 2008, the Finance and Resources Committee set a maximum limit for this ratio of 8% in order to meet the prudential code requirements of affordability and sustainability (as part of the Sustainable Capital Plans Report). This ratio forms one of the Prudential Indicators approved by Fire Authority as part of the Page 249
Prudential Code for Capital Finance report considered in February of each year. It is not proposed to change the 8% cap on this ratio. The 10-year proposed capital programme included in the MTFS is monitored to ensure it does not exceed this limit.
5 SUMMARY
5.1 This Capital Strategy is a key corporate document that outlines how the Authority intends to optimise the use of available capital resources to help achieve its objectives. Capital expenditure is a major cost to the Authority and as a result it is necessary to ensure that key programmes of work requiring capital expenditure have been properly identified, evaluated, prioritised and authorised.
5.2 Due to the long-term impact of the Capital Programme and the high levels of expenditure involved, strong and effective governance arrangements have been put in place to manage any associated risks.
5.3 The Authority continues to plan for its Capital Expenditure in such a way that ensures that it is affordable, prudent and sustainable.
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APPENDIX A
FLEXIBLE USE OF CAPITAL RECEIPTS STRATEGY
Introduction
In the Spending Review 2015, the Chancellor of the Exchequer announced that to support local authorities to deliver more efficient and sustainable services, the government would allow local authorities to spend up to 100% of their capital receipts from the sale of fixed assets on the revenue cost of reform projects. This gives local authorities the power to treat as capital expenditure, expenditure which is incurred in generating on-going revenue savings in the delivery of public services either by way of reducing the cost of or reducing demand for services in future years. This impact of cost or demand reduction can be realised by any public-sector delivery partners but must be properly incurred by authorities for the financial years that begin on 1 April 2016, 1 April 2017 and 1 April 2018. Capital receipts used in this way must have been received in these same three years. As part of the provisional funding settlement made on 19 December 2018, this was extended to cover a further 3 years up until 2021/22.
This new power and its guidance is issued under Section 15(1) of the Local Government Act 2003, which requires local authorities to have regard to guidance that the Secretary of State may specify.
Application
The guidance specifies that authorities may not borrow to finance the revenue costs of service reform, nor may they use capital receipts accumulated from prior years. The key criteria to be used when deciding whether expenditure can be funded by the capital receipts flexibility is that it is forecast to generate on-going savings to an authority’s or several authorities’ and / or to another public-sector body’s net service expenditure.
Accountability and Transparency
The guidance specifies that authorities must disclose the individual projects that will be funded or part funded through capital receipts flexibility to the full Fire Authority. This requirement can be satisfied as part of the annual budget setting process or through the Medium Term Financial Strategy. It is recommended that the disclosure of projects to be funded in this way should be made prior to the start of each financial year, however if the strategy is updated part way through the year it must be approved by the Fire Authority and notified to central government. A revised strategy must also include the impact on Prudential Indicators. Both the initial strategy and any revised strategy must be made available online to the public.
The strategy must list each project to be funded through capital receipts flexibility, with details of the expected savings and service transformation. With effect from the 2017/18 strategy details must be included of projects approved in previous years and progress against achievement of the benefits outlines in the original strategy.
To date there have been no such projects funded through the use of capital receipts.
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Capital Receipts Strategy for 2020/21
For the financial year 2020/21 it is not proposed to fund any reform projects through the capital receipts flexibility. There are currently sufficient funds held in reserves for this purpose and it is felt that capital receipts would be better used to finance capital expenditure. This will enable the Authority to minimise the use of borrowing which needs to be kept within the affordable limits as set out in the Prudential Code for Capital Finance.
If it is felt in the future that the use of capital receipts flexibility would be beneficial to the Authority then a revised strategy will be reported to the Fire Authority for approval.
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APPENDIX 3 PROPOSED TEN YEAR CAPITAL PLAN 2020/21 TO 2029/30
Estimated Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Slippage 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 From 19/20 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Transport Special Appliances 150 115 625 100 560 90 150 105 Light Vehicle 258 226 184 478 228 164 237 305 357 172 237 Replacement Fleet telematic 90 Trailer Boat Engine 10 Pumping Appliance 95 700 1,060 1,325 1,325 1,325 1,060 1,060 Sub Total 408 321 999 2,163 1,653 2,149 1,652 1,365 507 277 1,297
Equipment BA Sets 250 250 CCTV Vehicles 160 Lightweight fire coats 180 Structural PPE 1,000 Fire Helmets 200 Gas Tight Suits 50
Page 253 Page Radios 300 Halmatro 800 Gas Monitoring 35 Air Bag Replacements 70 70 Water Rescue Kit 100 Sub Total 160 70 100 250 50 1,100 0 285 1,000 250 200
Estimated Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Slippage 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 From 19/20 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Estates Hucknall Fire Station 146 11 Page 254 Page Worksop Fire Station 2,607 500 2,638 62 New Head Quarters 250 2,500 1,500 Eastwood Fire Station 750 713 38 Ashford Fire Station 488 13 refurbishment Arnold Fire Station 25 1,750 888 63 Stockhill Fire Station 150 2,200 1,200 80 Bingham Fire Station 731 19 Mansfield Fire Station 110 Refurbishment Newark Fire Station 178 Sub Total 3,291 3,011 4,888 775 551 13 1,900 3,088 1,263 811 19
IT & Communications HQ Enabling Works 25 ICT Capital Programme 50 250 150 100 110 110 110 110 120 120 120 Replacement Mobile Computing 75 50 30 30 30 20 20 20 20 20 HQ Link ICT 100 100 Replacement Business Process 50 30 30 30 20 20 20 20 20 20 Automation Cyber Security 10 20 20 20 20 20 20 20 20 20 20 HQ Core Switch 30 upgrade One Off Projects 50 50 Sub Total 115 495 350 230 190 180 170 220 180 180 180
Estimated Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Slippage 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 From 19/20 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Control Emergency Service 41 Mobile Communications Tri Service Control & 171 Mobilising System Sub Total 212 0 0 0 0 0 0 0 0 0 0
Finance HR Upgrade 51 51 Payroll System Replacement Finance Agresso 35 30 30 30 30 0 30 Upgrade Sub Total 35 51 30 0 30 51 30 0 30 0 30
Total 4,221 3,948 6,367 3,418 2,474 3,493 3,752 4,958 2,980 1,518 1,726
Page 255 Page
Capital Programme Financing
2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
To Be Financed By: Page 256 Page
Capital Receipts - Property 550 300 1,750 250 350
New Borrowing 3,398 6,367 3,118 723 3,493 3,752 4,708 2,980 1,168 1,726 Revenue contributions to capital
Total 3,948 6,367 3,418 2,473 3,493 3,752 4,958 2,980 1,518 1,726
Debt Cost Ratio 5.86% 5.67% 6.10% 6.38% 6.46% 6.59% 7.03% 7.28% 7.47% 7.02%
APPENDIX 4
5% INCREASE OR DECREASE IN BASE LINE FUNDING
5% Increase in Base Line Funding for 2020/21 to 2023/24
2019/20 2020/21 2021/22 2022/23 2023/24 £’000 £’000 £’000 £’000 Government 18,504 19,165 19,462 19,926 20,411 Funding Budget (45,037) (44,926) (45,802) (46,705) (47,639) Requirement Balance to be met 26,534 25,761 26,310 26,779 27,228 locally
Strategic use of 1,240 0 0 0 0 Reserves Council Tax Yield 25,293 26,136 27,007 27,905 28,834
Budget Surplus 0 375 696 1,126 1,606 /(Deficit)
5% Decrease in Base Line Funding for 2020/21 to 2023/24
2019/20 2020/21 2021/22 2022/23 2023/24 £’000 £’000 £’000 £’000 Government 18,504 17,915 17,183 16,556 15,973 Funding Budget (45,037) (44,926) (45,802) (46,705) (47,639) Requirement Balance to be met 26,534 27,011 28,619 30,149 31,666 locally
Strategic use of 1,240 0 0 0 0 Reserves Council Tax Yield 25,293 26,136 27,007 27,905 28,834
Budget Surplus 0 (875) (1,613) (2,244) (2,832) /(Deficit)
Page 257 This page is intentionally left blank Agenda Item 9
Nottinghamshire and City of Nottingham Fire and Rescue Authority
RESERVES STRATEGY 2020/21 to 2023/24
Joint Report of the Treasurer to the Fire Authority and Chief Fire Officer
Date: 20 December 2019
Purpose of Report:
To seek the approval of the Authority for the Reserves Strategy 2020/21 to 2023/24.
Recommendations:
It is recommended that Members approve:
• The Reserves Strategy 2020/21 to 2023/24 attached at Appendix A.
• The proposed minimum level of general fund reserves of £3.9m for 2020/21.
• The transfer of £1,387,124 from the following reserves to create a transformation and collaboration earmarked reserve:
Reserves to be used to create a transformation and collaboration reserve Reserve Amount to be re-invested £ LPSA Reward Grant (38,452) Safe and Well 6,787 Organisational Transitional One Off Costs (683,996) Retained Pay Policy Change (212,000) Staffing Resilience (126,000) Taxation Compliance (3,135) Pension Ill Health (309,322) Hep B Vaccinations (21,006) Total 1,387,124
Page 259 CONTACT OFFICER
Name : Becky Smeathers Head of Finance Tel : 0115 967 0880
Email : [email protected]
Media Enquiries Therese Easom Contact : (0115) 967 0880 [email protected]
Page 260
1. BACKGROUND
1.1 The Fire Authority holds a level of reserves to meet specific risks and potential liabilities of a strategic, operational and financial nature.
1.2 The Chartered Institute of Public Finance and Accountancy (CIPFA) publishes guidance on the matter of financial reserves and sets out a number of specific risk areas that financial officers need to consider when setting the levels of balances.
1.3 In May 2018, the Government published the revised Fire and Rescue Services National Framework, which introduces a requirement for combined fire and rescue authorities to publish a reserves strategy on their website, and outlined the detail which should be included.
2. REPORT
GENERAL RESERVES
2.1 The requirement for financial reserves is acknowledged in statute. Sections 32 and 43 of the Local Government Finance Act 1992 require billing and precepting authorities in England and Wales to have regard to the level of reserves needed for meeting estimated future expenditure when calculating the budget requirement.
2.2 The Reserves Strategy 2020/21 to 2023/24 is attached at Appendix A. The Strategy includes the review of the general fund risk assessment to identify the minimum level of general fund reserves required by the Authority.
2.3 It is recommended that the level of general fund reserves remains at £3.9m, however due to a review of the risk assessment, there are a number of changes within individual areas.
The main changes are due to:
• An additional reserve for external contracts to cover any additional costs should a major contractor fail;
• An additional reserve for collaboration to cover financial uncertainty until schemes are properly embedded into revenue budgets;
• An increase to the pension risk to take account of the additional uncertainty following the McCloud legal case which found the transition arrangements into the 2015 pension scheme to be discriminatory on the grounds of age;
Page 261 • Budgets have been carefully scrutinised for 2020/21 resulting in budgets being reduced for areas of consistent underspends. The risk of an overspend in these budget areas has consequently been increased;
• The risk for unforeseen changes in legislation has been increased pending the outcome of the Grenfell Tower Inquiry.
2.4 More details can be found in Sections 2.13 and 2.14 of the Reserves Strategy.
2.5 The projected level of general fund reserves at 31 March 2020 is of the order of £5.50m, after an expected use of £75k to balance the 2019/20 budget. The general fund reserve exceeds the minimum level required by £1.6m.
2.6 There remains pressure on budgets going forward, including uncertainty regarding future funding levels. Whilst the Service is working towards a balanced budget for 2020 onwards, this is predicated on a number of assumptions, and funding for 2020/21 will not be announced until January.
2.7 A three-year funding review is expected during 2020, however this will be determined by the new incoming Government. This will be influenced by:
• The outcome of the General Election;
• The impact of Brexit;
• This will be the first full spending review that fire and rescue services fall under the Home Office;
• The revised business rate retention scheme should become operational from 2021/22;
• The fire funding formula is under review and may be replaced in 2021/22.
EARMARKED RESERVES
2.8 In total, earmarked reserves are expected to be in the region of £4.5m at 1 April 2020, but are expected to fall to £1.1m by March 2024. The remaining £1.1m relates to grant funding which needs to be spent in line with grant conditions. The majority of this relates to the Emergency Services Network project which has been extensively delayed. The expenditure profile for this project is very difficult to predict.
2.9 The relevance of, and balance in each reserve is reviewed annually. There have been several reserves which have remained unspent due to either changes in project needs or being funded from other sources. These have now been identified as being no longer required for their original purpose. In total, this exercise has identified £1.4m of earmarked reserves, which can be re-invested, as detailed in the table below.
Page 262 Reserves available for re-investment
Amount Expected Balance to be re- Balance Reserve 01/04/19 Comments invested 31/3/20 £ £ £ LPSA Reward Grant 63,452 (38,452) 15,000
Safe and Well (6,787) 6,787 0 Over-utilised 2019/20
Organisational 714,071 (683,996) 0 Expenditure been Transitional One-Off included in revenue Costs budgets
Retained Pay Policy 212,000 (212,000) 0 Expenditure been Change included in revenue budgets
Staffing Resilience 163,735 (126,000) 0 Expenditure been included in revenue budgets
Taxation Compliance 3,135 (3,135) 0 Project completed
Pension Ill Health 309,322 (309,322) 0 Sufficient cover in the general reserve
Hep B Vaccinations 21,006 (21,006) 0 Expenditure been included in revenue budgets
Total 1,479,934 1,387,124 15,000
2.10 Further details on the major reserves can be found in Sections 3.10 to 3.22 of the Strategy.
2.11 In recent years, the Authority has had insufficient resources to invest in innovative projects to improve services. Any savings which have been identified in the revenue budget have been utilised to balance the budget. The lack of investment in services to drive innovation and transformation has been identified as an area for improvement by Her Majesty’s Inspectorate of Constabulary and Fire and Rescue Services (HMICFRS) in the recent inspection of the sector.
2.12 A Transformation and Efficiency Strategy will be presented to Fire Authority in February 2020. This will outline areas of change in the organisation required to deliver the key objectives of the Strategic Plan and HMICFRS Action Plan. It will also enable the Service to consider the outcomes of the Grenfell Tower
Page 263 inquiry and the Hackitt inquiry (review of building regulations). Any additional funding required is likely to be project based with one off funding being potentially required.
2.13 Collaboration with other public services (predominantly blue light services) is an area that is continuing to be explored and is seen to be a potential vehicle which could assist with the transformation of the service. A collaboration strategy was approved by Fire Authority on 22 September 2017. Collaboration projects often require up front expenditure before ongoing savings can be achieved.
2.14 The £1.4m surplus earmarked reserves have been used to create a transformation and collaboration reserve. This will be allocated to projects by the Strategic Leadership Team over life of the Strategic Plan. The reserve will be available for one off project based expenditure, for example on new equipment or short-term salary costs. Any ongoing expenditure will need to be met from revenue budgets. Projects will need to demonstrate that they:
• Contribute to the key objectives as set out in the Strategic Plan;
• Address areas of weakness identified in the HMICFRS inspection;
• Reduce corporate risks identified in the Corporate Risk Register;
• Are required to meet the outcomes of the Grenfell Tower inquiry or the Hackitt inquiry (building regulations).
2.15 The Transformation and Efficiency Strategy will provide further information on an appropriate level of funding for the programme, which may differ from the £1.4m currently identified. SUMMARY
2.16 The total value of the Authority’s reserves on 1 April 2020 is expected to be in the region of £10.0m.
2.17 The expected level of general fund reserves as at 1 April 2020 is expected to be in the region of £5.5m, which exceeds the £3.9m minimum level identified for 2020/21 by £1.6m.
2.18 Any deficit in future years’ revenue budgets will need to be met from this £1.6m surplus on the general fund.
3. FINANCIAL IMPLICATIONS
3.1 The maintenance of adequate reserves is a legal requirement under S27 Local Government Act 2003, and the Authority’s Treasurer is charged with determining the adequacy of those balances or, as they are described in the Act, the “Controlled Reserve”.
Page 264 3.2 The risk assessment demonstrates that the level of reserves should be in the order of £3.9m for 2020/21.
4. HUMAN RESOURCES AND LEARNING AND DEVELOPMENT IMPLICATIONS
There are no human resources or learning and development implications arising from this report.
5. EQUALITIES IMPLICATIONS
An equality impact assessment has not been undertaken because there are no equality implications.
6. CRIME AND DISORDER IMPLICATIONS
There are no crime and disorder implications arising from this report.
7. LEGAL IMPLICATIONS
The legal implications and requirements are set out in full within the report.
8. RISK MANAGEMENT IMPLICATIONS
The risk management implications are set out in full in the report and in Appendix A.
9. COLLABORATION IMPLICATIONS
There are no collaboration implications arising from this report.
10. RECOMMENDATIONS
It is recommended that Members approve:
10.1 The Reserves Strategy 2020/21 to 2023/24 shown at Appendix A.
10.2 The proposed minimum level of working balances of £3.9m for 2020/21.
10.3 The transfer of £1,387,124 from the following reserves to create a transformation and collaboration earmarked reserve.
Page 265 Reserves to be used to create a transformation and collaboration reserve
Reserve Amount to be re-invested £ LPSA Reward Grant (38,452) Safe and Well 6,787 Organisational Transitional One Off Costs (683,996) Retained Pay Policy Change (212,000) Staffing Resilience (126,000) Taxation Compliance (3,135) Pension Ill Health (309,322) Hep B Vaccinations (21,006) Total 1,387,124
11. BACKGROUND PAPERS FOR INSPECTION (OTHER THAN PUBLISHED DOCUMENTS)
None.
Charlotte Radford John Buckley TREASURER TO THE FIRE AUTHORITY CHIEF FIRE OFFICER
Page 266 APPENDIX A
RESERVES STRATEGY
20 20/21 to 2023/24
Page 267 TABLE OF CONTENTS
Section 1 Introduction and Background
Section 2 Risk Assessment to Determine the Adequacy of the General Reserve
Section 3 Annual Review of Earmarked Reserves
Section 4 Summary
Appendix 1 2020/21 Risk Assessment of General Fund Reserve
Appendix 2 Earmarked Reserves
Appendix 3 Extract from National Framework Reference Reserves
Page 268 1 INTRODUCTION AND BACKGROUND
1.1 Sections 32 and 43 of the Local Government Finance Act 1992 require that, when setting the budget for the forthcoming year, precepting authorities should have regard to the level of reserves needed to provide sufficient resources to finance estimated future expenditure, plus any appropriate allowances that should be made for contingencies.
1.2 Best practice on the use and management of reserves and balances is provided by CIPFA and the Local Authority Accounting Panel (LAAP) guidance, specifically LAAP Bulletin 99 - ‘Local Authority Reserves and Balances’. This was issued in July 2014, but since then many references have been made to the scale of public sector reserves by various parties.
1.3 In May 2018 the Government published the New Fire and Rescue Services Framework which introduces a requirement for Combined Fire and Rescue Authorities to publish a Reserve Strategy on their website and outlined the detail which should be included (see Appendix 3). The Reserves Strategy can form part of the Medium Term Financial Strategy (MTFS) or be a stand-alone document.
1.4 The Reserves Strategy for this Authority is prepared as a stand-alone document for 2020/21. It sits aside and complements the Authority’s Medium Term Financial Strategy.
STRATEGIC CONTEXT
1.5 There are a number of reasons why a Local Government Authority might hold reserves. these include to:
• Mitigate potential future risks such as increased demand and costs;
• Help absorb the costs of future liabilities;
• Temporarily plug a funding gap should resources be reduced suddenly;
• Enable the Authority to resource one-off policy developments and initiatives without causing an unduly disruptive impact on Council Tax;
• Spread the cost of large scale projects which span a number of years.
1.6 Reserves only provide one-off funding so the Authority aims to avoid using reserves to meet regular and ongoing financial commitments, other than as part of a sustainable medium-term budget plan.
1.7 Long-Term Sustainability - Reserves are an essential tool to ensure long term budget stability particularly at a time when the Authority is facing significant year on year reductions in grant funding over the medium term.
Page 269 1.8 Reserve balances have been identified as a key indicator of financial health and the Authority continues to have an appropriate level of reserves to deal with identified risks. As a minimum, there are sufficient balances to support the budget requirements and provide an adequate contingency for budget risks.
1.9 There are two different types of reserve, and these are:
Earmarked Reserves – these reserves are held to fund a specific purpose and can only be used to fund spending associated with that specific purpose. Should it transpire that not all of the agreed funds are required then the agreement of the Authority would be sought to decide how any remaining balance is to be utilised.
General Reserve – usage from this Reserve is non-specific and is held to fund any unforeseen spending that had not been included in the base budget e.g. excessive operational activity resulting in significant on-call pay costs.
Provisions – in addition to reserves, the Authority may also hold provisions which can be defined as: a provision is held to provide funding for a liability or loss that is known with some certainty will occur in the future, but the timing and amount is less certain.
2 RISK ASSESSMENT TO DETERMINE THE ADEQUACY OF THE GENERAL RESERVE
2.1 Whilst it is primarily the responsibility of the local authority and its Chief Financial Officer to maintain a sound financial position, external auditors will, as part of their wider responsibilities, consider whether audited bodies have established adequate arrangements to ensure that their financial position is soundly based. However, it is not the responsibility of auditors to prescribe the optimum or minimum level of reserves for individual authorities or authorities in general.
2.2 CIPFA does not prescribe a formula for calculating a minimum level of reserves. Local authorities, on the advice of their Chief Financial Officers, should make their own judgements on such matters taking into account all the relevant local circumstances, which may vary between authorities. A well- managed authority, for example, with a prudent approach to budgeting should be able to operate with a level of general reserves appropriate for the risks (both internal and external) to which it is exposed. In assessing the appropriate level of reserves, a well-managed authority will ensure that the reserves are not only adequate but are also necessary. There is a broad range within which authorities might reasonably operate depending on their particular circumstances.
2.3 The Home Office suggest a benchmark for the General Reserve of 5% of annual budget. The Authority has consistently set a minimum level of General Reserve higher than 5% (currently 8.7%). However, as discussed in sections 2.1 and 2.2, it is the responsibility of the Authority to set an appropriate level
Page 270 of reserves reflecting the individual circumstances of the Authority. The method used is a risk based approach, in line with CIPFA guidance. The levels of reserves set are felt to reflect the circumstances and risk appetite of the Authority.
2.4 The Authority has a robust approach to managing risk and there are effective arrangements for financial control in place. That said, given the high level of external influences, such as national and local economics and Government policy has on its income and expenditure, there is always a risk that the Authority will unexpectedly become liable for expenditure that it has not budgeted for.
2.5 At the start of 2019/20, the General Reserve was £5.576m, which represented 12.45% of the 2019/20 net revenue budget. The budget monitoring report presented to Finance and Resources Committee on 11 October 2019 estimated that £75k would be required from the General Fund to balance the 2019/20 budget, leaving anticipated reserve levels at March 2020 at £5.50m. This remains above the minimum general fund reserve level of £3.9m (8.7% of net revenue budget) also set by Fire Authority in February 2019. Whilst general reserve levels exceed £3.9m, it should be noted that should there be a need to use general reserves in future years it would be difficult to replenish them given current budget constraints.
2.6 A risk assessment of the adequacy of the Authority’s General Reserve is carried out annually to determine the extent to which the Authority is exposed to uninsured and unbudgeted losses. The risk assessment is shown in Appendix 1.
2.7 There are three main categories of risk shown in the assessment: the risk of legal action being taken against the Authority, resulting in a financial loss; the risk of financial loss arising specifically from financial activities, and operational risks which could lead to financial loss. Where risks have been identified, control measures are in place to minimise either the likelihood or the impact of the risk and these are also shown in Appendix 1.
2.8 The approach has examined each of the risk exposures and considered both the possible financial impact on the Service and the likelihood of occurrence. A risk factor has been allocated to each risk reflecting the likely frequency of occurrence of the risk based on historic experience and professional judgment. It should be noted that the underlying assumption is that not all of these risk events will occur simultaneously and, to reflect this, the potential value of each financial impact is multiplied by its risk factor.
2.9 The approach also considers the extent to which financial risks can be transferred by way of insurances, thus creating a balance between insured and self-financed risk. Where insurances are in place, the risk value reflects the level of deductible within the insurance policy.
2.10 Residual risk is the extent to which the Authority remains exposed to risks which are neither insured nor provided for within revenue budgets or
Page 271 balances. The level of acceptable residual risk equates to the “risk appetite” of the Service and the estimated minimum level of balances reflects this risk appetite.
2.11 The risk assessment review identified some changes in risks, mainly in terms of the increase (or sometimes decrease) in the potential costs of existing risks. The frequency of risk occurrence has also been reviewed in the light of another year of experience.
2.12 The updated risk assessment shows that an appropriate level of general reserves and working balances remain at £3.9m. The review has been undertaken in the knowledge that in previous years there has been little need to call on General Fund Reserves, largely because any additional expenditure has been absorbed from within the revenue budget. With this in mind, the review has been undertaken with a more critical eye, whilst also remembering that reducing budgets may make this difficult to maintain in future years.
2.13 There are two new risks that have been added to the register:
a) External Contracts (Risk 9). following the collapse of several large organisations such as Carillion a new risk has been added to the value of £200k to cover any additional costs incurred should the service be affected by such a collapse. Thorough checks are undertaken before any major contract is awarded, but clearly history demonstrates that this can only minimise the risk.
a) Collaboration (Risk 11) – unforeseen costs. With the increasing number of collaborative projects there is a level of increased financial uncertainty until schemes are embedded and full costs can be estimated with certainty. £200k has been added to the risk register.
2.14 Several risks which have significantly changed. These are detailed below:
a) Pension Issues (Risk 1) has been increased from £180k to £500k. This reflects the increased uncertainty around McCloud and other legal cases being brought before the courts.
b) Significant overspend against budgets (Risk 3) has been increased to reflect that budgets have been set at levels based on current levels of activity in order to reduce prior year underspends. £800k has consequently been taken out 2020/21 budgets. This is considered appropriate given levels of underspends in previous years in areas such as on-call staff training and support staff pay. However, there is a risk that if turnover is lower than expected, for example, these budget areas could overspend. This risk has therefore been increased from £120k to £400k. Some other budget related risks have been taken out of the reserve, such as unforeseen increases in fuel prices as this is now covered under this risk.
Page 272 c) Local / National Industrial Dispute (Risk 10) has been reduced from £500k to £150k to reflect the revised resilience arrangements which are now funded from within the revenue budget.
d) Unforeseen changes in legislation / major incident reviews (Risk 12) – this has been increased from £40k to £150k to reflect the increased risk of unidentified costs arising from Grenfell.
e) Redundancies due to current on-going financial constraints (Risk 13) – this has been reduced from £500k to £100k to reflect reduced uncertainty now that the joint control has been completed.
f) There were previously several insurance excess related risks that have now been amalgamated into one risk called Insurance Excess not included in Budget (Risk 21). This has also been reduced from £50k to £30k to reflect the reduced excess charges included in the new insurance contract.
2.15 There are a number of other risks where minor amendments have been made to reflect changes in either risk value or in expected likelihood or impact in the light of another year’s experience.
2.16 The risk assessment which determines what the minimum level of reserves is carried out using the professional judgement of the Officers involved in the process. Several managers with particular areas of expertise have been consulted as part of the exercise to determine any new risks and to identify appropriate levels of risk value and risk frequency. This detailed review of risks inevitably results in fluctuations in the resulting minimum level.
2.17 Previous year’s minimum levels of General Reserves have remained between £3.8m and £4.4m as detailed below:
Year Minimum General Fund Reserve level £’m 2020/21 3.9
2019/20 3.9
2018/19 4.3
2017/18 4.4
2016/17 3.8
2015/16 4.0
2.18 The Finance and Resources Committee regularly receives risk management reports, which show that corporate risks are regularly reviewed by Officers
Page 273 and that controls are in place to manage those risks. The review of reserves reflects these changes.
2.19 The projected level of general fund reserves at 31 March 2020 is of the order of £5.5m, after a planned use of £75k to balance the 2019/20 budget (section 2.5). The General Fund reserve exceeds the minimum level required by £1.6m. There remains significant pressure on budgets going forward, including considerable uncertainty regarding future funding levels. The service is working towards setting a balanced budget for 2020 onwards, although this is dependent on levels of government funding. Funding for 2020/21 will be the subject of the one year Spending Review, for which outline details were announced in September. Further details are expected in January.
2.20 A further spending review is expected to cover the three years 2021/22 to 2023/24 during 2020, however, this will be determined by the new incoming Government. This will be influenced by:
• The outcome of the General Election;
• The impact of Brexit;
• This will be the first full spending review that Fire fall under the Home Office;
• The revised Business Rate retention scheme should become operational from 2021/22;
• The fire funding formula is under review and may be replaced in 2021/22.
2.21 It is appropriate to advise Members that the level of reserves held by the Authority will be sufficient during 2020/21 to cover the risk based liabilities which may arise and the Treasurer will report on this as part of her duties under Section 25 of the Local Government Act 2003 when the 2020/21 budgets are set in February 2020. However, it should be noted that reserve levels assume that reserves will not be required above the £75k currently identified to balance the 2019/20 budget, and that there will be no requirement to use general fund reserves to balance the budget in 2020/21 onwards. Any requirement to do so would reduce the £1.6m excess of the General Fund over the minimum recommended level.
3 ANNUAL REVIEW OF EARMARKED RESERVES
3.1 The Authority has a number of earmarked reserves which have been established for specific purposes; where there have been timing differences at budget setting or year end or to address emerging risks or cost pressures.
3.2 The relevance of, and value in, each reserve is reviewed annually. There have been several reserves that have remained unspent over several years due to either changes in project needs or being funded from other sources.
Page 274 These have now been identified as being no longer required for their original purpose. In total, this exercise has identified £1.4m of Earmarked Reserves which can be re-invested in new projects.
3.3 In recent years, the Authority has had insufficient resources to invest in innovative projects to improve services. Whilst significant savings have been made from delivering the Sustainability Strategy, these have been largely utilised to balance the budget. The lack of investment in services has been identified as an area requiring improvement by Her Majesty’s Inspectorate of Constabulary and Fire and Rescue Services (HMICFRS) in the recent inspection of the service.
3.4 A Transformation and Efficiency Strategy will be presented to Fire Authority in February 2020. This will outline areas of change in the organisation required to deliver the key objectives of the Strategic Plan and HMICFRS Action Plan. It will also enable the service to consider the outcomes of the Grenfell Tower inquiry and the Hackitt inquiry (review of building regulations). Any additional funding required is likely to be project based with one off funding being potentially required.
3.5 Collaboration with other public services (predominantly blue light services) is an area that is continuing to be explored and is seen to be a potential vehicle that could assist with the transformation of the service. A collaboration strategy was approved by Fire Authority on 22 September 2017. Collaboration projects often require up front expenditure before ongoing savings can be achieved.
3.6 The £1.4m surplus earmarked reserves have been used to create a Transformation and Collaboration Reserve. This will be allocated to projects by the Strategic Leadership Team over life of the Strategic Plan. The reserve will be available for one off project based expenditure, for example on new equipment or short term salary costs. Any ongoing expenditure will need to be met from revenue budgets. Projects will need to demonstrate that they:
• Contribute to the key objectives as set out in the Strategic Plan;
• Address areas of weakness identified in the HMICFRS inspection;
• Reduce corporate risks identified in the Corporate Risk Register;
• Are required to meet the outcomes of the Grenfell Tower inquiry or the Hackitt inquiry (building regulations).
3.7 The Transformation and Efficiency Strategy will provide further information on an appropriate level of funding for the programme, which may differ from the £1.4m currently identified. 3.8 A summary of the movement in Earmarked Reserves is shown in Table 2 below.
Page 275 Summary of Movement in Earmarked Reserves Earmarked Reserve Balance Estimated Forecast Forecast Estimated Category 1 April Balance Spend Spend Balance 2019 1 April 20 2020/21 2021/22 - 31 Mar 24 2023/24 £’000 £’000 £’000 £’000 £’000 Grants Unapplied: Resilience Crewing 337 231 (80) (151) 0 and Training Community Safety 166 106 (10) (96) 0 Innovation Fund LPSA Reward Grant 63 15 (15) 0 0 Other 87 56 (6) (12) 38 Sub Total 653 408 (111) (259) 38 General Earmarked Reserves: Capital Reserve 1,038 1,037 (1,037) 0 0
ESN reserves 1,292 1,361 (100) (300) 961 Transition Reserve 714 0 0 0 0 Transformation and 0 1,387 (500) (887) 0 Collaboration Tri Service Control 193 178 (50) (128) 0 Pensions 309 0 0 0 0 On Call Policy 212 0 0 0 0 Change Staffing Resilience 164 0 0 0 0 Other 188 159 (66) (41) 51
Total 4,763 4,531 (1,866) (1,614) 1,050
3.9 In total, earmarked reserves are expected to be in the region of £4.5m at 1 April 2020, but are expected to fall to £1.1m by March 2024. The remaining £1.1m relates to grant funding which needs to be spent in line with grant conditions. The majority of this relates to the Emergency Services Network project which has been extensively delayed. The expenditure profile for this project is very difficult to predict.
3.10 Further details of individual Earmarked Reserves and movement in reserves can be found in Appendix 2.
Page 276 GRANTS UNAPPLIED FROM PREVIOUS YEARS
3.11 The most significant of these grants is the Resilience Crewing and Training which is awarded from the Home Office each year to assist the Authority to undertake necessary resilience work in order that it can fulfil its obligations in major national incidents.
3.12 Community Safety Innovation Fund This grant enables the Authority to work very closely with partner agencies to identify and address risk with the aim of reducing fires in vulnerable groups. An example of this work is where an Environmental Health officer has been seconded to the Authority to work alongside our Fire Prevention Officers to ensure that the assistance provided is the most effective available.
3.13 LPSA Reward Grant This is a pump priming grant for service improvements such as the fitting of sprinklers. There has been little usage of the grant and it has been amalgamated into the Transformation and Collaboration reserve to help improve services in a more co-ordinated way.
3.14 Capital Reserve This reserve has been set aside as a contingency against overspends on capital projects. There has been no expenditure against this reserve for several years due to high levels of slippage in the capital programme. For this reason, it will be used to fund capital expenditure in 2020/21, thus reducing the borrowing requirement for the capital programme.
3.15 Emergency Services Network (ESN) Reserves These reserves relate to ESN grant that has been awarded but not spent due to the delays in the national project. There are also some smaller reserves created to fund expenditure funded directly by the Authority.
3.16 Transition Reserve This reserve was set up to meet the costs of organisational change required as part of the savings strategy. It is currently being used to meet the costs of employing staff to manage specific projects and to meet the set-up costs potential of collaboration projects. This reserve is being moved to help create the Transformation and Collaboration Reserve.
3.17 Transformation and Collaboration Reserve This is a new reserve created to fund service improvements -see section 3.6.
3.18 Tri Service Control This is funding set aside to make continuing improvements to the control software installed as part of a joint project with Derbyshire and Leicestershire Fire Authorities.
3.19 Pensions This was a reserve set aside to smooth out the expenditure that falls to the authority to fund for ill health pensions. The cost of these can be considerable (on average about £70k), which can create an overspend even for one retirement above what is included in the budget. However, the reserve has not been utilised for several years and there is considered to be adequate cover provided by the General Reserve (see 2.14). For this reason, the £309k has been moved to the Transformation and Collaboration Reserve.
Page 277
3.20 On Call Policy Change This reserve was set up to support the On-Call Section pending the introduction of day crewing at Retford and Ashfield. However, these costs have been budgeted for as part of the revenue budget as they are of an ongoing nature. This reserve is therefore surplus to requirements and has been transferred into the Transformation and Collaboration Reserve.
3.21 Staffing Resilience A reserve of £200k was approved by Fire Authority in December 2018 to ensure adequate resilience in times of industrial action. These costs have now been included in the revenue budget and the £164k remaining budget has been moved to the Transformation and Collaboration Reserve.
3.22 It is expected that the level of Earmarked Reserves will reduce over the next few years given the inability to create new revenue reserves from within the revenue budget.
4 SUMMARY
4.1 The total value of the Authority’s reserves on 1 April 2020 are expected to be in the region of £10.0m.
4.2 The expected level of General Fund Reserves as at 1 April 2020 is expected to be in the region of £5.5m, which exceeds the £3.9m minimum level identified for 2020/21 by £1.6m.
4.3 Any deficit in future years’ revenue budgets will need to be met from this £1.6m surplus on the General Fund.
4.4 Earmarked Reserves are expected to be in the region of £4.4m at 1 April 2020 and are expected to reduce to £1.1m by March 2024.
Page 278
2020/21 GENERAL FUND RISK ANALYSIS APPENDIX 1
Risk Factor 2020/21 Risk Reflecting Reserve Risk Description Risk Effect Control Measures Insurable Value Frequency Required £ £ 1 Pension issues - Additional costs Systems now improved but some N 1,000,000 0.5 500,000 ombudsman rulings / medical legacy issues still emerging. appeals, accounting errors / mal-administration
2 Business failure of bank or Loss of working capital or Treasury management strategy, N 2,000,000 0.2 400,000 investment counterparty investment funds up to £2m risk analysis of investment options and counterparties 3 Risk of significant overspend Overspend against revenue Have reduced budgets to reflect N 800,000 0.5 400,000 against budgets budget in year which will have previous years' overspends effect of reducing general reserves by the amount of the overspend
4 Legal challenges and Reputational damage; Legal Professional HR advice, policies, N 1,200,000 0.3 360,000 discretionary compensation costs, employment tribunal costs procedures, management awards unbudgeted training, legal advice 5 Pay awards agreed at higher Additional costs. Reserve N 714,000 0.5 357,000 rate than budget covers 2% over rate included in Page 279 Page budget. 6 Unforeseen price increases Increased costs / potential for May not be possible to avoid N 600,000 0.5 300,000 due to currency exchange reduced competition through contract obligations fluctuation 7 Impact of Brexit Additional costs to redress any N 200,000 1 200,000 impact of Brexit Risk Risk Description Risk Effect Control Measures Insurable Risk Factor 2020/21 No Value Reflecting Reserve £ Frequency Required £
8 Unanticipated loss of short Timings of budget process may Network of Chief Financial N 400,000 0.3 120,000 Page 280 Page term income i.e. from not allow sufficient time to plan Officers keep abreast of precept, business rates, eg for such changes developments. surplus on collection fund movement
9 External Contracts There is a high degree of Effective monitoring of contracts N 1,000,000 0.2 200,000 uncertainty over levels of Retained Business rates income and the method of allocation between funding and revenue grants in future years.
10 Local/national industrial Potential loss of service; risk of Resilience arrangements now in N 500,000 0.3 150,000 dispute non compliance with statutory place which has reduced the risk duties and ensuing legal case / of needing additional cover. fines; selective industrial action Haver reduced the risk factor may not result in sufficient accordingly. underspend to cover additional costs. Potential ministerial intervention and ensuing reputational damage.
11 Collaboration unforeseen With several collaboration Effective planning and N 400,000 0.5 200,000 costs projects underway there is a identification of costs at the level of increased financial outset of the project uncertainty until schemes are bedded in and full costs are known.
12 Unforeseen general change Increased costs of working due Awareness N 300,000 0.5 150,000 in legislation / Major Incident to doing more or doing things Reviews differently & costs of training Risk Risk Description Risk Effect Control Measure Insurable Risk Risk 2020/21 No Value Factor Reserve £ Reflecting Required Frequency £
13 Redundancies due to current One-off cost of redundancy Business case and payback N 500,000 0.2 100,000 and on-going financial payment and potential pension period constraints, if savings cannot strain is too high a cost to budget be found from elsewhere for within the revenue budget
14 Increase in numbers of Loss of council tax precept No controls in place N 200,000 0.5 100,000 vulnerable people due to income, additional cost of fire economic climate prevention activity 15 Hot or dry summers Increased retained call-outs None N 220,000 0.3 66,000 16 Discovery of major property Loss of use; cost of repair; Continuity plans, repair and P 600,000 0.1 60,000 structural problem that impairment to operational refurbishment programme restricts / prevents use of all effectiveness or part of building(s)
17 Major vehicle / equipment Loss of use; cost of rectifying Mutual assistance, robust and N 250,000 0.2 50,000 defect (affecting part of fleet) defect if beyond warranty routine fleet inspections. New contract. 18 Natural disasters Reduction in capability to Multi-agency plans; New N 90,000 0.5 45,000 respond Dimensions equipment; BCM plans; Response degradation policy; Mutual Aid
19 Breach of data security Loss of confidential data; Security measures N 150,000 0.25 37,500 Page 281 Page Information Commission fines 20 HSE Interventions Cost of remedial measures; cost Operating procedures; training; N 315,000 0.1 31,500 of fine; fees for HSE intervention, written safety policy; risk indirect costs of covering internal assessments resources used to investigate the issue etc.
21 Insurance Excess not Insurance receipt may not cover Training and procedures Y 100,000 0.3 30,000 included in budget costs. Excess for fraud, indemnity cover and personal damage total £35k. Risk Risk Description Risk Effect Control Measures Insurable Risk Risk 2020/21 No Value Factor Reserve Reflecting Required Frequency £ 22 Multiple large incidents Reduction in capability to Multi-agency plans; New N 90,000 0.3 27,000 respond Dimensions equipment; BCM Page 282 Page plans; Response degradation policy; Mutual Aid
TOTALS 11,629,000 3,884,000
Minimum level of General Reserve 2020/21 3,884,000
Minimum level of General Reserve 2019/20 3,874,350
APPENDIX 2 EARMARKED RESERVE POSITION 2019/20 TO 2023/24
Balance Committed Movement Balance Required Required Required Required Balance 01-Apr-19 2019/20 between 31-Mar-20 2020/21 2021/22 2022/23 2023/24 31-Mar-24 Reserves £ £ £ £ £ £ £ £ £ Prevention Protection and Partnership Fire Investigation 30,607 - 30,607 ------Safe as Houses - Smoke Alarms 18,301 - - 18,301 6,301 6,000 6,000 - - Community Fire Safety - Innovation - - Fund 166,207 - 60,000 - 106,207 10,207 - 48,000 48,000 - - Thoresby Estate Charitable Trust 2,506 - - 2,506 - - - - 2,506 - - LPSA Reward Grant 63,452 - 10,000 - 38,452 15,000 15,000 - - - - Safe and Well (6,787) - 6,787 ------Fire Cadets Project - Duke of Edinburgh 22,648 - 10,000 - 12,648 12,648 - - - - On Fire Fund - Fire Safety 71,066 - 4,000 - 67,066 4,000 - 4,000 - 4,000 - 4,000 51,066 Swan Project Ashfield 217 - - 217 - - - - 217 Page 283 Page Home Safety Equipment Scheme 7,400 - 7,400 0 0 - - - - 0 Sub Total 375,617 122,007 -31,665 221,945 -48,156 -58,000 - 58,000 - 4,000 53,789
Resilience Resilience Crewing and Training 337,075 - 106,380 0 230,695 - 80,000 - 80,000 - 70,695 - - New Threats 35,103 - - 35,103 - - - - 35,103 Sub Total 372,177 - 106,380 0 265,797 - 80,000 - 80,000 -70,695 - 35,103
Capital ------Capital Reserve 1,037,419 - - 1,037,419 1,037,419 - - - - Movement Balance Committed between Balance Required Required Required Required Balance 1 Apr 19 2019/20 Reserves 31 Mar 20 2020/21 2021/22 2022/23 2023/24 31 Mar 24 £ £ £ £ £ £ £ £ £ Transition Organisation Transition One Off Cost 714,071 - 30,075 - 683,996 ------Page 284 Page HMICFRS preparation - 50,000 - 50,000 - 50,000 - - - - Sub Total 714,071 19,925 - 683,996 50,000 - 50,000 - - - -
ICT PSN - Systel Security Work 266,370 - - 266,370 - - - - 266,370 ESN RAP Work 348,817 - - 348,817 - - - - 348,817 ESN Balance 206,936 99,513 - 306,449 - - - - 306,449 ESN Control Room ICT 20,100 - - 20,100 - - - - 20,100 ESN Communication Development 171,753 - - 171,753 - - - - 171,753 ESN Systel Airwave Transition 173,184 - - 173,184 - - - - 173,184 ESN - Notts Local Transition Fund 27,479 - 29,811 - 2,332 - - - - 2,332 Delivery of ESN – additional fund 77,000 - - 77,000 - - - - 77,000 ESN grant - forecast usage - - - - - 100,000 - 100,000 - 100,000 - 100,000 400,000 ESN Sub Total 1,291,639 69,702 - 1,361,341 - 100,000 - 100,000 - 100,000 - 100,000 961,341
Business System Development 59,603 - 30,000 - 29,603 - - 29,603 - - - ICT Subtotal 1,351,242 39,702 - 1,390,944 100,000 -129,603 -100,000 - 100,000 961,341
Operational Tri Service Control Phase 2 193,048 - 15,500 - 177,548 - 50,000 - 50,000 - 77,548 - - Retained Pay Policy Change 212,000 - - 212,000 ------Operational Equipment 10,000 - 10,000 ------Sub Total 415,048 - 25,500 - 212,000 177,548 - 50,000 - 50,000 - 77,548 - -
Movement Balance Committed between Balance Required Required Required Required Balance 1 Apr 19 2019/20 Reserves 31 Mar 20 2020/21 2021/22 2022/23 2023/24 31 Mar 24 £ £ £ £ £ £ £ £ £ Other Staffing Resilience 163,735 - 37,735 - 126,000 ------Taxation Compliance 3,135 - - 3,135 ------Pension Ill Health 309,322 - - 309,322 ------HEP B Vaccinations 21,006 - - 21,006 ------Sub Total 497,198 - 37,735 - 459,463 ------
Transformation and Collaboration
Transformation and Collaboration - - 1,387,124 1,387,124 - 500,000 - 500,000 -387,124 ------Sub Total - - -1,387,124 1,387,124 - 500,000 - 500,000 - 387,124 - -
Total 4,762,772 - 231,995 0 4,530,777 -1,865,575 -817,603 -693,366 -104,000 -1,050,233 Page 285 Page APPENDIX 3
EXTRACT FROM NATIONAL FRAMEWORK REFERENCE RESERVES
Reserves
5.6 Sections 31A, 32, 42A and 43 of the Local Government Finance Act 1992 requires billing and precepting authorities to have regard to the level of reserves needed for meeting estimated future expenditure when calculating the budget requirement.
5.7 Fire and rescue authorities should establish a policy on reserves and provisions in consultation with their chief finance officer. General reserves should be held by the fire and rescue authority and managed to balance funding and spending priorities and to manage risks. This should be established as part of the medium-term financial planning process.
5.8 Each fire and rescue authority should publish their reserves strategy on their website, either as part of their medium term financial plan or in a separate reserves strategy document. The reserves strategy should include details of current and future planned reserve levels, setting out a total amount of reserves and the amount of each specific reserve that is held for each year. The reserves strategy should cover resource and capital reserves and provide information for the period of the medium term financial plan (and at least two years ahead).
5.9 Sufficient information should be provided to enable understanding of the purpose(s) for which each reserve is held and how holding each reserve supports the fire and rescue authority’s medium term financial plan. The strategy should be set out in a way that is clear and understandable for members of the public, and should include:
• how the level of the general reserve has been set; • justification for holding a general reserve larger than five percent of budget; and • details of the activities or items to be funded from each earmarked reserve, and how these support the FRA’s strategy to deliver a good quality service to the public. Where an earmarked reserve is intended to fund a number of projects or programmes (for example, a change or transformation reserve), details of each programme or project to be funded should be set out. 5.10 The information on each reserve should make clear how much of the funding falls into the following three categories:
a. Funding for planned expenditure on projects and programmes over the period of the current medium term financial plan. b. Funding for specific projects and programmes beyond the current planning period. c. As a general contingency or resource to meet other expenditure needs held in accordance with sound principles of good financial management (e.g. insurance)
Page 286 Agenda Item 10
Nottinghamshire and City of Nottingham Fire and Rescue Authority
LOCAL FIREFIGHTER PENSION SCHEME ADMINISTRATION
Report of the Chief Fire Officer
Date: 20 December 2019
Purpose of Report: To report to Members regarding the termination of the Pension Administration Contract.
Recommendations: It is recommended that Members:
Note the contents of the report.
Endorse the collaborative approach to securing ongoing pension administration services.
CONTACT OFFICER
Name : Becky Smeathers Head of Finance Tel : 0115 967 0880
Email : [email protected]
Media Enquiries Therese Easom Contact : (0115) 967 0880 [email protected]
Page 287
1. BACKGROUND
1.1 The Fire Authority is the Scheme Manager for the firefighter pension schemes, which is a role defined by the Public Service Pensions Act 2013. The role of Scheme Manager is delegated to the Head of Finance post.
1.2 The Authority has been given notice that Leicestershire County Council (LCC) is to terminate its contract to provide the firefighters’ pension scheme administration service with effect from 31 March 2020. This report serves to make the Fire Authority aware, in its role of Scheme Manager, of the situation and of the action being undertaken to resolve it.
2. REPORT
2.1 On 9 September 2019, the Authority received written notification that LCC is to terminate the arrangement to provide a Pension Administration Service for the firefighters’ pension schemes from 31 March 2020. LCC is to similarly terminate services to both Leicestershire and Derbyshire Fire Authorities.
2.2 The reason given behind the decision to terminate the contract is due to the increasing complexity of the firefighters’ pension scheme regulations and the complexity and uncertainty following the Supreme Court McCloud judgement that the transitional protections into the 2015 firefighters’ pension scheme were age discriminatory.
2.3 The Authority has to make arrangements at short notice to provide pension administration services and this limits the opportunity to go through a formal tender process. There are also challenges in considering the ease of data transfer between providers that have influenced the decision to either directly award or to delegate the function to an alternative provider.
2.4 The Head of Finance is currently working closely with Derbyshire and Leicestershire Scheme Managers to resolve the situation. The intention is to undertake a joint procurement exercise between the three Authorities.
2.5 The LCC administration team have agreed to co-operate fully in relation to suitable handover arrangements.
2.6 The Pension Board will continue to be kept up to date with developments and a further report will be brought to Fire Authority once the matter is resolved.
Page 288
3. FINANCIAL IMPLICATIONS
3.1 Although it would be expected that the current level of service could be procured for a similar cost, the outcome of the McCloud case remedy could lead to significantly increased workloads for administrators which could result in additional costs being charged in the future.
3.2 LCC had been working on introducing a Members Self Service (MSS) which would have enabled members to access real time information on their pensions. There would have been additional costs related to this service. If the new provider were to be able to offer MSS then this would similarly be expected to come with additional cost.
4. HUMAN RESOURCES AND LEARNING AND DEVELOPMENT IMPLICATIONS
The provision of an accessible, reliable and accurate pension administration service is of paramount importance. Quality of service will be one of the deciding factors in selecting new administrators.
5. EQUALITIES IMPLICATIONS
An equality impact assessment has not been undertaken because this report is not associated with a policy, function or change in service.
6. CRIME AND DISORDER IMPLICATIONS
There are no crime and disorder implications arising from this report.
7. LEGAL IMPLICATIONS
The regulations surrounding the firefighters’ pension schemes are very complex and the pension administration team need to be adequately skilled to understand and administer the schemes.
8. RISK MANAGEMENT IMPLICATIONS
8.1 The risks associated with pension governance are significant. These are set out in the Pensions Risk Register, which is actively managed by the Scheme Manager and monitored by the Board.
8.2 There is significant financial risk to the Authority if mal-administration of the pension scheme occurs. This could take the form of fines from The Pensions Regulator on top of the cost of correcting any errors.
Page 289
9. COLLABORATION IMPLICATIONS
9.1 Nottinghamshire, Leicestershire and Derbyshire Fire Authorities all share the same pension administrator and this has allowed for a number of collaborative activities associated with pensions. The benefits of this collaboration are evident through the joint procurement exercise. This is providing savings in both time and resources for all three Authorities.
9.2 The joint board submission will be kept under review whilst the current situation is resolved.
10. RECOMMENDATIONS
It is recommended that Members:
10.1 Note the contents of the report.
10.2 Endorse the collaborative approach to securing ongoing pension administration services.
11. BACKGROUND PAPERS FOR INSPECTION (OTHER THAN PUBLISHED DOCUMENTS)
None.
John Buckley CHIEF FIRE OFFICER
Page 290 Agenda Item 11
Nottinghamshire and City of Nottingham Fire and Rescue Authority
PRINCIPAL OFFICER PAY REVIEW
Joint Report of the Clerk and Treasurer to the Fire and Rescue Authority
Date: 20 December 2019
Purpose of Report:
To consider the recommendation of the Policy and Strategy Committee in relation to the outcomes from the Principal Officer pay review which is undertaken on a two- yearly basis.
Recommendations: To approve the recommendation of the Policy and Strategy Comittee, at its meeting on 8 November 2019, to agree continuation at the current Principal Officer Pay Level, as of 1 January 2020.
CONTACT OFFICER Malcolm Townroe Name : Clerk to the Fire Authority Tel : 0115 8764332
Email : [email protected]
Media Enquiries Therese Easom Contact : (0115) 967 0880 [email protected]
Page 291
1. BACKGROUND
1.1 The conditions of service for Principal Officers within Nottinghamshire Fire and Rescue Service are largely determined by the National Joint Council (NJC) for Brigade Managers of Local Authority Fire and Rescue Services. The NJC seeks to reach agreement on a national framework of pay and conditions for Brigade Managers for local application throughout the Fire and Rescue Services in the UK. Collectively the agreements are contained within the “Gold Book”.
1.2 The Gold Book makes the following statements with regard to salary and also gives advice and guidance to Authorities on pay determination, as attached as Appendix A of this report:
“The NJC will publish annually recommended minimum levels of salary applicable to Chief Fire Officers employed by Local Authority Fire and Rescue Authorities.
There is a two-track approach for determining pay for Brigade Manager roles:
(i) at a national level, the NJC shall review annually the level of pay to all of those covered by this agreement;
(ii) all other decisions about the level of pay and remuneration to be awarded to individual Brigade Manager roles will be taken by the Fire Authority locally who will annually review those salary levels” – advice on other considerations when setting salary levels has also been provided by the NJC and is included within Appendix A.
1.3 At its meeting on 31 January 2014, the Policy and Strategy Committee agreed revised benchmarking arrangements as part of its local review of Chief Officer pay. The comparator group comprises of 18 Fire and Rescue Services who form the “Family Group” of authorities who are similar to the Nottinghamshire Fire and Rescue Service in terms of population size, deprivation levels, risk area and total fire calls. In determining its decision on an appropriate pay level, it was agreed that consideration would be given to the median average salary of this review group. Those Fire and Rescue Authorities who make up the Family Group are set out at Appendix B.
1.4 The Policy and Strategy Committee considered a detailed Principal Officer Pay Review report from the Clerk and Treasurer to the Fire Authority at its meeting on 8 November 2019.
2. REPORT
2.1 The Principal Officer Pay report considered by the Policy and Strategy Committee set out the current pay arrangements for the Chief Fire Officer, Deputy Chief Fire Officer and Assistant Chief Fire Officer which have
Page 292 previously been agreed by the Fire Authority, and which is reported and published annually within the Authorities’ Pay Policy.
2.2 The last salary review took place in 2017 and was considered by the Policy and Strategy Committee on 10 November 2017. This review did not support a local increase in Principal Officer pay for the period commencing 1 January 2018.
2.5 It was noted in the latest report to Policy and Strategy that the pay of the Chief Fire Officer, Deputy and Assistant Chief Fire Officer has increased in line with the application of incremental and national pay awards since this time, in line with their agreed contractual terms. This saw an increase of 2% from 1st January 2018 and 2% from 1st January 2019.
2.6 The Chief Fire Officer pay rate is currently £156,404 per annum, which includes the application of the national 2% pay award agreed from 1 January 2019.
2.7 A benchmarking review has been undertaken using the salary data from the “family group” of eighteen fire authorities. The outcome of this review is attached as Appendix C.
2.8 The median salary within this group is £148,574 per annum, although the range is from £119,748 to £164,020. The maximum salary applied to the Chief Fire Officer pay band is £140,763-£156,404 per annum, with the current incumbent being paid at the top of the scale as set out in Paragraph 2.6.
2.9 It was noted within the report that there is nothing that would suggest that the pay of the Chief Fire Officer in Nottinghamshire is significantly out of line with some of the other Chief Officers within the comparator group. This would indicate that the pay of the Chief Fire Officer is currently set at the appropriate level.
2.10 Members of the Committee commented as follows:
(a) given the level of responsibility and the important and far-reaching work undertaken by the Chief Fire Officer, it is appropriate for principal pay to remain at the current level, slightly above the median;
(b) even with consideration of the impact of austerity on the Service, continuation of the current pay level is agreeable.
With the range in Chief Fire Officer pay between £119,748 and £164,020, members of the committee requested further information in future reports on the make-up and responsibilities of the Services listed, to better enable a comparison with NFRS.
The Committee RESOLVED that the recommendation be submitted to the next Fire and Rescue Authority meeting to agree continuation at the current Principal Officer Pay Level, as of 1 January 2020.
Page 293 3. FINANCIAL IMPLICATIONS
3.1 The budget for Principal Officer pay is based on the incremental point in the three-point scale which is appropriate for each of the Officers. At this point in time the following salaries are applied:
Chief Fire Officer - £156,404 (100%) Deputy Chief Fire Officer - £122,581 (95%) Assistant Chief Fire Officer - £105,573 (90%)
4. HUMAN RESOURCES AND LEARNING AND DEVELOPMENT IMPLICATIONS
4.1 A local two-yearly review of Principal Officer pay levels forms a contractual provision for the roles of Chief Fire Officer, Deputy Chief Fire Officer and Assistant Chief Fire Officer.
4.2 Any change in the way that Principal Officer pay is undertaken by the Authority would need to be reflected in the published Pay Policy.
4.3 Any proposal to reduce the pay of the Chief Fire Officer to the level of the family group median salary may need to involve some level of pay protection.
5. EQUALITIES IMPLICATIONS
As there are no implications for existing policy or to service provision, an equality impact assessment has not been undertaken.
6. CRIME AND DISORDER IMPLICATIONS
There are no crime and disorder implications arising from this report.
7. LEGAL IMPLICATIONS
7.1 In line with the requirements of the Localism Act, any decisions relating to pay in excess of £100k per annum must be discussed and agreed by the full Fire Authority at a public meeting.
7.2 The Authority is required to publish its pay policy which includes the way in which Principal Officer pay is determined.
8. RISK MANAGEMENT IMPLICATIONS
A robust and auditable methodology for setting Principal Officer salary levels is essential if the Service is going to stand up to external and internal scrutiny in respect of this matter. Additionally, the Service needs to ensure that it is able to recruit and retain
Page 294 quality officers to ensure that NFRS meets the expectations of the Service and the community.
9. COLLABORATION IMPLICATIONS
As this is a local pay review, determined by the Fire Authority, there are no collaboration implications.
10. RECOMMENDATIONS
That the Fire Authority agree to the continuation of the current Principal Officer Pay Level, as of 1 January 2020.
11. BACKGROUND PAPERS FOR INSPECTION (OTHER THAN PUBLISHED DOCUMENTS)
None.
Charlotte Radford Malcolm R. Townroe TREASURER TO THE AUTHORITY CLERK TO THE AUTHORITY
Page 295 APPENDIX A NJC GUIDANCE AND SALARY STRUCTURES
1. When determining the appropriate level of salaries for all Brigade Managers, the FRA should refer to the relevant minimum salary of the CFO and the most relevant benchmark data.
2. Normally the FRA will wish to begin by determining appropriate salary for their most senior manager.
3. When deciding how these posts should be remunerated, the following factors are to be considered:
(a) The CFO’s salary and that of any service staff not covered by the Scheme of Conditions of Service (Gold Book). (b) The relationship of current salary to the appropriate illustrative national benchmark (c) Any special market considerations. (d) Any substantial local factors not common to FRA’s of a similar type and size e.g. London weighting, complex local regional or national responsibilities which bring added value. (e) Comparative information to be supplied on request by the Joint Sec’s on salaries in similar Authorities. (f) Top management structures and size of management team compared to those other Fire and Rescue Authorities of similar type and size;
and (g) The relative job size of each post, as objectively assessed through an appropriate Job Evaluation process or otherwise, and (h) Incident command responsibility and the requirement to provide operational cover with the employing authority and beyond.
The process for setting salary levels should include consideration of the following criteria:
Minimum salary levels for CO’s in relevant sized local authorities. Market rates of pay for service managers in a range of private and public- sector organisations; and Evidence of recruitment and / or retention difficulties with existing minimum rates.
Page 296 APPENDIX B FAMILY GROUP
Avon* Cheshire* Cleveland* Derbyshire* Essex* Hampshire* Hereford and Worcester* Hertfordshire Humberside* Kent* Lancashire* Leicestershire* Lincolnshire Nottinghamshire* Northern Ireland Staffordshire* South Wales Surrey
* Combined Fire Authorities
Page 297 APPENDIX C COMPARATOR SALARY LEVELS (in ascending order)
(Please note that this information has been provided on the basis that it does not identify participant authorities).
119,748 125,748 132,416 132,663 133,668 134,594 135,252 146,616 147,770 Median point - £148,574 149,379 152,214 152493 154,808 155,997 156,404 161,517 162,088 164,020
Page 298 Agenda Item 12
Nottinghamshire and City of Nottingham Fire and Rescue Authority
GRENFELL INQUIRY – PHASE ONE REPORT
Report of the Chief Fire Officer
Date: 20 December 2019
Purpose of Report: To present Members with the Service’s response to the Grenfell incident and the publication of the Phase One report from the Public Inquiry.
Recommendations: It is recommended that Members:
Endorse the approach being taken by the Chief Fire Officer to address the outcomes of the Grenfell Phase One report.
Agree to receive updates in relation to further action, associated with the Grenfell Inquiry, through the Community Safety Committee.
CONTACT OFFICER John Buckley Name : Chief Fire Officer Tel : (0115) 967 0880
Email : [email protected]
Media Enquiries Therese Easom Contact : (0115) 967 0880 [email protected]
Page 299 1. BACKGROUND
1.1 On 14 June 2017, a fire occurred at Grenfell Tower, London, which destroyed the 24-storey block of 129 residential flats. Seventy-two people lost their lives at the incident.
1.2 The presence of aluminium composite material (ACM) cladding was determined as a key component in the cause of the rapid fire spread on the exterior of the property, whilst failings in relation to compartmentation and fire engineered safety solutions were highlighted as allowing internal fire spread.
1.3 The Right Honourable Sir Martin Moore-Bick was appointed as Chairman of the public inquiry; set up to examine the circumstances leading up to, and surrounding, the fire at Grenfell Tower.
1.4 The inquiry was formulated over two phases; Phase One relating to the occurrences immediately surrounding the incident (including the cause of the fire and emergency response) and Phase Two focussing on broader areas that enabled the conditions for this incident to occur (including building regulations and the renovation of the tower block).
1.5 The Phase One report was published on 30 October 2019. The first part of the report focused on three main areas;
An account of the building, its surroundings and the standard working practices of London Fire Brigade (LFB);
A detailed description of events on 14 June 2017 including events within the Tower and action by emergency services, the council and the Tenant Management Organisation;
Conclusions about the fire and fire spread, the actions by emergency services, systemic failings of LFB, and failings in the fire safety regulations applied to the refurbishment of the building.
1.6 The second part of the Phase One report pays tribute to those who lost their lives in the fire and makes recommendations which can be dissected in to three audiences: LFB directly, the wider fire sector and emergency services, and other responsible persons such as building owners, Government and Local Authorities.
1.7 The Home Office and the National Fire Chiefs’ Council (NFCC) are currently considering the report and have yet to issue a response. NFCC has expressed the importance of a co-ordinated response, across the Sector, to avoid localised developments outside of a national framework, duplicated effort or different solutions between fire and rescue services.
Page 300
1.8 The Phase One report is extensive, therefore a link to the document is provided below, and copies of the Phase One Report Overview will be available at the meeting.
https://assets.grenfelltowerinquiry.org.uk/GTI%20- %20Phase%201%20report%20Executive%20Summary.pdf
2. REPORT
2.1 Prior to the publication of the Grenfell Phase One report, the Service has undertaken a number of steps to mitigate the risks posed by buildings which presented similar risks to those which were faced at the Grenfell fire.
2.2 Liaison with Nottingham City Council (NCC) has enabled identification of eight buildings which were believed to be clad with ACM. Advice and support has been offered to responsible persons at the premises and continuing liaison has occurred between the Service’s Fire Protection Inspecting Officers, Environmental Health Officers and Housing Teams to monitor and support the developing situation.
2.3 Two premises remain in the City area that meet the framework for intervention. Both sites have managed solutions and continue to receive support from the Service and Local Authority.
2.4 Each of the identified premises has a specific, risk based, pre-determined attendance of appliances to mitigate the risks posed by a fire at these premises. Operational crews have also gathered risk information for each of the premises, with recurring visits arranged for each location to maintain current and accurate information.
2.5 Additionally, the Service has seconded a Fire Protection Inspecting Officer to work within the Community Protection Team at NCC, on a full-time basis for one year, to focus upon multi-occupancy residential buildings which fall outside the scope of the actions taken post-Grenfell (ie: below 18 metres), but that could still present a risk.
2.6 Since the publication of the Phase One report, the Service has engaged locally, regionally and nationally - with Local Authorities, neighbouring fire and rescue services and the NFCC – to ensure a consistent and effective response to its recommendations.
2.7 The Service has held Serious Event Review Group (SERG) meetings since the Grenfell incident, to capture key learning and implement required changes to Service procedures. This has included bespoke high-rise training for crews and establishing a High-Rise Working Group to review policies and procedures in relation to training and operations.
2.8 A further SERG meeting was held on 9 December to specifically look at the enactment of recommendations from the Phase One report. This will include
Page 301 a collaborative approach with Derbyshire Fire and Rescue Service and will support any future recommendations, specifically for the Joint Fire Control and operational procedures. A summary of the recommendations from the Phase One report, which are relevant to the Service, are detailed in Appendix A of this report.
2.9 The Service is utilising the embedded networks with regional fire and rescue services, in relation to operational guidance and training, to ensure a consistent, sustainable approach is adopted, which reflects the national guidance from NFCC and the Central Programme Office.
2.10 The Grenfell incident has also triggered a number of national reviews in relation to fire safety regulation. The Service is actively involved in regional NFCC Fire Protection working groups, is actively engaged in national developments and has responded to all consultations on proposed changes; including building regulations, competency standards and proposals in relation to the fitting of sprinklers in new and refurbished buildings.
2.11 Some recommendations from the Phase One report are already progressing nationally. For example, a Government-led steering group has been established on ‘Stay Put’ and emergency evacuation procedures, the NFCC Operations Committee is exploring the use of ‘Smoke Hoods’ to assist casualty evacuation, and work is underway through the NFCC to develop a ‘foundation document’ for Control operations. Nottinghamshire Fire and Rescue Service continues to support these areas of development through regional, and national, working and will maintain awareness of developments; progressing areas regionally where appropriate.
2.12 The Home Office, in conjunction with the NFCC, has put in place an assurance framework to enable ongoing report and collation of data nationally on ACM clad buildings. The Service is fully engaged in this process.
3. FINANCIAL IMPLICATIONS
There are no financial implications arising from this report.
4. HUMAN RESOURCES AND LEARNING AND DEVELOPMENT IMPLICATIONS
There are no human resources or learning and development implications arising from this report.
5. EQUALITIES IMPLICATIONS
There are no equalities implications arising from this report as no changes to existing, or introduction of new arrangements of the delivery of services, are proposed.
Page 302 6. CRIME AND DISORDER IMPLICATIONS
There are no crime and disorder implications arising from this report.
7. LEGAL IMPLICATIONS
There are no legal implications arising from this report, however Members should be aware that proposed changes to fire safety legislation, and statutory requirements of the fire and rescue services, may have a future impact on the resourcing requirements of the Service.
8. RISK MANAGEMENT IMPLICATIONS
Learning from local and national incidents is essential to ensure the Service continues to mitigate the risk presented by fire to both communities and employees. The co-ordinated response with local partners, and the wider fire sector, is designed to ensure that a proportionate, risk-based approach to actions concerning fire spread in the built environment is adopted.
9. COLLABORATION IMPLICATIONS
There are no collaboration implications arising from this report, however, the Service is working with Nottingham City Council in addressing the risks posed by multi- occupancy residential buildings in the city area. Additionally, the Service will continue to work with Derbyshire Fire and Rescue Service in the enactment of recommendations from the Phase One report.
10. RECOMMENDATIONS
It is recommended that Members:
10.1 Endorse the approach being taken by the Chief Fire Officer to address the outcomes of the Grenfell Phase One report.
10.2 Agree to receive updates in relation to further action associated with the Grenfell Inquiry through the Community Safety Committee.
11. BACKGROUND PAPERS FOR INSPECTION (OTHER THAN PUBLISHED DOCUMENTS)
None.
John Buckley CHIEF FIRE OFFICER
Page 303 APPENDIX A
RECOMMENDATIONS FROM GRENFELL PHASE ONE REPORT
Phase 1 Report – Overview
Ref Page Recommendation/Consideration No
1 12 Provision of a greater range of responses to high-rise building (33.5) fires, including consideration of full or partial evacuation.
2 13 All personnel, at all levels, understand the risk of fire taking hold (33.10) in the external walls of high-rise buildings and know how to recognise when it occurs.
3 14 Review Policy to ensure it reflects the principles in GRA 3.2 (33.11) (fighting fires in high rise buildings) and that training is provided to Crew Managers, and above, relating to inspection of high rise buildings.
4 14 Responsible person to provide hard copy, and electronic copy, (33.12) plans of every floor of all high-rise residential buildings to the FRS and that the FRS has a mechanism to make these plans available to incident commanders and control room managers.
5 14 Responsible person to report monthly test of firefighting lifts and (33.13) control mechanisms to the FRS.
6 15 Twelve individual recommendations in relation to (33.14) communications between the control room and the incident (33.15) commander, the handling of emergency calls, the provision of fire (33.16) survival guidance and the transfer of calls and caller information between emergency services.
Page 304
Phase 1 Report – Overview
Ref Page Recommendation/Consideration No
7 16 Develop policies and training to ensure better control of (33.18) deployments and the use of resources. (33.19) Develop policies and training to ensure that better information is obtained from crews returning from deployments and that the information is recorded in a form that enables it to be made available immediately to the incident commander (and thereafter to the command units and the control room).
Ensure that systems are available for direct communication between the control room and incident commander.
8 16 Provide equipment that enables FFs and control rooms to (33.20) communicate directly with the bridgehead; including the (33.21) equipment to enable FFs wearing breathing apparatus and helmets to communicate effectively.
9 17 Ensure the command support system is fully operative on all (33.21) command units and that crews are trained in its use.
10 17 That FRSs develop policies for partial and total evacuation of (33.22) high-rise buildings and training to support them, and that building owners provide hard, and electronic, copies of evacuation plans.
11 17 All FRSs be equipped with smoke hoods to assist in the (33.22) evacuation of occupants through smoke filled exit routes.
12 19 Seven individual recommendations related to the compatibility of (33.31) emergency service’s systems and the sharing of information (33.32) during a declared ‘major’ incident. (33.33) (33.34)
13 22 Although not a direct recommendation, the Chairman makes (34.5) strong comments about LFB’s ability to learn from, and put into practice, lessons from events.
Page 305 This page is intentionally left blank Agenda Item 13
Nottinghamshire and City of Nottingham Fire and Rescue Authority
COMMITTEE OUTCOMES
Report of the Chief Fire Officer
Date: 20 December 2019
Purpose of Report:
To report to Members the business and actions of the Fire Authority committee meetings which took place in October and November 2019.
Recommendations:
That Members note the contents of this report.
CONTACT OFFICER
Name : John Buckley Chief Fire Officer
Tel : 0115 967 0880
Email : [email protected]
Media Enquiries Therese Easom Contact : (0115) 967 0880 [email protected]
Page 307
1. BACKGROUND
As part of the revised governance arrangements the Authority has delegated key responsibilities to specific committees of the Authority. As part of those delegated responsibilities, the chairs of committees and the management leads report to the Authority on the business and actions as agreed at Fire and Rescue Authority meeting on 1 June 2007.
2. REPORT
The minutes of the following meetings are attached at Appendix A for the information of all Fire Authority Members:
Community Safety Committee 04 October 2019 Finance and Resources Committee 11 October 2019 Human Resources Committee 18 October 2019 Policy and Strategy Committee 08 November 2019
3. FINANCIAL IMPLICATIONS
All financial implications were considered as part of the original reports submitted to the committees.
4. HUMAN RESOURCES AND LEARNING AND DEVELOPMENT IMPLICATIONS
All human resources and learning and development implications were considered as part of the original reports submitted to the committees.
5. EQUALITIES IMPLICATIONS
An equality impact assessment has not been undertaken because this report is not associated with a policy, function or service. Its purpose is to update the Fire Authority on the outcomes of committee business.
6. CRIME AND DISORDER IMPLICATIONS
There are no crime and disorder implications arising from this report.
7. LEGAL IMPLICATIONS
There are no legal implications arising directly from this report.
Page 308
8. RISK MANAGEMENT IMPLICATIONS
The Service’s performance in relation to matters addressed through the committee structure is scrutinised through a range of audit processes. The Service needs to continue to perform well in these areas as external scrutiny through Comprehensive Performance Assessment and auditors’ judgement is key to future Service delivery.
9. COLLABORATION IMPLICATIONS
There are no collaboration implications arising from this report, as the report seeks to provide Members with an update on the business and actions of Fire Authority committee meetings which have taken place in the last quarter.
10. RECOMMENDATIONS
That Members note the contents of this report.
11. BACKGROUND PAPERS FOR INSPECTION (OTHER THAN PUBLISHED DOCUMENTS)
None.
John Buckley CHIEF FIRE OFFICER
Page 309
NOTTINGHAMSHIRE AND CITY OF NOTTINGHAM FIRE AND RESCUE AUTHORITY
NOTTINGHAMSHIRE & CITY OF NOTTINGHAM FIRE & RESCUE AUTHORITY - COMMUNITY SAFETY
MINUTES of the meeting held at Fire and Rescue Service Headquarters, Bestwood Lodge, Arnold, Nottingham, NG5 8PD on 4 October 2019 from 10.00 am - 10.45 am
Membership Present Absent Councillor Nick Raine (Chair) Councillor Sue Saddington, Councillor Gul Nawaz Khan Substituted by Councillor Vaughan Councillor Parry Tsimbiridis Hopewell Councillor Stuart Wallace Councillor Jason Zadrozny
Councillor Vaughan Hopewell (Substitute for Councillor Sue Saddington)
Colleagues, partners and others in attendance:
Craig Parkin - Deputy Chief Fire Officer Damian West - Area Manager Phil Wye - Governance Officer
6 APOLOGIES FOR ABSENCE
None.
7 DECLARATIONS OF INTERESTS
None.
8 MINUTES
The minutes of the meeting held on 21 June 2019 were confirmed as a correct record and signed by the Chair.
Page 310 1 Nottinghamshire & City of Nottingham Fire & Rescue Authority - Community Safety - 4.10.19 9 SERVICE DELIVERY PERFORMANCE UPDATE
Craig Parkin, Deputy Chief Fire Officer, presented the report which informs the Committee of the performance of the Service Delivery directorate between 1 April and 30 June 2019, with contributions from Damian West.
(a) a total of 2628 incidents were attended by Nottingham Fire and Rescue Service between 1 April and 30 June 2019, which is a decrease of 216 incidents during the same period in 2018;
(b) an increase in secondary fires of 69 has been recorded as well as 3 fatalities where none were recorded the previous year. Fatalities are always followed up by Fatal Fire Reviews to identify any learning;
(c) the Authority would like to improve its work on Road Safety and intends to report on this at the next meeting. A joint meeting is planned with key partners to discuss improving a more joined up approach;
(d) On-call availability has improved and improvement is being maintained. The figures are lower for Southwell, Collingham and Eastwood, due in part to sickness absence and annual leave;
(e) over the summer period the Service was deployed in support of flooding in Lincolnshire and the Major Incident at Whaley Bridge in Derbyshire;
(f) the Service delivers an annual exercise training programme which enables crews to train and practice essential skills. To date this year 8 exercises have taken place, with a total of 26 planned;
(g) 1474 Safe and Well Visits have during the period of 1 April to 30 June, including 5 specialist alarms for deaf people;
(h) a Data & Intelligence Community Engagement (DICE) event took place in Aslockton and Whatton in June to improve smoke alarm ownership. 627 properties were visited and over 250 smoke alarms were fitted. Approximately 40% of properties were found to have inadequate or no smoke detection;
(i) members of the Prevention Team have delivered the first of the Service’s Safety Zone initiatives aimed at Year Five and Year Six pupils across the north of the county, at Ranby School;
(j) the Service is reviewing how SWVs are delivered to ensure that the best value for money is achieved. This will include a review of the current commissioned services provided through Framework and Age UK;
(k) the Protection Team have recently engaged with the High Speed 2 project in order to provide guidance and assurance in relation to proposed tunnels in Nottinghamshire;
(l) initial meetings have taken place with Nottinghamshire Police to discuss greater collaboration between the Fire Investigation Team and the Crime Scene
2 Page 311 Nottinghamshire & City of Nottingham Fire & Rescue Authority - Community Safety - 4.10.19 Investigation team;
(m)a Safer Communities strategy is currently being completed that will outline the work that the Prevention and Protection teams will complete in order to achieve the Service’s vision. This will be delivered to the Committee in January 2020;
(n) the Joint Inspection Team in Merseyside was recently visited to understand any learning that can be used within the Service and City team;
(o) Home Office statistics show an increase in incidents in Nottinghamshire of 6% between 2017/18 and 2018/19. This increase was mostly due to an increase in secondary fires;
(p) Collaboration with East Midlands Ambulance Service has seen an increase in operational crews responding to assist entry to premises, whereas the cessation of Emergency First Responding by wholetime crews has resulted in a significant reduction of this incident type.
The following responses were provided in response to questions of the Committee:
(q) when the Service supports incidents such as flooding events, host services coordinate accommodation where appropriate. Crews are well looked after and rotated;
(r) members of the public can request a visit from the Service to check their home for safety and receive a free smoke alarm if required through a Safe and Well Visit;
(s) DICE events target a variety of areas, covering privately owned, privately rented and council rented accommodation.
RESOLVED to note the report.
Page 312 3
NOTTINGHAMSHIRE AND CITY OF NOTTINGHAM FIRE AND RESCUE AUTHORITY
FINANCE AND RESOURCES COMMITTEE
MINUTES of the meeting held at Nottinghamshire Fire and Rescue Service HQ, Bestwood Lodge Drive, Arnold, Nottingham, NG5 8PD on 11 October 2019 from 10:01am to 10:29am
Membership Present Absent Councillor John Clarke (Chair) Councillor Andrew Brown Councillor Toby Neal Councillor Mike Quigley MBE Councillor Nick Raine
Councillor Jonathan Wheeler (Substitute for Councillor Andrew Brown)
Colleagues, partners and others in attendance:
Leila Henry - Head of Corporate Support Adrian Mann - Governance Officer Ian Pritchard - Assistant Chief Officer Becky Smeathers - Head of Finance
10 APOLOGIES FOR ABSENCE
Councillor Andrew Brown
11 DECLARATIONS OF INTERESTS
None.
12 MINUTES
The Committee confirmed the minutes of the meeting held on 28 June 2019 as a correct record and they were signed by the Chair.
1 Page 313 Nottinghamshire & City of Nottingham Fire & Rescue Authority - Finance and Resources - 11.10.19 13 REVENUE, CAPITAL AND PRUDENTIAL CODE MONITORING TO 31 AUGUST 2019
Becky Smeathers, Head of Finance, presented a report on the financial performance of the Service during the 2019/20 financial year, to the end of August 2019. The following points were discussed:
(a) the current underspend remains at £1.1million. This is because the day-crewing project was delivered on time and did not require its £200,000 contingency; payments of £647,000 for the Joint Control Room merger and the planned closure of the Prince’s Trust Programme were ultimately accounted for in the 2018/19 financial year (rather than in 2019/20, as initially anticipated); and the Service received £672,000 to compensate for loss of income from National Non-Domestic Rates caused by Government policy, which was £233,000 above the estimate figure used in the budget;
(b) it is proposed to allocate the £200,000 day-crewing project contingency budget to cover over-time pay in whole-time roles, where additional cover has been required due to long-term sickness. In addition, some senior vacancies – which, traditionally, are uniformed roles – have been filled by non-uniformed members of staff on a temporary basis. As uniformed and non-unformed staff roles are budgeted separately, it is proposed to re-balance the budgets to reflect the positions that they have been funding;
(c) the overall on-call pay budget is expected to be underspent by £214,000. This is due to a reduction in the number of planned recruitment courses and a lower numbers of on-call staff than was included in the budget. It is proposed that £35,000 of the underspend is allocated to on-call pension provision, where an overspend is anticipated due to the new rates announced in March. A further allocation of £65,000 is proposed towards on-call community safety work, which was identified as a priority in the Strategic Plan and an area requiring improvement in the recent Service inspection;
(d) the General Reserve is predicted to be £5.5million at the end of the financial year, with an anticipated spend from earmarked reserves of £429,000 towards planned expenditure. The reserves will remain above the required minimum level of £3.9million;
(e) capital programme spending to date is £425,000. A number of small ICT schemes are progressing well, but a review of the Tri Service Project is necessary following the creation of the Joint Control Centre with Derbyshire Fire and Rescue Service. Expenditure may be delayed into 2020/21 for this project. The new hose and storage drums have been delivered and installation is underway. The upgraded breathing apparatus communication equipment has been delayed to allow more time for thorough testing. As such, it may be possible to bring forward the upcoming project to update fire helmets, to align the two projects. The installation of new CCTV in vehicles is ready to commence but, due to the £330,000 cost, a full European Union procurement exercise is required, which will delay expenditure until 2020/21;
Page 314 2 Nottinghamshire & City of Nottingham Fire & Rescue Authority - Finance and Resources - 11.10.19 (f) the initial work for a new Worksop Fire Station is currently on hold as the East Midlands Ambulance Service has indicated that it may need to withdraw from the project due to a review of its operational model;
(g) the cost of fuel remains a concern for the Service and a contingency sum is held within reserves in case of emergency;
(h) in terms of Prudential Code Monitoring, total borrowing at the end of August 2019 was within the operational and authorised limits, at £25.6million. There has been no borrowing activity since the start of the financial year. All current loans are on fixed-interest terms.
RESOLVED to:
(1) approve the reallocation of the unneeded £200,000 whole-time pay budget to cover overtime pay in whole-time roles, where additional cover has been required due to long-term sickness;
(2) approve the reallocation of £205,000 between the uniformed and non- uniformed staff budgets, where some senior vacancies have been filled on a temporary basis by non-uniformed members of staff;
(3) approve the reallocation of £35,000 from the underspend in the overall on- call drills and training budget to on-call pension provision, where an overspend is anticipated due to the new superannuation rates announced in March;
(4) approve the reallocation of £65,000 from the underspend in the on-call drills and training budget towards on-call community safety work, which has been identified as a priority in the Strategic Plan and an area requiring improvement in the recent Service inspection;
(5) reinstate the £22,000 budget for the conversion of hose reel equipment into the 2019/20 capital programme;
(6) approve the slippage of the £313,000 capital expenditure for new CCTV in vehicles to the 2020/21 budget.
14 CORPORATE RISK MANAGEMENT
Leila Henry, Head of Corporate Support, presented a report on the corporate risk management process and the current version of the Corporate Risk Register. The following points were discussed:
(a) the four highest risks in the Register are the use of vehicles on Service business; the mobilisation process; health, safety and welfare; and working at height;
(b) mobilisation processes have been reviewed to take account of changes following the implementation of Joint Fire Control. Additional governance and oversight, together with the development and testing of business continuity arrangements, has been put in place to ensure that there is no overall change to the risk rating.
3 Page 315 Nottinghamshire & City of Nottingham Fire & Rescue Authority - Finance and Resources - 11.10.19 Due to a recent issue with ladders in the Service and a couple of serious incidents nationally, the risks relating to working at height are being managed closely and actively. All ladders on engines are serviced every twelve weeks. Where necessary, stations that have new risks in their areas, such as building sites with construction cranes, will assess these risks and ensure that firefighters are adequately trained to deal with them;
(c) agency reporting and a multi-agency planning structure is in place through the Local Resilience Forum for the UK’s exit from membership of the European Union. The Service has business continuity arrangements in place to deal with a range of eventualities but, given the high levels of uncertainty, an £800,000 contingency has been included in the General Fund Reserve.
15 MANAGEMENT OF OCCUPATIONAL ROAD RISK
Leila Henry, Head of Corporate Support, presented a report on the management of occupational road risk, which is a major risk area on the Corporate Risk Register. The following points were discussed:
(a) the previous vehicle insurer declined to renew its policy with the Service due to a number of recent, high-cost claims. As a result, the 2019/20 Road Risk Action Plan has been updated with new actions following recommendations from the Fleet Risk Review Report 2019, which was completed by the Service’s new vehicle insurers;
(b) the focus of the Action Plan is on developing driver skills and behaviours, with the aim of reducing the frequency of slow-speed manoeuvring accidents. These actions are in addition to the Service’s routine driver training and other fleet management activities. In addition to the work outlined in the Action Plan, Nottingham Trent University has provided the Service with four driver training packages to supplement the existing driver training in hazard perception. These have been incorporated in the Service’s e-learning system. Where appropriate, knowledge and best-practice sharing arrangements are in place with Derbyshire and Leicestershire Fire and Rescue Services, and with Nottinghamshire Police;
(c) it is anticipated that recruitment to a vacant post within the Service’s Driver Training Team will be completed by January 2020, to provide the necessary resource to enable completion of the outstanding actions in the Action Plan;
(d) the planned improvement to CCTV systems on fire engines will also improve driver safety and allow for remote access to the camera footage;
(e) following the introduction of these measures, a full performance report will be brought to the next meeting of the Committee to set out the improvements made and to close the two outstanding items in the Road Risk Action Plan.
16 EXCLUSION OF THE PUBLIC
RESOLVED to exclude the public from the meeting during consideration of the remaining item in accordance with Section 100A of the Local Government Act 1972, under Schedule 12A, Part 1, Paragraph 3, on the basis that, having regard
Page 316 4 Nottinghamshire & City of Nottingham Fire & Rescue Authority - Finance and Resources - 11.10.19 to all the circumstances, the public interest in maintaining an exemption outweighs the public interest in disclosing the information.
17 EXEMPT MINUTES
The Committee confirmed the exempt minutes of the meeting held on 28 June 2019 as a correct record and they were signed by the Chair.
5 Page 317
NOTTINGHAMSHIRE AND CITY OF NOTTINGHAM FIRE AND RESCUE AUTHORITY
HUMAN RESOURCES COMMITTEE
MINUTES of the meeting held at Nottinghamshire Fire and Rescue Service HQ, Bestwood Lodge Drive, Arnold, Nottingham, NG5 8PD on 18 October 2019 from 10:00am to 11:21am
Membership Present Absent Councillor Shuguftah Quddoos (Chair None Councillor Vaughan Hopewell Councillor Jawaid Khalil Councillor John Longdon Councillor Salma Mumtaz
Colleagues, partners and others in attendance:
Tracy Crump - Head of People and Organisational Development Adrian Mann - Governance Officer Craig Parkin - Deputy Chief Fire Officer
9 APOLOGIES FOR ABSENCE
None.
10 DECLARATIONS OF INTERESTS
None.
11 MINUTES
The Committee confirmed the minutes of the meeting held on 5 July 2019 as a correct record and they were signed by the Chair.
12 HUMAN RESOURCES UPDATE
Tracy Crump, Head of People and Organisational Development, presented a report on the key Human Resources metrics for the period 1 July 2019 to 30 September 2019. The following points were discussed:
Page 318 1 Nottinghamshire & City of Nottingham Fire & Rescue Authority - Human Resources - 18.10.19
(a) the current absence reporting period is 1 April 2019 to 30 June 2019. The absence rates across the workforce, excluding On-Call employees, increased over the period by 245 days (19.3%), which represents an increase compared to the same quarter of the previous year of 344 days (29.4%). Long-term absence (more than 28 days) constitutes 67.6% of the total absence during the period so, although fewer people have been off sick overall, the long-term absences have resulted in more shifts being lost than in the previous quarter. Nationally, the Service ranked 24th of 30 in terms of sickness days per employee for the period, and it was above the sector sickness average of 2.15 days per employee. Steps have been taken to explore the reasons behind this usually high period of sickness and to improve the situation, and sickness absence is now falling again;
(b) most long-term absences are due to musculoskeletal and mental health conditions. When a member of staff first reports sickness absence, information is made available to them on the full range of support available if needed, including referral to the in-house Occupational Health team. Independent, confidential support is also available to cover a wide range of employee issues in both work and home life. The employee assistance programme means that staff can be referred to an appropriate care scheme through Occupational Health, or be put in touch with other specialist support that they might need. Each case is considered on its own merits to achieve the balance of supporting staff, while giving employees sufficient space to seek support when they are ready;
(c) letters can be sent to members of staff to thank them for long periods of service without sickness absence. However, the Service exercises a fine balance, so as not to encourage staff to work when they are sick and need rest;
(d) managers are able to complete stress risk assessments, though not all stress exhibited by staff is due to their work life. Work-related physical injuries are monitored closely, as they can also lead to mental health conditions in some cases. There are different support requirements for uniform and support staff, who are made up of different demographics of people and have very different working environments, so this is taken into account by managers;
(e) managers look for patterns in leave and sickness absence to help inform their actions, as their primary concern is employee health. It does not appear that staff often take annual leave to mask a sickness absence. Staff can self-refer to Occupational Health and are not obliged to specify reasons for sickness for periods not requiring a doctor’s note, but they may be referred to Occupational Health for a confidential discussion if they are off regularly for unspecified reasons. On returning from a longer period of sickness, managers will carry out return to work interviews, to make sure that the right support processes are in place;
(f) there are three staff in the Occupational Health team, with a doctor who visits through a contract arrangement. Although the team are based at headquarters, they visit stations, teams and on-call stations to raise awareness of how staff can engage with them. There are workforce physical trainers and physiotherapist support is also available, and there is also staff access to support services from the Fire Fighters Charity;
2 Page 319 Nottinghamshire & City of Nottingham Fire & Rescue Authority - Human Resources - 18.10.19
(g) the Service continues to develop its inclusion and culture change (including initiatives to create more openness about mental health), and disciplinary and grievance figures for the period are very low. Contacts are available to staff who want to seek confidential support, and tools such as the ‘Resilient Me’ app have been produced. The recent inspection of the Service concluded that good measures for employee health and wellbeing were in place, but an overall strategy document is needed to draw all of the strands together;
(h) there have been recent changes to the staffing establishment, with the reduction of Control Staff through collaboration with Derbyshire Fire and Rescue Service on the Joint Control Centre. Work will continue to try to recruit more On-Call staff, where shortages are a national issue. In total, 23 staff have left (8 Whole-Time, 4 On-Call, 10 Support and 1 Dual Contractor) and 21 have started in the period, resulting in an actual workforce figure of 865;
(i) work has been carried out to address the targets for improvement set out by the recent inspection of the Service, in the areas of staff support, training, leadership development and the embedding of organisational values through people strategies, policies and procedures. A training plan is in place to support the workforce plan, and measures have been taken to better address accurate recording. Communications will be reviewed to enhance staff’s understanding of positive action;
(j) the personal development process is being reviewed to better link this to the departmental and strategic plans. Progression procedures have also been reviewed, and it is made clear that all appointment processes are inclusive, fair and equitable. Briefing sessions are held with staff to explain fully how the internal promotion system operates. Leadership development pathways and talent- spotting processes are in place, but any formal high-potential development scheme would need to be developed on a wider scale than a single service. However, a voluntary Aspiring Leadership Programme has been in place for three years, with learning modules, coaching and strength profiling, and it is intend to develop a further ‘Aspiring Station Manager’ initiative;
(k) these new initiatives are vital in taking positive action to address representative imbalances in the workforce by targeting under-represented groups and building confidence. There is an increasing number of women and ethnic minority fire fighter trainees, which will help to develop culture change as they move through the organisation, and it is hoped that the Service will be able to continue to recruit over the next few years;
(l) the Committee recommended that, although a formal Equality Impact Assessment was not required in support of the current report’s recommendations, the standard text of the ‘Equalities Implications’ section of future reports could be worded slightly differently, to reflect the ongoing work in the Service to improve equality and representation within the workforce.
Page 320 3 Nottinghamshire & City of Nottingham Fire & Rescue Authority - Human Resources - 18.10.19 13 WORKFORCE PLAN 2019-21
Tracy Crump, Head of People and Organisational Development, presented a report on the review of the Workforce Plan for 2018-19 and the updated plan for 2019-21. The following points were discussed:
(a) the plan looks two years ahead to identify potential impacts on the workforce and associated planning decisions, and is reviewed on an annual basis. Although the staffing establishment figure has now decreased, the reduction will be achieved gradually through natural turnover;
(b) the final cohort of fire fighter recruits from the latest recruitment process are now in training. Fire fighter recruitment is likely to resume in 2021, with positive action and engagement in preparation for this starting in 2020. Focused work continues to increase the pool of On-Call fire fighters, with recruitment and retention a national, ongoing issue;
(c) there will be a number of retirements at supervisory level over the next two years, with the potential retirement of 15 Crew and Watch Managers needed before April 2021. This will be addressed through in-house progression and development programmes, and external in-role transfers. The raising of the normal retirement age and pension scheme changes will result in an increasing age profile for the workforce. The potential impacts of this will be considered to inform measures on planning for future issues, including the implications for occupational health and fitness, equipment and training;
(d) increasing collaboration will have an impact on the workforce, and this includes the now-established Joint Control Centre with the Derbyshire Fire and Rescue Service and the project to move the Service into a joint headquarters with Nottinghamshire Police at the end of 2021;
(e) the need to make the workforce more representative and diverse is a continuing priority for the Service, with the aim of improving the current workforce profile to better reflect the local population, recognising the limited recruitment opportunities in recent years. Targeted positive action measures will continue to be used, and the Service will also use service delivery activities as opportunities to engage with local communities about a career with the Fire Service, and to promote the Service more widely;
(f) the Committee acknowledged the extremely positive work that has resulted in the increase of female and ethnic minority employees in operational roles, and the fact that the Authority was shortlisted for a national diversity award.
14 EXCLUSION OF THE PUBLIC
RESOLVED to exclude the public from the meeting during consideration of the remaining item in accordance with Section 100A of the Local Government Act 1972, under Schedule 12A, Part 1, Paragraphs 1 and 3, on the basis that, having regard to all the circumstances, the public interest in maintaining an exemption outweighs the public interest in disclosing the information.
4 Page 321 Nottinghamshire & City of Nottingham Fire & Rescue Authority - Human Resources - 18.10.19 15 EXEMPT MINUTES
The Committee confirmed the exempt minutes of the meeting held on 5 July 2019 as a correct record and they were signed by the Chair.
16 REGRADING OF POSTS
Craig Parkin, Deputy Chief Fire Officer, presented a report on the outcomes arising from the job evaluation process for two non-uniformed roles.
The Committee noted the report.
Page 322 5
NOTTINGHAMSHIRE & CITY OF NOTTINGHAM FIRE & RESCUE AUTHORITY POLICY & STRATEGY COMMITTEE
MINUTES of the meeting held at Fire and Rescue Services HQ, Bestwood Lodge, Arnold Nottingham NG5 8PD on 8 November 2019 from 10.03 am - 10.55 am
Membership Present Absent Councillor Michael Payne (Chair) Councillor Andrew Brown Councillor Jonathan Wheeler Councillor Sybil Fielding (minutes 12 and 13 inclusive) Councillor John Clarke Councillor Toby Neal (minutes 12 and 13 inclusive)
Colleagues, partners and others in attendance: John Buckley - Chief Fire Officer Charlotte Radford - Treasurer to the Authority Becky Smeathers - Head of Finance Malcolm Townroe - Clerk and Monitoring Officer to the Authority Catherine Ziane-Pryor - Governance Officer
9 APOLOGIES FOR ABSENCE
Councillors Toby Neal and Sybil Fielding for slight lateness due to exceptionally heavy traffic.
10 DECLARATIONS OF INTERESTS
John Buckley, Chief Fire Officer, declared a personal interest in agenda item 4, (minute 12), Principal Officer Pay Review, in so much as it impacted directly on him. John Buckley withdrew from the meeting prior to consideration of the item and only returned once the item has concluded.
11 MINUTES
The minutes of the meeting held on 12 July 2019 were confirmed to true record and signed by the Chair.
1 Page 323 Nottinghamshire & City of Nottingham Fire & Rescue Authority - Policy & Strategy - 8.11.19
12 PRINCIPAL OFFICER PAY REVIEW
Having declared an interest under minute 10, prior to the Committee’s consideration of the item, John Buckley, Chief Fire Officer withdrew from the room and did not return until the item was concluded.
Malcolm Townroe, Clerk to the Authority, presented the joint report of the Clerk and Treasurer, summarising that the pay review takes place every two years and is compared to the Chief Fire Officer base salary of 18 similar Fire and Rescue Services nationally. To date the Committee and Authority have been satisfied that the current pay figure, which is within the median of the pay scale, is appropriate.
Members of the Committee commented as follows:
(a) given the level of responsibility and the important and far-reaching work undertaken by the Chief Fire Officer, it is appropriate for principal pay to remain at the current level, slightly above the median;
(b) even with consideration of the impact of austerity on the Service, continuation of the current pay level is agreeable.
With the range in Chief Fire Officer pay between £119,748 and £164,020, members of the committee requested further information in future reports on the make-up and responsibilities of the Services listed, to better enable a comparison with NFRS.
RESOLVED for the recommendation to be submitted to the next Fire and Rescue Authority meeting to agree continuation at the current Principal Officer Pay Level, as of 1 January 2020.
13 COLLABORATION UPDATE
John Buckley, Chief Fire Officer, presented the report which provides a formal update on collaboration taking place across the Service. Becky Smeathers, Head of Finance and attendee of the Joint Headquarters Project Management Board, also contributed.
The following points were highlighted:
Joint Control Centre. There have been a few teething issues and the transition period is ongoing, but overall it is working well. There are still differences between the way that Derbyshire and Nottinghamshire Fire Services operate, but these are being aligned to best practice with both services working closely to achieve this. It is anticipated that both services will be operating on the same airwave channel by 2022. Overnight flooding in areas across the region have stretched Services but all continue to work well.
Joint Headquarters. Progress is awaiting news on planning permission being granted pending the outcome of a safety review of the A60/ Burntstump Hill junction. Dependent on the findings and if any works are recommended, there may be an additional charge to cover or contribute towards the costs of works. Ian Prichard, Assistant Chief Officer, continues to meet regularly with Police colleagues.
Highfields Fire Station. Police colleagues are now established on site.
Page 324 2 Nottinghamshire & City of Nottingham Fire & Rescue Authority - Policy & Strategy - 8.11.19
West Bridgford Police and Fire Station. It is anticipated that the planning permission required for some adaptations, will be achieved in the New Year.
Hucknall Joint Emergency Services Hub. Work is ongoing but once complete the site of the Hucknall Fire Station will be released.
Joint learning and development. An external provider is being sought for the ILM L5 certificate in management, which will also be accessed by police colleagues. Joint mentoring programs are also being explored. The Fire Service Training Houses at Carlton and Retford Fire Stations are being used regularly for Police training.
Prevention. The joint prevention strategy is being produced with police colleagues including a reinvigorated Road Safety Prevention Strategy, and potentially a Joint Specialist Home Safety Team.
Joint Police and Fire Cadets Programme. One course has been completed and the next is due to start shortly. It is hoped that the cadets programme will appeal to some of the young people who may previously have accessed the Prince’s Trust scheme.
Emergency Planning and Resilience. An agreement is now in place allowing the police to access NFRS fuel bunkers. The cost of fuel is recharged, but with a larger volume required a lower price has been achieved and there is a contribution towards bunker maintenance. NFRS has access to two police drones and pilots, which will prove valuable in assessing incident sites.
Access to fire stations for welfare. Police officers now have access to fire stations for rest facilities.
Fire investigation and crime scene investigation (CSI) co-location. It is proposed that to improve information intelligence sharing, NFRS will co-locate with police investigation colleagues at Sherwood Lodge, prior to occupying the joint headquarters. New legislation has been introduced regarding evidence, which the police already comply with, and so will be able to support the fire service in submitting robust evidence acceptable in court.
The following responses were provided to questions from committee members:
(a) Once the joint emergency services hub at Hucknall is operational, the potential options for the use or disposal of the current Hucknall Fire Station site will be brought to the Finance and Resources Committee for further consideration;
(b) there have been changes to the apprenticeship levy whereby there may be potential for the cost of some team training courses, such as ILM, to be offset against the levy. The suggestion from a member of the Committee that further collaboration with the County Council may be mutually beneficial will be followed up. Once roles have been accredited, clarification will be provided to members of the Authority;
(c) The vulnerable people referred to as a focus for the Specialist Home Safety Team include those with mental health issues, alcoholism, living alone and sometimes elderly. It has become apparent that in addition to the shared safeguarding social care element, that Police and Community Protection are also attempting to support these
3 Page 325 Nottinghamshire & City of Nottingham Fire & Rescue Authority - Policy & Strategy - 8.11.19 people with safety and crime prevention advice, so it is of mutual benefit to work together and ensure the first contact with these people really counts and can promptly resolve and address any issues identified. The recent Her Majesty’s Inspectorate of Constabulary and Fire and Rescue Services (HMICFRS) report highlighted that the Service needed to increase its home safety presence within the community and target the most vulnerable. However, the Service does not hold the data required to achieve this, so working with partner agencies which maintain such quality data is essential. In addition agencies may assist with tracking the outcomes of such prevention activity;
(d) A small number of staff are still wary of some elements of collaboration with the Police, including moving to a shared headquarters site, but joint work is ongoing to address this and the majority of staff are engaging well. There is a whole work stream focusing on bringing the two very different cultures together with an understanding and appreciation of each other. To ease the transition to the new headquarters, it is likely that all Police staff will be moved to different areas within the site and at the same time that the Fire Service moves in, to help lessen any tensions regarding perceived ownership;
(e) With the current severe overnight flooding issues in Worksop, more than 200 properties have been affected and approximately 60 firefighters are deployed within the area, which the Police have declared as a major incident. Partner agencies have requested support but due to capacity and officers working around the clock, requests have unfortunately had to be refused;
(f) The highways review of the A60 junction and the additional traffic resulting from the joint headquarters, can only be considered as beneficial, but in the spirit of prevention, safety should not be judged by the number of fatalities, but by the ability to prevent incidents and injury.
Members of the Committee commended the excellent work of all staff in ensuring the success of collaboration, including the operation of the Joint Control Centre, particularly during recent incidents of high demand such as flooding, and suggested that a press release to ensure citizens, MPs and the LGA are aware of the positive collaboration work being achieved in the Service, particularly following the negative reporting against the fire crews and individual officers who attended the Grenfell Tower incident.
It was requested by members of the Committee that:
(i) A Joint Fire and Police Cadets Programme is also operated in the north of the county;
(ii) With regard to the current Hucknall Fire Station site, disposal includes consideration for achieving a long-term income.
RESOLVED to note the update and prepare a press release on the positive achievements of collaborative working.
Page 326 4 Agenda Item 15 By virtue of paragraph(s) 1, 3 of Part 1 of Schedule 12A of the Local Government Act 1972.
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