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Cornwall Council 2019/20 Annual Financial Report And Statement of Accounts
Information Classification: CONTROLLED
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Information Classification: CONTROLLED Contents Cornwall Council 2019/20 Annual Financial Report and Statement of Accounts
Contents Page
Narrative Report 2 Independent Auditor’s Report to the Members of Cornwall Council 23 Independent Auditor’s Report for Cornwall Pension Fund 30 Statement of Accounts Statement of Responsibilities and Certification of the Statement of Accounts 35 Main Financial Statements 37 Comprehensive Income and Expenditure Statement 38 Movement in Reserves Statement 38 Balance Sheet 40 Cash Flow Statement 40 Notes to the Main Financial Statements 42 Index of Notes 43 Group Financial Statements 125 Group Movement in Reserves Statement 126 Group Comprehensive Income and Expenditure Statement 126 Group Balance Sheet 128 Group Cash Flow Statement 128 Notes to the Group Financial Statements 130 Supplementary Financial Statements 141 Housing Revenue Account 142 Notes to the Housing Revenue Account 145 Collection Fund 151 Notes to the Collection Fund 153 Fire Fighters’ Pension Fund Account 155 Pension Fund Accounts 159 Cornwall Local Government Pension Scheme Accounts 160 Notes to the Pension Scheme Accounts 161 Glossary 195
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
Narrative Report from Chief Operating Officer and Section 151 Officer
I am pleased to introduce our Annual Financial Report and Statement of Accounts for 2019/20. This document provides a summary of Cornwall Council’s financial affairs for the financial year 1 April 2019 to 31 March 2020 and of our financial position at 31 March 2020. 1. The Financial Report and Statements Our Annual Financial Report and Statement of Accounts includes the following financial statements and disclosure notes: • Narrative Report – from the Chief Operating Officer and S151 Officer. This provides interested parties with an effective guide to the most significant matters reported in the Statement of Accounts including information relating to the Council’s spending and financial position and its performance in key areas. • Independent Auditor’s Reports – there is an independent report from the external auditors to the Members of the Council and also for Cornwall Pension Fund. • Statement of Accounts o Statement of Responsibilities – this explains the different responsibilities relating to the Statement of Accounts and confirms their approval. o The Main Financial Statements - Comprehensive Income and Expenditure Statement – this statement shows the net cost in the year of providing Council services. - Movement in Reserves Statement – this statement shows the movement in the year on the different reserves held by the Council. - Balance Sheet – the Balance Sheet shows the value at 31 March 2020 of the assets and liabilities held by the Council. - Cash Flow Statement – the Cash Flow statement shows the changes in cash and cash equivalents of the Council during the reporting period. o Notes to the Main Financial Statements – these provide additional, more detailed information on specific areas from the main financial statements. o Group Financial Statements – a further set of financial statements, in the same format as those described above, including companies and other organisations in which we have an interest, together with relevant notes. o Supplementary Financial Statements - Housing Revenue Account (HRA) Income and Expenditure Statement - the HRA Income and Expenditure Statement shows the net cost in the year of providing council housing. - Collection Fund Income and Expenditure Statement – this statement shows transactions in relation to council tax and national non-domestic rates. o Fire Fighters’ Pension Fund Account – setting out the financial arrangements for this specific scheme. o Pension Fund Accounts – relating to the main Local Government Pension Scheme we run for our employees (and those of some other organisations). • Glossary – an explanation of technical terms that have been used in the document. Except where otherwise indicated, figures are presented in millions of pounds (£m) and are rounded to the nearest thousand pounds (£0.001m).
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
2. An Overview of Cornwall Council Organisational Overview and External Environment
Cornwall Council is a unitary local authority serving a population of over 550,000 residents. As a unitary Council it provides all local authority services including adult social care, children’s social care, education, public health, highways, planning, housing, benefits, fire and rescue, building control and environmental services amongst many more. Cornwall is a large unitary area covering 3,500km2, predominantly rural with 480km of coastline. The Council approved a refresh of its Business Plan and Medium-term Financial Plan (MTFP), in February 2020. The refreshed Business Plan set out the Council’s aims as: • Ensure everyone can live well and safely together • Create more homes and jobs for residents • Protect and enhance the environment
It also set out the Council’s values as:
• We listen: we will work with the people of Cornwall • We are responsible: we will use resources wisely • We act in the best interests of Cornwall: putting people first
The original Business Plan 2018/19 to 2021/22 set out how the Council would deliver its Priorities for Cornwall and demonstrates its commitment to protecting the most vulnerable, investing in jobs and homes within Cornwall and continuing to improve Cornwall’s infrastructure so that our people, places and services are connected. The priorities for Cornwall are:
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
The Business Plan 2018/19-2021/22 explained how the Council proposed to deliver its Priorities for Cornwall and matched its spending to those priorities. It also included a number of success measures that would be monitored and reported on a regular and public basis, so residents and businesses could track progress and hold the organisation to account for delivery.
In shaping the Business Plan the Council reflected on the results of the extensive residents’ survey conducted in July and August 2017 - reported to Cabinet in November 2017 - to ensure that the priority actions responded to what the people of Cornwall told the Council were the aspects of life that were of greatest importance and in most need of improving.
The Business Plan was purposely a succinct and readable document to engage residents, businesses, partners and our employees so that they could have their say on whether the Council’s priorities resonated with them and took on board the messages from the resident survey. It also set out how the Council spends its money both currently and how our budget proposals would change the emphasis in line with the priorities, so this could be consulted upon as well.
Since its formation in 2009, the Council has delivered over £300m in savings and has seen its central government funding reduce significantly. Consequently, the Council has become more dependent upon locally raised resources; council tax and business rates. In 2009/10 council tax made up around 33% of the Council’s funding whereas in 2023/24 it is expected to be 58%. It is assumed government policy will continue in this direction with further cuts to government funding. We recognise this impact on residents and are proactively driving down costs where possible and changing our service delivery to become more efficient wherever possible. Internally the Council is led by the Chief Executive Officer and the Council Directors Team, supported by the Council Leadership Team. Services are grouped into Directorates which are in turn led by Strategic Directors. In 2019/20 the Council was organised around five Directorates: • Adult Social Care – including adult social care and support; and adult transformation and commissioning; • Together for Families – including children’s services such as protecting; vulnerable children and supporting disabled children and services around education and supporting families; • Economic Growth and Development – including economic development, culture, public transport and planning; • Neighbourhoods – including fire and rescue, waste management and environmental services. • Customer and Support Services – including commercial services such as procurement and property and assets as well as the Council’s support services such as legal services, finance etc.
The Council owns a number of companies that form part of its group. Some of these are commercial whereas others facilitate delivery of Council services and objectives by other means than direct service provision by the Council. This is an increasingly common model of operation for local authorities as they seek alternative ways of achieving their aims within reduced funding arrangements. Cornwall Council’s Business Group is as follows:
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
Corserv Ltd - a wholly-owned company of Cornwall Council established to provide strategic direction and oversight for its existing arm’s-length and commercial trading companies. Cornwall Housing Ltd - manages and maintains over 10,000 council houses in mid and east Cornwall. The company looks after about 400 leaseholders on behalf of the Council and manages Council owned garages, shops and land in neighbourhoods with council housing. Cornwall Housing Ltd also delivers the Homechoice and Housing Options and Advice service for the Council. CORMAC Solutions Ltd - provides services to Cornwall Council and its partners. The company's purpose is to enhance local communities by delivering innovative services which create a better local environment and contribute to sustainable economic growth, whilst facilitating resilient, self-sufficient and safer communities. Cornwall Development Company Ltd - an economic development company which has been charged with delivering economic priorities and solutions on behalf of the Council. Cornwall Airport Ltd - responsible for all airport operations including Civil Aviation Authority licensing, customer services, commercial development, route development and marketing. Cornwall Airport is working closely with its sister organisation, Cornwall Development Company Ltd, in the marketing and development of the Airport's huge estate. Corserv Property Ltd - set up to purchase, refurbish and manage a portfolio of private rented properties to provide temporary accommodation for homelessness clients in order to discharge Cornwall Council’s statutory homelessness duties. CORMAC Contracting Ltd – a trading company wholly-owned by Corserv Ltd which acts as a vehicle for private sector growth. Its purpose is to generate revenues by winning work in a competitive environment and partnering with other public or private sector companies to deliver cost effective and sustainable solutions to complex engineering challenges.
Wave Hub Ltd – manages an offshore test site to advance the development of offshore renewable energy technologies.
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
Treveth Holdings LLP
In addition to the group company arrangements set out above the Council has also set up a Limited Liability Partnership (LLP) to deliver the Council’s Investment Programme. There are two prime purposes of the LLP: • To generate a return for the Council to supplement income; • To support economic development priorities of economic growth, job creation and improved housing.
The LLP is structured as follows:
Working with Partners
Increasingly the Council works with numerous partner organisations to deliver public services in Cornwall. It has worked with the Ministry for Housing, Communities and Local Government to agree a devolution deal for Cornwall and continues to press for greater local powers. It works with local Town and Parish Councils to “join-up” local government in Cornwall and particularly in deciding which Councils are best placed to provide services within a period of reduced funding within the public sector. A key challenge in Cornwall is the joining-up of health care and adult social care. This is a challenging issue with Cornwall with its demographics and a high (and increasing) proportion of its community being more elderly residents. Integrating health and social care is a key challenge for the Council and its partners.
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
Governance
The Council currently has 123 Councillors (Members) representing Cornwall and together they form the Council, with a Leader and Cabinet model. The Council meets approximately every six weeks. They set the budget for the year as well as the business plan, which sets out the policies and plans the Council wants to achieve. The Council also elects a Leader who is then re-elected annually. The Leader then chooses between two and nine councillors to form a Cabinet. The Cabinet’s responsibilities are divided up into Portfolios and each Cabinet Member is responsible for that Portfolio of work. The Cabinet Members are also known as Portfolio Holders or Executive Members. The Leader and Cabinet take decisions to deliver the business plan and these must usually be within the budget and policy framework set by the Council. The Cabinet receives the Council’s Performance Report (CPR) on a quarterly basis which demonstrates how the Council is performing against a set of Key Performance Indicators (KPIs), Strategic Projects, Finance and Strategic Risks. The Council also has a number of committees such as Overview and Scrutiny, Planning, Licencing, Standards, Pensions and an Audit Committee. The Council has a constitution which sets out how the Council operates, how decisions are made and the procedures which are followed to ensure that these are efficient, transparent and accountable to local people. Some of these processes are required by law, while others are a matter for the Council to choose. The constitution includes items such as responsibility for functions, the scheme of delegation, Council procedure rules and financial regulations. The Council is required to produce an Annual Governance Statement (AGS) each year to meet the requirements of the Accounts and Audit Regulations 2015 and the principles set out in the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Society of Local Authority Chief Executives (SOLACE) Framework: “Delivering Good Governance in Local Government”. Please see the 2019/20 AGS for further information on how the Council has complied with these principles.
The Local Government Boundary Commission (LGBC) has undertaken an electoral review for Cornwall. This review considered what electoral arrangements should be in place for the County including how many councillors are needed, how many wards or electoral divisions there should be and how many councillors should represent each ward or division. From May 2021 Cornwall Council elections there will be 87 Electoral Divisions each electing one Cornwall Councillor. This reduces the number of Cornwall Councillors from the current number of 123. Operational Model
The Council set its net revenue budget for 2019/20 at £561m with gross expenditure estimated at £1,145m. It also set a capital programme for investment in its assets of £319m. The budget included planned savings of £34m and the Council had general reserves of £36m and total usable reserves of £349m at the start of the year. The budget resulted in a Band D council tax of £1,527.09 which was an increase of 3.99% on 2018/19. The council tax increase included 2% specifically towards adult social care. The net revenue budget was funded as follows:
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
The Council also approved a capital programme that represents its investment in assets which is set out below:
2021/22 2018/19 2019/20 2020/21 Total Capital Programme Board & beyond £m £m £m £m £m Transportation 69.677 61.611 103.731 61.411 296.430 Growth Deal 29.094 1.546 2.950 - 33.590 Housing 35.619 64.986 67.382 84.239 252.226 Culture & Economic Development 32.287 18.238 3.261 0.056 53.842 Property 9.284 3.394 2.283 6.544 21.505 Customer & Support Services 17.549 6.200 4.088 - 27.837 Children, Families & Adults 21.863 12.301 2.532 26.709 63.405 Devolution 1.623 0.716 - - 2.339 Operational Asset Review 6.720 2.370 3.501 12.340 24.931 (Fire & Rescue) Environment 8.722 7.077 5.355 8.156 29.310 Green Cornwall 0.271 8.697 8.000 - 16.968 Waste 1.362 2.629 2.064 - 6.055
Investment Programme 38.704 129.688 82.170 122.735 373.297
Total Capital Programme 272.775 319.453 287.317 322.190 1,201.735
Funding General Fund Revenue & Reserves 41.753 37.516 3.511 21.968 104.748 HRA Revenue & Reserves 18.344 17.116 17.515 14.459 67.434 Prudential Borrowing 97.889 201.474 146.506 164.653 610.522 Capital Receipts 16.909 21.453 16.969 8.723 64.054 Grants & Contributions 97.880 41.894 102.816 112.387 354.977
Total Funding 272.775 319.453 287.317 322.190 1,201.735
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
Risks and Opportunities
Risks
Strategic risks are reviewed and reported to the Audit Committee and Cabinet quarterly but there is a detailed review annually against the Strategy and Business Plan. Strategic risks are escalated/de-escalated through Directorate Leadership Teams and the Council Leadership Team and the Head of Internal Audit, Risk, Fraud and Insurance monitors this process. Updated positions for 19 strategic risks were reported to the January meeting of the Audit Committee by Directorate. These risks cover a variety of issues ranging from the risk of climate change and demographic risk (the highest risk scores at 20/25) down through to health and safety on the Council’s estate (the lowest risk score of 6/25). Many of the risks focus on demographic changes and financial sustainability which are particularly key for Cornwall.
Covid-19
The impact of the Covid-19 pandemic on the Council is expected to be significant. There was some impact in 2019/20 towards the end of the financial year, particularly around parking and planning income. In 2020/21 the Council is expecting to incur significant increased costs as it works with its partners to safeguard residents of Cornwall and to put in place contingency arrangements to mitigate the potential impacts of the disease.
The Council’s Cabinet meeting of 17 June 2020 received a report “Cornwall Council’s response to Coronavirus and our approach to recovery and renewal”. The purpose of the report was to set out the exceptional and unprecedented steps taken since the outbreak of the Covid-19 pandemic. In March Cornwall Council declared a major incident in order to respond to the scale of the challenges of the pandemic. The Devon and Cornwall Local Resilience Forum (LRF) established a Strategic Co-ordinating Group (including Cornwall Council’s Chief Executive) which focussed on actions to support Public Health England and to co-ordinate partner agencies in mitigating Covid-19 within Devon, Cornwall and the Isles of Scilly.
The Council’s response to Covid-19 had three initial priorities:
• Protect and support adult social care in order to protect the local NHS; • Protect the most vulnerable in our society – including children & young people and the shielded; • Protect and support our economy.
On 23 March 2020 a new governance structure was put in place to respond to the major incident and which was aligned to the LRF and the priorities above. A core group of Council Directors and key strategic officers was established along with 13 emergency “cells”. More details on the work of the cells is set out as an appendix to the Cabinet report on the Council’s website.
Whilst the understanding of the wider impacts of Covid-19 is currently difficult the Council’s Section 151 Officer put in place a range of control measures to ensure that Covid-19 expenditure through the cells is effectively controlled. The report sets out that at that point the Council had received £328m of revenue funding from the Government to support Cornwall’s response to the pandemic. £294m of that money was passported to businesses through grants and to operators supporting the response. The
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
Council initially received two tranches of unringfenced Covid-19 money totalling £34m. This compared to estimated costs at that time of £45m leaving the Council with a shortfall of £11m. On top of this there was an estimated loss of council tax and business rate income of £23m which would impact in 2021/22. As at 18th November the Council has been allocated just over £400m of Government funding to support the response to the pandemic. This includes a further £35m to be passported to businesses due to support them through the impacts of the second national lockdown. The Council has now received four tranches of unringfenced Covid-19 support funding totalling £46m. In addition, £5.5m has been received from the first tranche of the Sales, Fees and Charges compensation scheme, which mitigates some of the lost income that has been suffered during the first four months of the year. A further two tranches of lost income claims are expected to be made over the remainder of the year. The forecast loss of Council Tax and Business Rate income has been revised to £11.8m and the Government has confirmed that Collection Fund losses will be spread evenly over the next three years. Overall, the current total shortfall against funding received is estimated to be in the region of £20m. Opportunities
The Council is increasingly looking for opportunities to work differently in response to a continuing challenging public sector environment. Those opportunities are being pursued at many different levels within the organisation. Cornwall became the first rural authority in the country to be offered a devolution deal by central government with the aim of giving Cornwall more control over key service areas. The deal covers a range of key areas including: • Integrated health and social care; • Transport; • Employment and skills; • EU funding (and the transition post Brexit); • Business support; • Energy; • The public estate; • Heritage and culture.
The Council is also working with Town and Parish Councils in the County exploring the most beneficial arrangements for local service delivery. The Council continues to use its group arrangements to provide services in alternative forms of delivery where that is beneficial. The Council has implemented a Housing Development Programme as part of its Investment Programme to better enable the provision of affordable rental housing in Cornwall and will manage this through the Treveth Holdings LLP as outlined above. 3. Strategy and Resource Allocation – The Council’s Budget and Medium Term Financial Plan 2020/21 to 2023/24 The Council’s Medium Term Financial Plan (MTFP) sets out the Council’s journey for the next four years taking its direction from the Council’s Strategy and Business Plan. The Council’s budget is refreshed annually taking into account any local or national changes and contributes to a four-year rolling financial plan. It is updated for changes in national and
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
local funding assumptions, local income projections, spending pressures and any changes in savings plans.
Resources
The Council’s funding mix has changed over recent years away from central government grant in the form of Revenue Support Grant towards most funding being made up of council tax and business rates. The Council forecasts that it will have the following resources over the period of its financial plan:
2019/20 2020/21 2021/22 2022/23 2023/24 £m £m £m £m £m Resources Available: - Council Tax 296.656 313.411 324.519 335.916 347.385 - Business Rates (retained) 187.840 196.440 146.128 150.242 154.515 - Government Grants 43.167 57.645 104.383 101.457 97.745 - Estimate on Collection Fund 7.360 8.900 Total Underlying Resources 535.023 576.396 575.030 587.615 599.645 100% rate retention pilot; roll 26.161 26.161 in Highways Capital Total Resources 561.184 602.557
Unavoidable Spending Pressures
The Council experiences budget pressures from a variety of sources such as inflation, national staff pay awards, increasing service demand and changes in legislation. The Council anticipates unavoidable spending pressures over the next four years as follows:
2020/21 2021/22 2022/23 2023/24 Total £m £m £m £m £m 52.385 29.601 19.365 22.182 123.533
A particular area of pressure is Adult Care and Support. A combination of increased demand, legislative changes and cost pressures means this service area presents the most significant financial challenge to the Council which spends around 30% of its overall budget in this area. In order to keep its budgets within available resources the Council develops savings plans which are deliverable by services. The overall position for the next four years is set out opposite:
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
2019/20 2020/21 2021/22 2022/23 2023/24 £m £m £m £m £m Service budget brought forward 513.484 526.776 572.934 585.246 595.942 Pressures 39.199 52.385 29.601 19.365 22.182 Non delivery of prior year savings 11.048 5.936 Saving plans (34.455) (12.163) (17.289) (8.669) (4.187) Removal of Contingency (2.500) Service budget requirement 526.776 572.934 585.246 595.942 613.937
General Fund Reserve (draw)/contribution 2.500 2.096 1.500 1.500 1.500 Cash flow between years 5.747 (2.634) 0.420 Transfer to / (from) Earmarked Reserve - 4.000 Total Net Budget 535.023 576.396 587.166 597.442 615.437 Business Rate Retention Pilot; roll in 'Highways capital' 26.161 26.161 Adjusted Net Budget 561.184 602.557
Funded by: Estimate on Collection Fund 7.360 8.900 Council Tax 296.656 313.411 324.519 335.916 347.385 Business Rates (retained) 187.840 196.440 146.128 150.242 154.515 Government Grant 43.167 57.645 104.383 101.457 97.745 Resources 535.023 576.396 575.030 587.615 599.645 Business Rate Retention Pilot; roll in 'Highways capital' 26.161 26.161 Adjusted Resources 561.184 602.557
Latest Budget (Surplus) / Gap (annual) - 12.136 (2.309) 5.965 Latest Budget (Surplus) / Gap (cumulative) - 12.136 9.827 15.792
Savings can be made in a number of ways; for example, increasing income, changing service delivery or cutting services (which may mean cutting staff). The Council’s savings plans for 2020/21 to 2023/24 are made up of the following types:
Corporate Other £0.7m Property Employees £0.7m £6.5m Income Generation £6.2m
Service Delivery £28.2m
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
The target net revenue budgets for the four years are set out as follows: Directorate 2020/21 2021/22 2022/23 2023/24 (£m) (£m) (£m) (£m) Adult Social Care 191.912 194.024 205.079 218.136 Together for Families 74.313 77.035 78.026 80.024 Neighbourhoods 112.018 113.455 113.003 112.847 Economic Growth & Development 73.878 48.358 48.712 50.104 Customer & Support Services 60.601 61.906 61.835 63.408 Wellbeing & Public Health 25.483 25.483 25.483 25.483 Corporate Items 12.938 14.221 10.233 9.080 Capital Financing & Interest Receipts 47.952 50.764 53.571 54.855 Net Revenue Budget before Reserve Movements 599.095 585.246 595.942 613.937
Reserve Movements 3.462 1.920 1.500 1.500 Net Revenue Budget 602.557 587.166 597.442 615.437
It is considered that the budget strategy of setting a four-year MTFP is a sound and robust approach and will continue to provide time and capacity for the Council to proactively plan for the significant ongoing financial challenges. It aligns the Council’s budget to the actions set out in the Council Business Plan and objectives of the Council’s Priorities for Cornwall.
As the MTFP progresses over the next four years, challenging savings targets will continue to need to be delivered. Where these savings impact on front line services, the Council has taken steps, as far as is possible, to protect key priority services and those areas which affect the most vulnerable in society.
Capital Programme
In line with the Council’s Capital Investment Plan, the strategy for the allocation of capital funding focuses on two specific types of scheme; those which drive economic growth and investment priorities and those which have been developed on an Invest to Save basis, in other words, schemes which will either generate income or produce revenue savings.
The capital programme approved with the Council’s budget is summarised below:
2020/21 2021/22 2022/23 2023/24 and Total beyond £m £m £m £m £m 471.135 321.917 176.717 84.241 1,054.01
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
Capital Receipts Flexibility
As part of the 2015 Spending Review, the Government announced new powers giving local authorities flexibility to spend capital receipts (excluding Right to Buy receipts) from asset sales on the revenue costs of reform projects that ‘generate ongoing savings to an authority’s net service expenditure’.
The Council has previously agreed to take advantage of this new power by capitalising qualifying expenditure up to £1m, funded from capital receipts in accordance with policy guidance. Details of the Council’s approach to the use of this policy are set out in the Capital Strategy.
General Fund
The Council maintains financial reserves which can be general and used to fund unforeseen issues or emergencies or earmarked which are kept for specific purposes. The Council’s statutory financial officer (the Section 151 Officer) is required to make an explicit judgement on the adequacy of reserves when the Council sets its budget. 4. Performance The Council’s Cabinet receives performance reports on a quarterly basis. The report is comprised of a number of key areas:
• Performance; • Finance and Treasury Management; • Risks; • Projects.
The year-end performance report was made to Cabinet in June 2020. The summary performance noted that the Council had made good progress against its performance measures included in the business plan. The report included performance against 28 agreed measures of success. The performance indicators are rated as either: on track to achieving or exceeding the target (green), slightly off-target (amber) or significantly off-track (red). Year-end performance was as follows: • Green – 15; • Amber – 4; • Red – 9.
The detailed performance can be found in the Cabinet report on the Council’s website.
Whilst the overall approach to risk management is covered above, Cabinet receives an update on strategic risks following their consideration by the Audit Committee. Financial performance focusses on the Council’s budget monitoring to the most recent quarter. The report sets out the forecast net spend to the end of the year and explains any major spending variations.
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
2019/20 Financial Performance
The final revenue outturn position for the financial year 2019/20 was a net overspend of £2.851m against a net budget of £561.184m.
The Council’s Directorates overspent by £13.587m. The majority of that overspend was within Adult Social Care (£11.812m) with the other Directorates having a combined net overspend of £1.775m. The total net Directorate overspend has been offset by an underspend on corporate items of £6.420m and an increase in funding of £4.316m.
This net underspend has been achieved despite a savings shortfall of £7.401m against planned saving targets (albeit mitigated by other one-off savings or income generation of £3.053m). As part of the 2020/21 budget setting process, savings have been reviewed to ensure they are still accurate and deliverable. Where it is considered savings shortfalls are still deliverable but in later years, the savings plans have been re-profiled.
The Council’s Cabinet received the outturn report setting out the £2.851m overall net overspend on 17 June 2020.
The 2019/20 outturn by Directorate and the overall position is as follows:
Approved Outturn Variance Directorate Budget £m £m £m Adult Social Care 175.289 187.101 11.812 Together For Families 70.054 69.988 (0.066) Economic Growth & Development 70.859 70.445 (0.414) Neighbourhoods 96.117 97.398 1.281 Customer and Support Services 59.409 60.383 0.974 Wellbeing & Public Health 24.789 24.789 - Directorate Total 496.517 510.104 13.587 Corporate Items 64.667 58.247 (6.420) Funding (561.184) (565.500) (4.316) Total Variance 2.851
Notes on Main Variances from the Budget
The outturn for Directorates, after proposed reserve movements, is a £13.587m overspend. Against a net budget at Directorate level of £496.517m this represents a 2.74% variance. This compares to a forecast outturn at the end of December 2019 of a £8.435m overspend.
The Adult Social Care Directorate overspent by £11.812m, reflecting the in-year pressures due to increased commissioned costs and under delivery of savings.
The Together for Families Directorate underspent by £0.066m.
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
The Economic Growth and Development Directorate underspent by £0.414m despite continued pressure on planning and car park income budgets, some of which are offset by use of the Covid-19 reserve.
The Neighbourhoods Directorate overspent by £1.281m. This is comprised of an overspend on the Fire and Rescue service of £1.726m offset by an underspend in the Environment budget due to a rebate on the Waste Disposal contract.
The Customer and Support Service Directorate overspent by £0.974m which is mainly due to increased costs of implementing the Oracle Cloud IT system offset by some staffing savings in Customer and Business Operations.
Wellbeing and Public Health’s outturn was on budget.
Corporate Items
The outturn for Corporate Items is an underspend of £6.420m, the majority of which came from the Capital Financing and Interest budget.
Corporate Funding
Funding is £4.316m higher than budgeted which is mainly due to additional Government Section 31 grant of £3.500m relating to business rate relief.
Reserve Movements
The outturn position includes proposed net movements to reserves of £19.472m. Whilst this reflects a number of transfers between reserves, it includes the following key movements:
• A budgeted contribution of £26.161m from Economic Growth and Development directorate for capital highway maintenance works. This is a consequence of the changes to the way the Council is funded as a result of the 100% business rates retention pilot. Previously, a specific capital grant for highways maintenance was received to fund the capital works. However, this income is now treated as revenue as part of our retained business rates and a transfer from the revenue budget into a capital reserve is required to fund the capital programme. An amount of £4.896m is retained for additional revenue rural cyclical maintenance, reducing the amount available for capital.
• A budgeted net transfer of £8.247m from Corporate Items to the General Fund Reserve.
• An unbudgeted contribution from the General Fund Reserve of £8.785m to mitigate one-off pressures within Adult Social Care.
• Government COVID-19 Support Grant of £18.153m, an element of which has been required in 2019/20 as follows:
- £0.035m for various costs within Children and Family services; - £0.373m to mitigate loss of car park and penalty notice income; - £0.030m to mitigate loss of beach hut income; - £0.081m for costs of additional burials;
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
- £0.100m funding for Cornwall Community Foundation for assistance to grass root organisations in response to Covid-19; - £0.144m to mitigate loss of income within Neighbourhood and Public Protection service mainly within Registration and Licensing; - £0.036m to mitigate loss of in income from Phoenix courses; - £0.800m to mitigate loss of income at Cornwall Airport Ltd.
Note 10 within the Statement of Accounts details the earmarked reserve transactions and includes the technical adjustments required to produce the statutory accounts.
Statement of Accounts Comparison
There are significant differences between the Council’s directorate total per the budget monitor outturn reported as £510.104m and the cost of services of £571.780m reported in the Comprehensive Income and Expenditure Statement (CIES) in the Statement of Accounts.
Differences between the CPR outturn position and the cost of services in the CIES are set out in the following table:
2019/20 £m £m Directorate Total per the CPR Outturn 510.104 510.104 Cost of services not included in the Directorate CPR Corporate Items in the cost of services 8.628 Schools 8.511 Local Authority Housing Revenue Account (HRA) (14.201) Joint Committees (TBTF and Mount Edgcumbe) 0.254 3.192 Statutory adjustments excluded from the CPR Capital charges including depreciation and impairment (charge for use of assets) 70.532 Notional pension benefits (to comply with IAS 19) 26.449 PFI adjustments (23.843) 73.138 Reversal of items not included in the cost of services in the Comprehensive Income and Expenditure Statement Financing and Investment Expenditure included in the budget monitor 0.934 Net contribution to Reserves 9.996 Reclassification of Public Health Grant (24.789) Minor variations (0.795) (14.654)
Cost of services in the Comprehensive Income and Expenditure Statement (CIES) 571.780
Differences include:
• Service areas, such as the HRA and the Tamar Bridge and Torpoint Ferry (TBTF) Joint Committee, which are not reported through the Council’s main budget monitoring process but are required to be included in the Council’s statutory CIES;
• Costs, such as capital charges and the true economic cost of retirement benefits that are not included in the budget monitor but are required to be reflected in the statutory CIES. These charges are reversed out in the Movement in Reserves Statement (MIRS) so as not to impact on the council tax payer;
• Technical adjustment for the reallocation of the unitary charge in relation to PFI, no impact on the council tax payer;
• Some income and expenditure is accounted for corporately and not charged directly to directorates;
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
• Reversal of items not included in the cost of services included in the Council Performance Report outturn position.
A more detailed breakdown of these differences is given in Note 7 to the accounts.
Revenue Expenditure and Funding
Our spending was funded from: 1. Council Tax 2. National Non-domestic Rates (NNDR) Capital Grants 3. Dedicated School Grant (DSG) – a Housing Benefits and Contributions Subsidy £115m £19m 1% specific grant which provides the bulk of Council Tax 10% school funding (including in year deficit) £323m 4. Other specific grants – supporting 27% General Grants particular services and Other Income £350m 5. General grants and other income – 29% National Non- grants not specific to individual services Domestic Rates (including in year and income from sales, fees and deficit) £142m charges and rents and financing income 12% Other Specific Dedicated School 6. Housing Benefits Subsidy – support from Grants £119m Grant £132m government for tenants’ rents 10% 11% 7. Capital grants and contributions – recognised as income when any attached conditions are met
The main categories of service that we fund are: Financing Expenditure 1. Adult Social Care £78m 6%
2. Together for Families Schools £94m 7% Adult Social Care £276m 22% 3. Economic Growth and Development Corporate Items and Other 4. Neighbourhoods Services £235m 18% Together for 5. Customer and Support Services Families £162m 6. Wellbeing and Public Health 13% Wellbeing and 7. Corporate Items and Other Services Public Health Economic Growth 8. Schools £27m 2% Customer and and Development Support Services £181m 14% 9. Financing Expenditure – including £98m 8% Neighbourhoods interest paid on borrowing £128m 10%
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
Capital Expenditure and Funding
In addition to our day to day running costs, we spend money on assets such as land and buildings, roads and other major infrastructure, vehicles and information and communications technology. Such expenditure is intended to contribute to service provision over a number of years and is defined as capital expenditure. Capital expenditure tends to be characterised by large individual schemes, with expenditure often incurred over several financial years. As a result, capital expenditure is not normally controlled against a fixed budget as with revenue spending, but rather through a programme of approved schemes within a multi-year capital plan. Capital schemes are approved on the basis of both affordability and council priorities.
Our actual capital expenditure in 2019/20 was £229.104m (2018/19 £196.844m). The major areas of capital expenditure were:
• Transport schemes £52.851m • Housing schemes £46.685 • Economic development and culture schemes £14.480m • Adults and Children’s Services schemes £14.057m • Environmental schemes £9.067m • Investment Programme £50.380m
Included within the total expenditure on transport schemes is £34m specifically relating to the maintenance and improvement of Cornwall’s roads. In addition, a further £10m was spent on the Growth Deal programme which aims to deliver a wide range of transport related improvements across Cornwall.
Capital expenditure on housing is incurred through a range of delivery methods. Major enhancements to improve and develop the Council’s own housing stock have totalled £31m. £24m has also been spent on private sector housing, for example, in the form of disabled facilities grants and schemes to bring empty properties back into use. £15m was spent on the Housing Development Programme (HDP) which is a Council initiative to provide more housing within Cornwall.
Our capital spending was funded from: Borrowing, 1. Capital Receipts £123m, 54% Capital 2. Revenue Contributions and Receipts, £19m, 8% Reserves 3. Other Grants and Contributions from external bodies e.g. central Revenue and government, European funding Other Grants reserves, 4. Borrowing and £43m, 19% Contributions, £44m, 19%
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
The main areas of expenditure were: 1. Operational Land and Buildings Operational Land and 2. Council Dwellings Buildings Other Capital £24m Expenditure 3. Roads and Infrastructure 11% Council £74m Dwellings 4. Vehicles, Plant and Equipment 32% £25m 5. Assets Under Construction (assets 11% not yet operational) Roads and 6. Housing Development Pilot Sites Housing Infrastructure Development 7. Other Capital Expenditure, £48m Pilot Sites 21% including Revenue Expenditure £5m Funded from Capital Under Statute 2% Assets Under Vehicles, Plant (REFCUS), which is expenditure of Construction £42m and Equipment a capital nature that does not result 18% £11m in a Council asset e.g. Disabled 5% Facilities Grants.
The Council’s Financial Position
The Council’s net assets as at 31 March 2020 stood at £714.718m, an increase of £314.071m on the position at 31 March 2019 (£400.647m). This increase was attributable to a number of areas, the most significant of which are:
• Increase in Property, Plant and Equipment Assets £81m (+) • Reduction in long term investments £40m (-) • Increase in long term debtors £24m (+) • Increase in cash/cash equivalents/short term investments £94m (+) • Increase in short term debtors £49m (+) • Increase in short term borrowing £128m (-) • Increase in revenue grants received in advance £39m (-) • Reduction in pensions liability £297m (+)
At 31 March 2020 the Council’s General Fund balance amounted to £35.274m, a decrease of £0.938m on the opening balance of £36.212m. At 31 March 2020 the Council’s total usable reserves stood at £358.731m. Certain reserves are held for specific purposes such as capital, use on council dwellings, and schools curriculum.
Borrowing and Investments
At the end of 2019/20, the Council had net debt of £663.641m, an increase of £132.754m. Against this the Council also held £99.067m in cash balances, an increase of £34.754m from the previous year.
The Council’s net debt is made up as follows:
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
2018/19 2019/20 Change £m £m £m
Long Term Investments 142.858 102.517 (40.341) Short Term Investments 122.463 159.871 37.408 Total Investments 265.321 262.388 (2.933) Short Term Borrowing (107.661) (235.627) (127.966) Long Term Borrowing (688.547) (690.402) (1.855) Total Borrowing (796.208) (926.029) (129.821)
Net Debt (530.887) (663.641) (132.754)
Cash 64.313 99.067 34.754
The net debt should be considered in the context of the Council’s portfolio of property, plant and equipment (which, over time, it has helped to finance) which is valued at £2.4billion at the end of March 2020.
The Council manages its borrowings and investments in line with its approved Treasury Management Strategy which is approved by the Council each year.
5. Outlook Cornwall Council refreshed its original four-year business plan 2019/20 to 2022/23 to cover 2020/21 to 2023/24 in February 2020. The plan recognised that Cornwall and the Council are under increasing pressures. The Council has less money and pressure for services, especially where key areas, such as Adult Social Services, are increasing. Cornwall continues to have areas of deprivation and poverty. The impact of Brexit on tourism, agriculture and fishing industries is uncertain. The business plan focusses on people, place and prosperity and identifies five key areas as priorities:
• Healthy Cornwall; • Homes for Cornwall; • Green and Prosperous Cornwall; • Connecting Cornwall; • Democratic Cornwall.
As with all Local Authorities Cornwall Council is receiving less money from central government towards its budget. In addition, the Council recognises there will be significant challenges though the Covid-19 pandemic which are likely to add further financial pressures.
The Council is aiming at improving life chances for everyone in Cornwall and closing the gap for the most vulnerable members of its communities. It will allocate money to areas that matter most to people including spending more on care for vulnerable adults, building more affordable homes and making sure more people across Cornwall get paid a decent wage.
The Council will continue to find savings and efficiencies and look to deliver more services jointly with partners.
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Information Classification: CONTROLLED Narrative Report Cornwall Council 2019/20 Statement of Accounts
The Council is in the process of developing some potentially significant initiatives which could have major resource implications in the future and which could also further add to the Council’s group of companies. The main initiatives are outlined below.
Investment Programme
Cornwall Council is exploring ways in which it can take a more active role in driving economic growth and realising multiple benefits for the people of Cornwall. Brexit will mean the loss of a significant European funding stream to Cornwall at a time when central government is reducing resources to all local authorities. The Council is proposing an Investment Programme through which it will borrow funds to invest in local infrastructure, housing, workspace and social infrastructure. The purpose of the Programme is to deliver increased revenue for the Council and to improve the lives of the people of Cornwall by providing affordable housing, space for job creation, and accompanying social infrastructure. The timeframe is long term – expected to be to 2030; and the borrowing required to deliver the vision could be in the order of £600m to £1billion.
Housing Development Programme
The Council has setup a Limited Liability Partnership (LLP) called Treveth which will own housing stock built through the Housing Development Programme (HDP). The Council has an aspiration to provide 1,000 houses over four years and as part of this has completed the delivery of two pilot schemes for 113 new homes at Tolvaddon, Camborne and St Lawrence, Bodmin. The pilot schemes will help challenge, improve and refine the assumptions and planning for the wider HDP. The houses that are delivered within the HDP will either be sold at market rate, on an affordable basis or will be retained for either market or affordable rental. Those retained will be transferred to Treveth. A number of properties have already been transferred to Treveth and further phases of the schemes are planned.
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Information Classification: CONTROLLED Independent Auditor’s Report Cornwall Council 2019/20 Statement of Accounts
Independent Auditor’s Report to the Members of Cornwall Council
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of Cornwall Council (the ‘Authority’) and its subsidiaries (the ‘group’) for the year ended 31 March 2020 which comprise the Comprehensive Income and Expenditure Statement, the Movement in Reserves Statement, the Balance Sheet, the Cash Flow Statement, the Group Movement in Reserves Statement, the Group Comprehensive Income and expenditure Statement, the Group Balance Sheet and the Group Cash Flow Statement, the Housing Revenue Account Income and Expenditure Statement, the Movement on the Housing Revenue Account Statement, the Collection Fund Statement and notes to the financial statements, including a summary of significant accounting policies, the firefighters' pension fund financial statements comprising the Fund Account, the Net Assets Statement and notes to the financial statements. The notes to the financial statements include the EFA, Notes to the Core Statements, Policies and Judgements, Notes to the Housing Revenue Account Statement, Notes to the Collection Fund Statement and Notes to the Group Accounts. The financial reporting framework that has been applied in their preparation is applicable law and the CIPFA/LASAAC code of practice on local authority accounting in the United Kingdom 2019/20.
In our opinion, the financial statements:
• give a true and fair view of the financial position of the group and of the Authority as at 31 March 2020 and of the group’s expenditure and income and the Authority’s expenditure and income for the year then ended; • have been properly prepared in accordance with the CIPFA/LASAAC code of practice on local authority accounting in the United Kingdom 2019/20; and • have been prepared in accordance with the requirements of the Local Audit and Accountability Act 2014.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the group and the Authority in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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Information Classification: CONTROLLED Independent Auditor’s Report Cornwall Council 2019/20 Statement of Accounts
The impact of macro-economic uncertainties on our audit
Our audit of the financial statements requires us to obtain an understanding of all relevant uncertainties, including those arising as a consequence of the effects of macro-economic uncertainties such as Covid19 and Brexit. All audits assess and challenge the reasonableness of estimates made by the Chief Operating Officer and the related disclosures and the appropriateness of the going concern basis of preparation of the financial statements. All of these depend on assessments of the future economic environment and the group’s and Authority’s future operational arrangements.
Covid-19 and Brexit are amongst the most significant economic events currently faced by the UK, and at the date of this report their effects are subject to unprecedented levels of uncertainty, with the full range of possible outcomes and their impacts unknown. We applied a standardised firm-wide approach in response to these uncertainties when assessing the group’s and Authority’s future operational arrangements. However, no audit should be expected to predict the unknowable factors or all possible future implications for an authority associated with these particular events.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
• the Chief Operating Officer’s use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the Chief Operating Officer has not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the Authority’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
In our evaluation of the Chief Operating Officer’s conclusions, and in accordance with the expectation set out within the CIPFA/LASAAC code of practice on local authority accounting in the United Kingdom 2019/20 that the Authority’s financial statements shall be prepared on a going concern basis, we considered the risks associated with the group’s and Authority’s operating activities, including effects arising from macro-economic uncertainties such as Covid-19 and Brexit. We analysed how those risks might affect the group’s and Authority’s financial resources or ability to continue operations over the period of at least twelve months from the date when the financial statements are authorised for issue. In accordance with the above, we have nothing to report in these respects.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the Authority or group will continue in operation.
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Information Classification: CONTROLLED Independent Auditor’s Report Cornwall Council 2019/20 Statement of Accounts
Emphasis of Matter – effects of Covid-19 on the valuation of land and buildings and pooled property funds
We draw attention to Note 4 of the financial statements, which describes the effects of the Covid-19 pandemic on the valuation of the Authority’s and group’s land and buildings and the Authority’s share of the pension fund’s pooled property funds as at 31 March 2020. As, disclosed in note 4 to the financial statements, non-current asset valuations are based on market conditions and are reviewed annually to ensure that they are materially correct when reported within the annual statement of accounts. The outbreak of Covid-19 has had a significant impact on Cornwall Council both global economies and financial markets. As a result of these unprecedented circumstances less reliance on previous market evidence can be made when assessing valuations at 31st March 2020.
As a result valuations are therefore reported on the basis of ‘material valuation uncertainty’ as per the RICS Red Book Global. Less certainty therefore exists in the accuracy of the valuations reported. It is not currently possible to accurately predict the full impact of the Covid-19 pandemic as there is insufficient evidence available at the current time. Therefore valuations reported have been based on market conditions prior to this crisis on the assumption normal market conditions will be restored. This refers to Property, Plant and Equipment, Cornwall Airport Limited, Tamar Bridge, Housing Revenue Account Dwellings and Other Land and Buildings.
There are uncertainties in the financial markets caused by the current Coronavirus pandemic. Market activity is being impacted in all sectors and, as at the valuation date, it is not considered that valuers can rely upon previous comparable market evidence to fully inform opinions of value. Due to these uncertainties, there is a risk that the estimated values may be under or overstated. There is a material valuation uncertainty within the pension fund accounts in relation to Pooled Property Funds.
The current response to COVID-19 means that valuers are faced with an unprecedented set of circumstances on which to base a judgement. Valuations are therefore reported on the basis of ‘material valuation uncertainty’ as set out in VPGA 10 of the RICS Valuation – Global Standards. Consequently, less certainty – and a higher degree of caution – should be attached to the valuations than would normally be the case.
Our opinion is not modified in respect of this matter.
Other information
The Chief Operating Officer is responsible for the other information. The other information comprises the information included in the Statement of Accounts, the Narrative Report and the Annual Governance Statement other than the Authority and group financial statements our auditor’s report thereon and our auditor’s report on the pension fund financial statements. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
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Information Classification: CONTROLLED Independent Auditor’s Report Cornwall Council 2019/20 Statement of Accounts
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge of the group and Authority obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Other information we are required to report on by exception under the Code of Audit Practice
Under the Code of Audit Practice published by the National Audit Office on behalf of the Comptroller and Auditor General (the Code of Audit Practice) we are required to consider whether the Annual Governance Statement does not comply with the ‘delivering good governance in Local Government Framework 2016 Edition’ published by CIPFA and SOLACE or is misleading or inconsistent with the information of which we are aware from our audit. We are not required to consider whether the Annual Governance Statement addresses all risks and controls or that risks are satisfactorily addressed by internal controls.
We have nothing to report in this regard.
Opinion on other matter required by the Code of Audit Practice
In our opinion, based on the work undertaken in the course of the audit of the financial statements and our knowledge of the Authority gained through our work in relation to the Authority’s arrangements for securing economy, efficiency and effectiveness in its use of resources, the other information published together with the financial statements in the Statement of Accounts, the Narrative Report and the Annual Governance Statement for the financial year for which the financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
Under the Code of Audit Practice, we are required to report to you if:
• we issue a report in the public interest under section 24 of the Local Audit and Accountability Act 2014 in the course of, or at the conclusion of the audit; or • we make a written recommendation to the Authority under section 24 of the Local Audit and Accountability Act 2014 in the course of, or at the conclusion of the audit; or • 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 2014 in the course of, or at the conclusion of the audit; or;
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Information Classification: CONTROLLED Independent Auditor’s Report Cornwall Council 2019/20 Statement of Accounts
• we issue an advisory notice under Section 29 of the Local Audit and Accountability Act 2014 in the course of, or at the conclusion of the audit; or • we make an application for judicial review under Section 31 of the Local Audit and Accountability Act 2014, in the course of, or at the conclusion of the audit.
We have nothing to report in respect of the above matters.
Responsibilities of the Authority, the Chief Operating Officer and Those Charged with Governance for the financial statements
As explained more fully in the Statement of Responsibilities, the Authority is required to 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 Chief Operating Officer. The Chief Operating Officer is responsible for the preparation of the Statement of Accounts, which includes the 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 2019/20, for being satisfied that they give a true and fair view, and for such internal control as the Chief Operating Officer determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Chief Operating Officer is responsible for assessing the group’s and the Authority’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless there is an intention by government that the services provided by the Authority will no longer be provided.
The Audit Committee is Those Charged with Governance. Those charged with governance are responsible for overseeing the Authority’s financial reporting process.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
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Information Classification: CONTROLLED Independent Auditor’s Report Cornwall Council 2019/20 Statement of Accounts
Report on other legal and regulatory requirements - Conclusion on the Authority’s arrangements for securing economy, efficiency and effectiveness in its use of resources
Conclusion
On the basis of our work, having regard to the guidance on the specified criterion issued by the Comptroller and Auditor General in April 2020, we are satisfied that the Authority put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2020.
Responsibilities of the Authority
The Authority is responsible for putting in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources, to ensure proper stewardship and governance, and to review regularly the adequacy and effectiveness of these arrangements.
Auditor’s responsibilities for the review of the Authority’s arrangements for securing economy, efficiency and effectiveness in its use of resources
We are required under Section 20(1)(c) of the Local Audit and Accountability Act 2014 to be satisfied that the Authority has made 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.
We have undertaken our review in accordance with the Code of Audit Practice, having regard to the guidance on the specified criterion issued by the Comptroller and Auditor General in April 2020, as to whether in all significant respects the Authority had proper arrangements to ensure it took properly informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people. The Comptroller and Auditor General determined this criterion as that necessary for us to consider under the Code of Audit Practice in satisfying ourselves whether the Authority put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2020.
We planned our work in accordance with the Code of Audit Practice. Based on our risk assessment, we undertook such work as we considered necessary to be satisfied that the Authority has put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources.
Report on other legal and regulatory requirements - Delay in certification of completion of the audit
We cannot formally conclude the audit and issue an audit certificate in accordance with the requirements of the Local Audit and Accountability Act 2014 and the Code of Audit Practice until we have completed the work necessary to issue our Whole of Government Accounts (WGA) Component Assurance statement for the Authority for the year ended 31 March 2020. We are satisfied
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Information Classification: CONTROLLED Independent Auditor’s Report Cornwall Council 2019/20 Statement of Accounts
that this work does not have a material effect on the financial statements or on our conclusion on the Authority's arrangements for securing economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2020.
We cannot formally conclude the audit and issue an audit certificate for the Authority for the year ended 31 March 2020 in accordance with the requirements of the Local Audit and Accountability Act 2014 and the Code of Audit Practice until we have completed our consideration of an objection brought to our attention by local authority electors under Section 27 of the Local Audit and Accountability Act 2014. We are satisfied that this matter does not have a material effect on the financial statements or on our conclusion on the Authority's arrangements for securing economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2020.
Use of our report
This report is made solely to the members of the Authority, as a body, in accordance with Part 5 of the Local Audit and Accountability Act. Our audit work has been undertaken so that we might state to the Authority’s members those matters we are required to state to them in an auditor's report and for no other purpose. 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.
Signature
Paul Dossett
Paul Dossett, Key Audit Partner for and on behalf of Grant Thornton UK LLP, Local Auditor
London
17 December 2020
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Information Classification: CONTROLLED Independent Auditor’s Report Cornwall Council 2019/20 Statement of Accounts
Independent Auditor’s Report to the Members of Cornwall Council on the pension fund financial statements of Cornwall Pension Fund
Opinion
We have audited the financial statements of Cornwall Pension Fund (the ‘pension fund’) administered by Cornwall Council (the ‘Authority’) for the year ended 31 March 2020 which comprise the Fund Account, the Net Assets Statement and notes to the pension fund financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and the CIPFA/LASAAC code of practice on local authority accounting in the United Kingdom 2019/20.
In our opinion, the financial statements:
• give a true and fair view of the financial transactions of the pension fund during the year ended 31 March 2020 and of the amount and disposition at that date of the fund’s assets and liabilities, other than liabilities to pay promised retirement benefits after the end of the fund year have been properly prepared in accordance with the CIPFA/LASAAC code of practice on local authority • accounting in the United Kingdom 2019/20; and have been prepared in accordance with the requirements of the Local Audit and Accountability Act 2014.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the Authority in accordance with the ethical requirements that are relevant to our audit of the pension fund’s financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
The impact of macro-economic uncertainties on our audit
Our audit of the pension fund financial statements requires us to obtain an understanding of all relevant uncertainties, including those arising as a consequence of the effects of macro-economic uncertainties such as Covid-19 and Brexit. All audits assess and challenge the reasonableness of estimates made by the Chief Operating Officer and the related disclosures and the appropriateness of the going concern basis of preparation of the financial statements. All of these depend on assessments of the future economic environment.
Covid-19 and Brexit are amongst the most significant economic events currently faced by the UK, and at the date of this report their effects are subject to
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Information Classification: CONTROLLED Independent Auditor’s Report Cornwall Council 2019/20 Statement of Accounts
unprecedented levels of uncertainty, with the full range of possible outcomes and their impacts unknown. We applied a standardised firm-wide approach in response to these uncertainties. However, no audit should be expected to predict the unknowable factors or all possible future implications for a fund associated with these particular events.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
• the Chief Operating Officer’s use of the going concern basis of accounting in the preparation of the pension fund’s financial statements is not appropriate; or • the Chief Operating Office has not disclosed in the pension fund’s financial statements any identified material uncertainties that may cast significant doubt about the Authority’s ability to continue to adopt the going concern basis of accounting for the pension fund for a period of at least twelve months from the date when the pension fund’s financial statements are authorised for issue.
In our evaluation of the Chief Operating Officer’s conclusions, and in accordance with the expectation set out within the CIPFA/LASAAC code of practice on local authority accounting in the United Kingdom 2019/20 that the pension fund financial statements shall be prepared on a going concern basis, we considered the risks associated with the fund’s operating model, including effects arising from macroeconomic uncertainties such as Covid-19 and Brexit, and analysed how those risks might affect the fund’s financial resources or ability to continue operations over the period of at least twelve months from the date when the financial statements are authorised for issue. In accordance with the above, we have nothing to report in these respects.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the fund will continue in operation.
Emphasis of Matter - effects of Covid-19 on the valuation of pooled property funds
We draw attention to Note 5 of the financial statements, which describes the effects of the Covid-19 pandemic on the valuation of the pension fund’s pooled property funds as at 31 March 2020. As, disclosed in note 5 to the financial statements. There are uncertainties in the financial markets caused by the current Coronavirus pandemic. Market activity is being impacted in all sectors and, as at the valuation date, it is not considered that valuers can rely upon previous comparable market evidence to fully inform opinions of value. Due to these uncertainties, there is a risk that the estimated values may be under or overstated. The current response to COVID-19 means that valuers are faced with an unprecedented set of circumstances on which to base a judgement. Valuations are therefore reported on the basis of ‘material valuation uncertainty’
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Information Classification: CONTROLLED Independent Auditor’s Report Cornwall Council 2019/20 Statement of Accounts
as set out in VPGA 10 of the RICS Valuation – Global Standards. Consequently, less certainty – and a higher degree of caution – should be attached to the valuations than would normally be the case
Our opinion is not modified in respect of this matter.
Other information
The Chief Operating Officer is responsible for the other information. The other information comprises the information included in the Statement of Accounts, The Narrative Report, the Annual Governance Statement and the Annual Report other than the pension fund’s financial statements, our auditor’s report thereon and our auditor’s report on the Authority’s and group’s financial statements. Our opinion on the pension fund’s financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the pension fund’s financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the pension fund’s financial statements or our knowledge of the pension fund obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the pension fund’s financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinion on other matter required by the Code of Audit Practice published by the National Audit Office on behalf of the Comptroller and Auditor General (the Code of Audit Practice)
In our opinion, based on the work undertaken in the course of the audit of the pension fund’s financial statements and our knowledge of the pension fund the other information published together with the pension fund’s financial statements in the Statement of Accounts, the Narrative Report, the Annual Governance Statement and the Annual Report for the financial year for which the financial statements are prepared is consistent with the pension fund’s financial statements.
Matters on which we are required to report by exception
Under the Code of Audit Practice, we are required to report to you if:
• we issue a report in the public interest under section 24 of the Local Audit and Accountability Act 2014 in the course of, or at the conclusion of the audit; or • we make a written recommendation to the Authority under section 24 of the Local Audit and Accountability Act 2014 in the course of, or at the conclusion of the audit; or
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Information Classification: CONTROLLED Independent Auditor’s Report Cornwall Council 2019/20 Statement of Accounts
• 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 2014 in the course of, or at the conclusion of the audit; or; • we issue an advisory notice under Section 29 of the Local Audit and Accountability Act 2014 in the course of, or at the conclusion of the audit; or • we make an application for judicial review under Section 31 of the Local Audit and Accountability Act 2014, in the course of, or at the conclusion of the audit.
We have nothing to report in respect of the above matters.
Responsibilities of the Authority, the Chief Operating Officer and Those Charged with Governance for the financial statements
As explained more fully in the Statement of Responsibilities, the Authority is required to 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 Chief Operating Officer. The Chief Operating Officer is responsible for the preparation of the Statement of Accounts, which includes the pension fund’s 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 2019/20, for being satisfied that they give a true and fair view, and for such internal control as the Chief Operating Officer determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the pension fund’s financial statements, the Chief Operating Officer is responsible for assessing the pension fund’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless there is an intention by government that the services provided by the pension fund will no longer be provided.
The Audit Committee is Those Charged with Governance. Those charged with governance are responsible for overseeing the Authority’s financial reporting process.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the pension fund’s financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
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Information Classification: CONTROLLED Independent Auditor’s Report Cornwall Council 2019/20 Statement of Accounts
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the members of the Authority, as a body, in accordance with Part 5 of the Local Audit and Accountability Act 2014. Our audit work has been undertaken so that we might state to the Authority’s members those matters we are required to state to them in an auditor's report and for no other purpose. 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.
Signature
Paul Dossett
Paul Dossett, Key Audit Partner for and on behalf of Grant Thornton UK LLP, Local Auditor
London
17 December 2020
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Information Classification: CONTROLLED Statement of Responsibilities Cornwall Council 2019/20 Statement of Accounts
Statement of Responsibilities
The Council’s Responsibilities The Council is required to: • 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 Chief Operating Officer and Section 151 Officer; • manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets; • approve the Statement of Accounts.
Chief Operating Officer and Section 151 Officer The Chief Operating Officer is responsible for the preparation of the Council’s Statement of Accounts in accordance with proper practices as set out in the CIPFA Code of Practice on Local Authority Accounting in the United Kingdom (the Code).
In preparing this Statement of Accounts, the Chief Operating Officer has: • selected suitable accounting policies and then applied them consistently; • made judgements and estimates that were reasonable and prudent; • complied with the requirements of the Code, except for the valuation basis for infrastructure relating to the Tamar Bridge toll bridge where we have used Depreciated Replacement Cost (DRC).
The Chief Operating Officer has also: • kept proper accounting records which were up to date; • taken reasonable steps for the prevention and detection of fraud and other irregularities.
Certification of the Statement of Accounts
Chief Operating Officer and Section 151 Officer This Statement of Accounts presents a true and fair view of the financial position of Cornwall Council on 31 March 2020 and of the income and expenditure for the year ended on that date and has been prepared in accordance with the requirements of the Code, except for a deviation in the valuation basis of the Tamar Bridge toll bridge.
Tracie Langley Chief Operating Officer and Section 151 Officer Released to auditors 30 June 2020, approved on 15 December 2020
The Chairman of the Audit Committee’s declaration This Statement of Accounts was approved by the Audit Committee on 18 November 2020
Cllr Harris Chairman of the Audit Committee 15 December 2020
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Information Classification: CONTROLLED Statement of Responsibilities Cornwall Council 2019/20 Statement of Accounts
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Information Classification: CONTROLLED Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Main Financial Statements
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Information Classification: CONTROLLED Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Comprehensive Income and Expenditure Statement
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. The Council raises taxation to cover expenditure in accordance with statutory requirements; this may be different from the accounting cost. The taxation position is shown in both the Expenditure and Funding Analysis and the MIRS.
Restated* 2019/20 2018/19
Expenditure Income Net Expenditure Income Net Notes £m £m £m £m £m £m Adult Social Care 276.005 (71.763) 204.242 253.164 (80.684) 172.480 Together for Families*^ 161.856 (81.479) 80.377 150.221 (79.366) 70.855 Economic Growth and Development* 180.894 (75.641) 105.253 171.256 (80.509) 90.747 Neighbourhoods 127.932 (26.571) 101.361 101.921 (27.752) 74.169 Customer and Support Services 98.391 (21.404) 76.987 105.066 (23.582) 81.484 Wellbeing and Public Health 27.095 (26.727) 0.368 27.778 (26.361) 1.417 Corporate Items 160.156 (151.528) 8.628 198.348 (173.691) 24.657 Schools-managed Expenditure 93.524 (85.013) 8.511 110.401 (96.733) 13.668 Local Authority HRA 26.056 (40.257) (14.201) 28.600 (39.620) (11.020) Joint Committees 6.615 (6.361) 0.254 6.775 (5.970) 0.805
Cost of services 1,158.524 (586.744) 571.780 1,153.530 (634.268) 519.262
Other operating expenditure 41.789 23.752 11 Exceptional transfer of academy school assets - 24.313 11 Other operating expenditure line 41.789 48.065 11 Financing and investment income and expenditure 67.792 67.409 12 Exceptional LOBO premium on redemption - 53.623 12 Financing and investment income and expenditure line 67.792 121.032 12 Taxation and non-specific grant income (602.715) (574.821) 13
(Surplus) or deficit on provision of services 78.646 113.538
(Surplus) or deficit on revaluation of (41.430) (68.121) property, plant and equipment (Surplus) or deficit on revaluation of - 1.705 available-for-sale financial assets Remeasurements of the net defined benefit liability / (asset) (364.596) 120.565 Other recognised (gains) and losses 13.309 1.062
Other comprehensive income and expenditure (392.717) 55.211
Total comprehensive income and expenditure (314.071) 168.749
* Restated as a result of a directorate restructure, details can be found in note 1 ^Directorate renamed from Children, Schools and Families to Together for Families
Movement in Reserves Statement (opposite)
This statement shows the movement from the start of the year to the end on the different reserves held by the Council, analysed into ‘usable reserves’ (i.e. those that can be applied to fund expenditure or reduce local taxation) and other ‘unusable reserves’. This statement shows how the movements in year of the Council’s reserves are broken down between gains and losses incurred in accordance with generally accepted accounting practices and the statutory adjustments required to return to the amounts chargeable to council tax for the year. The Increase/Decrease In Year line shows the statutory General Fund balance and the HRA balance movements in the year following those adjustments.
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Information Classification: CONTROLLED Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
-
-
-
-
£m
Total
Council
168.749
168.749
(714.718)
(314.071)
(314.071)
(400.647)
(569.396)
Reserves
-
-
£m
88.489
55.211
(51.759)
158.690
103.479
(355.987)
(304.228)
(392.717)
(210.449)
Reserves
Unusable
-
-
£m
Total
(9.843)
78.646
10.059
Usable
(88.489)
113.538
(358.731)
(348.888)
(103.479)
(358.947)
Reserves
-
-
-
-
£m
2.528
2.528
1.807
1.807
Major
(0.671)
(3.199)
(5.006)
Repairs
Reserve
-
-
-
-
£m
3.335
3.335
Grants
Capital
(29.185)
(11.344)
(11.344)
(17.841)
(21.176)
Reserve
-
-
-
-
£m
(6.684)
(6.684)
10.402
10.402
Capital
(65.255)
(58.571)
(68.973)
Reserve
Receipts
-
-
£m
HRA
8.366
Total
(2.349)
(2.334)
11.276
(18.164)
(13.625)
(15.815)
(10.700)
(13.481)
Reserves
-
-
-
-
£m
HRA
0.047
0.047
(4.921)
(4.968)
(1.408)
(1.408)
(3.560)
Reserves
Earmarked
£m
1.408
8.366
(2.396)
(0.047)
(0.926)
(9.921)
11.276
(13.243)
(13.625)
(10.847)
(10.700)
Account
Housing
Revenue
-
-
£m
Total
8.006
(3.151)
92.271
(84.265)
124.238
(245.456)
(253.462)
(127.389)
(250.311)
Reserves
General Fund
-
-
-
-
£m
Ports
(0.950)
(0.119)
(0.119)
(0.831)
(0.094)
(0.094)
(0.737)
Balances
-
-
-
-
£m
Fund
7.097
7.097
(3.021)
(3.021)
General
(204.730)
(211.827)
(208.806)
Reserves
Earmarked
-
-
-
-
£m
Fund
0.090
0.090
(4.502)
(4.592)
(0.265)
(0.265)
(4.327)
Schools
General
Balance
£m
Fund
0.938
0.229
3.380
(7.068)
92.271
(35.274)
(84.265)
(36.212)
(36.441)
124.238
General
Balance
(127.389)
9
9
10
10
Note
under regulations under
under regulations under
Balance at March31 carried 2020 forward
(Increase)/Decrease in Year
Transfers (to)/from Earmarked Reserves Earmarked (to)/from Transfers
Adjustments between accounting basis and funding Adjustmentsbasis accounting basis funding between and
Total Comprehensive Income and Expenditure and Income Comprehensive Total
Movement in duringreserves 2019/20
Balance at March31 carried 2019 forward
(Increase)/Decrease in 2018/19
Transfers (to)/from Earmarked Reserves Earmarked (to)/from Transfers
Adjustments between accounting basis and funding Adjustmentsbasis accounting basis funding between and
Total Comprehensive Income and Expenditure and Income Comprehensive Total
Movement in duringreserves 2018/19 Balance at March31 carried 2018 forward Movement inStatement Reserves
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Information Classification: CONTROLLED Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Balance Sheet (opposite) The Balance Sheet shows the value of the assets and liabilities recognised by the Council at 31 March 2020. The net assets of the Council are matched by the reserves held by the Council. Reserves are reported in two categories. Usable reserves are those that the Council may use to provide services, subject to the need to maintain a prudent level of reserves and any statutory limitations on their use. The level of usable reserves might, therefore, be compared to the level of net expenditure on services. Unusable reserves are those reserves that the Council is not able to use to provide services, including reserves that hold unrealised gains and losses (e.g. the revaluation reserve) and reserves that hold timing differences (shown in the MIRS line “Adjustments between accounting basis and funding basis under regulations”).
Cash Flow Statement (below)
The Cash Flow Statement shows the changes to cash and cash equivalents of the Council during the reporting period. The statement shows how the Council 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 Council are funded by way of taxation and grant income from the recipients of services provided by the Council. Investing activities represent the extent to which cash outflows have been made for resources which are intended to contribute to the Council’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 Council during the year.
2019/20 2018/19
£m £m Notes
Net (surplus) or deficit on the provision of services 78.646 113.538
Adjustments to net (surplus) or deficit on the provision of services for (186.844) (139.173) 24 non-cash movements Adjustments for items included in the net (surplus) or deficit on the 87.937 75.161 24 provision of services that are investing and financing activities
Net cash flows from operating activities (20.261) 49.526
Investing activities 117.390 13.034 25 Financing activities (131.883) (57.702) 26
Net (increase) or decrease in cash and cash equivalents (34.754) 4.858
Cash and cash equivalents at the beginning of the reporting period 64.313 69.171
Cash and cash equivalents at the end of the reporting period 99.067 64.313
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Information Classification: CONTROLLED Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Balance Sheet 31 March 2020 31 March 2019
£m £m Notes Property, Plant and Equipment 2,448.990 2,368.364 14 Heritage Assets 3.081 3.086 Intangible Assets 1.909 2.704 Long Term Investments 102.517 142.858 15 Long Term Debtors 57.318 33.017 15
Long Term Assets 2,613.815 2,550.029
Cash and Cash Equivalents 148.505 91.734 19 Current Intangible Asset - 0.389 Short Term Investments 159.871 122.463 15 Assets Held for Sale 10.096 10.276 Inventories 27.617 44.299 16 Short Term Debtors 139.628 90.561 17
Current Assets 485.717 359.722
Cash and Cash Equivalents (49.438) (27.421) 19 Short Term Borrowing (235.627) (107.661) 15 Short Term Creditors (108.278) (124.171) 20 Provisions (1.934) (2.732) 21 PFI Short Term Liabilities (5.571) (3.393) 15 PFI Short Term Deferred Liabilities (1.509) (1.509) Grants Receipts in Advance - Revenue (46.554) (7.233) Grants Receipts in Advance - Capital (3.102) (5.542)
Current Liabilities (452.013) (279.662)
Long Term Creditors (2.752) (2.433) 15 Provisions (39.090) (39.307) 21 Long Term Borrowing (690.402) (688.547) 15 Pension Liability (1,025.414) (1,322.414) 39 PFI Long Term Liabilities (105.609) (111.180) 15 Other Long Term Liabilities (2.093) (2.054) 15 PFI Deferred Income (27.912) (29.420) Grants Receipts in Advance - Capital (39.529) (34.087) 33
Long Term Liabilities (1,932.801) (2,229.442)
Net Assets 714.718 400.647
Usable Reserves (358.731) (348.888) MIRS Unusable Reserves (355.987) (51.759) 23
Total Reserves (714.718) (400.647)
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Notes to the Main Financial Statements
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Index of Notes Page Note 1 Accounting Policies 44 Note 2 Accounting Standards That have Been Issued But Have Not Yet Been Adopted 63 Note 3 Critical Judgements in Applying Accounting Policies 64 Note 4 Assumptions Made about the Future and Other Major Sources of Estimation 65 Uncertainty Note 5 Material Items of Income and Expense 68 Note 6 Events After the Reporting Period 68 Note 7 Expenditure and Funding Analysis 69 Note 8 Expenditure and Income Analysed by Nature 73 Note 9 Adjustments between Accounting Basis and Funding Basis under Regulations 73 Note 10 Transfers to/from Earmarked Reserves 77 Note 11 Other Operating Expenditure 77 Note 12 Financing and Investment Income and Expenditure 78 Note 13 Taxation and Non-specific Grant Income 78 Note 14 Property, Plant and Equipment 79 Note 15 Financial Instruments 84 Note 16 Inventories 88 Note 17 Debtors 88 Note 18 Debtors for Local Taxation 88 Note 19 Cash and Cash Equivalents 89 Note 20 Creditors 89 Note 21 Provisions 89 Note 22 Contingent Liabilities 90 Note 23 Unusable Reserves 90 Note 24 Cash Flow Statement – Operating Activities 94 Note 25 Cash Flow Statement – Investing Activities 95 Note 26 Cash Flow Statement – Financing Activities 95 Note 27 Cash Flow Statement – Reconciliation of Liabilities Arising from Financing Activities 96 Note 28 Pooled Budgets 96 Note 29 Members’ Allowances 97 Note 30 Officers’ Remuneration 98 Note 31 External Audit Costs 100 Note 32 Dedicated Schools Grant 101 Note 33 Grant Income 102 Note 34 Related Parties 103 Note 35 Capital Expenditure and Capital Financing 106 Note 36 Leases 108 Note 37 Private Finance Initiatives and Similar Contracts 108 Note 38 Pension Schemes Accounted for as Defined Contribution Schemes 111 Note 39 Defined Benefit Pension Schemes 111 Note 40 Nature and Extent of Risks Arising from Financial Instruments 119
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Accounting Policies 1 i General Principles
The Statement of Accounts summarises the Council’s transactions for the 2019/20 financial year and its position at the year end of 31 March 2020. The Council is required to prepare an annual Statement of Accounts by the Accounts and Audit Regulations 2015, which those Regulations require to be prepared in accordance with proper accounting practices. These practices under Section 21 of the Local Government Act 2003 primarily comprise the Code of Practice on Local Authority Accounting in the United Kingdom 2019/20, supported by International Financial Reporting Standards (IFRS).
The accounting convention adopted in the Statement of Accounts is principally historical cost, modified by the revaluation of certain categories of non-current assets and financial instruments.
These accounts have been prepared on a going concern basis, and it has been assumed that the functions of the Council will continue in operational existence for the foreseeable future.
ii Accruals of Income and Expenditure
Activity is accounted for in the year it takes place, not simply when cash payments are made or received. In particular:
• Revenue from contracts with service recipients, whether for service or the provision of goods, is recognised when (or as) the goods or services are transferred to the service recipient in accordance with the performance obligations in the contract; • Supplies are recorded as expenditure when they are consumed – where there is a gap between the date supplies are received and their consumption, they are carried as inventories on the Balance Sheet; • 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; • Interest receivable on investments and payable on borrowings is accounted for respectively as income and expenditure on the basis of the effective interest rate for the relevant financial instrument rather than the cash flows fixed or determined by the contract; • Where revenue and expenditure have been recognised but cash has not been received or paid, a debtor or creditor for the relevant amount is recorded in the Balance Sheet. Where debts may not be settled, the balance of debtors is written down and a charge made to revenue for the income that might not be collected.
iii 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 24 hours. Cash equivalents are highly liquid investments that mature in no more than three months or less from the date of acquisition
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
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 Council’s cash management. iv Exceptional Items
When items of income and expense are material, their nature and amount is disclosed separately, either on the face of the CIES or in the notes to the accounts, depending on how significant the items are to an understanding of the Council’s financial performance. v 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 Council’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.
A change in Directorate reporting structure in the year 2019/20 has meant the comparatives have had to be restated. The change is the result of school transport moving from Together for Families to Economic, Growth and Development. Children, School and Families has been renamed to Together for Families. Details of the adjustments are shown in the table below:
Effect on Comprehensive Income and Expenditure Statement 2018/19
As Previously Stated As Restated Change Expenditure Income Expenditure Income Expenditure Income 2018/19 2018/19 2018/19 2018/19 2018/19 2018/19 £m £m £m £m £m £m
Adult Social Care 253.164 (80.684) 253.164 (80.684) - - Together for Families 167.192 (79.975) 150.221 (79.366) (16.971) 0.609 Economic Growth and Development 154.285 (79.900) 171.256 (80.509) 16.971 (0.609) Neighbourhoods 101.921 (27.752) 101.921 (27.752) - - Customer and Support Services 105.066 (23.582) 105.066 (23.582) - - Wellbeing and Public Health 27.778 (26.361) 27.778 (26.361) - - Corporate Items 198.348 (173.691) 198.348 (173.691) - - Schools-managed Expenditure 110.401 (96.733) 110.401 (96.733) - - Local Authority HRA 28.600 (39.620) 28.600 (39.620) - - Joint Committees 6.775 (5.970) 6.775 (5.970) - -
Cost of Services 1,153.530 (634.268) 1,153.530 (634.268) - -
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
vi Charges to Revenue for Non-Current Assets
Services, support services and trading accounts are debited with the following amounts to record the cost of holding non-current assets during the year:
• depreciation attributable to the assets used by the relevant service; • revaluation and impairment losses on assets used by the service where there are no accumulated gains in the Revaluation Reserve against which the losses can be written off; • amortisation of intangible fixed assets attributable to the service.
The Council is not required to raise council tax to fund depreciation, revaluation and impairment losses or amortisation. However, it is required to make an annual contribution from revenue, its Minimum Revenue Provision (MRP), towards the reduction in its overall borrowing requirement equal to an amount calculated on a prudent basis determined by the Council in accordance with statutory guidance. Depreciation, revaluation and impairment losses and amortisation are replaced by the MRP contribution in the General Fund balance by way of an adjusting transaction within the Capital Adjustment Account (CAA) and in the MIRS for the difference between the two. vii Employee Benefits
Benefits Payable During Employment
Short-term employee benefits are those due to be settled within twelve 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 for current employees and are recognised as an expense for services in the year in which employees render service to the Council. 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 wages and salary rates applicable in the following accounting year, being the period in which the employee takes the benefit. The accrual is charged to the Surplus or Deficit on the Provision of Services, but then reversed out through the MIRS 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 Council to terminate an officer’s employment before the normal retirement date or an officer’s decision to accept voluntary redundancy in exchange for those benefits and are charged on an accruals basis to the appropriate service or, where applicable, the Corporate Items line in the CIES at the earlier of when the Council can no longer withdraw the offer of those benefits or when the Council recognises costs of restructuring.
Where termination benefits involve the enhancement of pensions, statutory provisions require the General Fund balance to be charged with the amount payable by the Council to the pension fund or pensioner in the year, not the amount calculated according to the relevant accounting standards. In the MIRS, appropriations are required to and from the Pensions Reserve to remove the notional debits and credits for pension enhancement
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
termination benefits and replace them with debits for cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year end.
Post Employment Benefits
Employees of the Council are members of four separate pension schemes: • The Local Government Pension Scheme, administered by Cornwall Council; • The Fire Fighters’ Pension Schemes; • The Teachers’ Pension Scheme, administered by Capita Teachers Pensions on behalf of the Department for Education (DfE); • National Health Service (NHS).
These schemes provide defined benefits to members (retirement lump sums and pensions) earned as employees work for the Council. However, the arrangements for the Teachers’ and NHS Schemes mean that liabilities for these benefits cannot ordinarily be identified specifically to the Council. These Schemes are accounted for as if they were a defined contribution scheme and no liability for future payments of benefits is recognised in the Balance Sheet. The Together for Families line in the CIES is charged with the employer’s contributions payable to the Teachers’ Pension Scheme in the year, and for the employer’s contributions payable to the NHS Pension Scheme in the year this is mainly coded to the Wellbeing and Public Health line in the CIES.
Details of the Fire Fighters’ Pension Fund Account are described separately in the Council’s accounts.
The Local Government Pension Scheme
The Local Government Pension Scheme is accounted for as a defined benefits scheme: • The liabilities of the Cornwall Council Pension Fund attributable to the Council 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 by employees, based on assumptions about mortality rates, employee turnover rates, etc., and projected earnings for current employees; • Liabilities are discounted to their value at current prices, using a discount rate of 2.3% as recommended by the Council’s actuaries; • The assets of the Cornwall Council Pension Fund attributable to the Council are included in the Balance Sheet at their fair value: o Quoted securities – current bid price; o Unquoted securities – professional estimate; o Unitised securities – current bid price; o Property – market value.
The change in the net pensions liability is analysed into the following components: • Service cost comprising: o Current service cost – the increase in liabilities as a result of years of service earned this year – allocated in the CIES to the services for which the employees worked;
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
o 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 earlier years – debited to the Surplus or Deficit on the Provision of Services in the CIES as part of Corporate Items; o Net interest on the net defined liability/(asset) i.e. net interest expense for the Council – the change during the period in the net defined liability/(asset) that arises from the passage of time charged to the Financing and Investment Income and Expenditure line of the CIES Statement – this is calculated by applying the discount rate used to measure the defined benefit obligation at the beginning of the period to the net defined benefit liability/(asset) during the period as a result of contribution and benefit payments; • Remeasurements comprising: o The return on plan assets – excluding amounts included in the net interest on the net defined liability/(asset) – charged to the Pensions Reserve as Other Comprehensive Income and Expenditure; o 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 – charged to the Pensions Reserve as Other Comprehensive Income and Expenditure; and • Contributions paid to the Cornwall Council Pension Fund – cash paid as employer’s contributions to the Pension Fund in settlement of liabilities, not accounted for as an expense.
In relation to retirement benefits, statutory provisions require the General Fund balance to be charged with the amount payable by the Council to the Pension Fund or directly to pensioners in the year, not the amount calculated according to the relevant accounting standards. In the MIRS this means that there are appropriations 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 Pension 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. viii 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:
• 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; • 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.
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ix Financial Instruments
Financial Liabilities
Financial liabilities are recognised on the Balance Sheet when the Council becomes a party to the contractual provisions of a financial instrument and are initially measured at fair value and are carried at their amortised cost. Annual charges to the Financing and Investment Income and Expenditure line in the CIES for interest payable are based on the carrying amount of the liability, multiplied by the effective rate of interest for the instrument. The effective interest rate is the rate that exactly discounts estimated future cash payments over the life of the instrument to the amount at which it was originally recognised. For most of the borrowings that the Council has, this means that the amount presented in the Balance Sheet is the outstanding principal repayable (plus accrued interest) and interest charged to the CIES is the amount payable for the year according to the loan agreement. Where premiums and discounts have been charged to the CIES, regulations allow the impact on the General Fund balance to be spread over future years. The Council has a policy of spreading the gain or loss over the term that was remaining on the loan against which the premium was payable or discount receivable when it was repaid. The reconciliation of amounts charged to the CIES to the net charge required against the General Fund balance is managed by a transfer to or from the Financial Instruments Adjustment Account in the MIRS.
Financial Assets
Financial assets are classified into three types: • Amortised cost; • Fair value through profit or loss (FVLP); and • Fair value through other comprehensive income (FVOCI)
Financial Assets Measured at Amortised Cost
Financial assets measured at amortised cost are recognised on the Balance Sheet when the Council 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. Annual credits to the Financing and Investment Income and Expenditure line in the 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.
Interest is credited to the Financing and Investment Income and Expenditure line in the CIES at a marginally higher effective rate of interest than the rate receivable from the voluntary organisations, with the difference serving to increase the amortised cost of the loan in the Balance Sheet. Statutory provisions require that the impact of soft loans on the General Fund Balance is the interest receivable for the financial year – the reconciliation of amounts debited and credited to the CIES to the net gain required against the General Fund Balance is managed by a transfer to or from the Financial Instruments Adjustment Account in the MiRS.
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Any gains and losses that arise on the derecognition of an asset are credited or debited to the Financing and Investment Income and Expenditure line in the CIES.
Expected Credit Loss Model
The Council recognises expected credit losses on all of its financial assets held at amortised cost, either on a 12-month or lifetime basis. 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.
Financial Assets Measured at Fair Value through Profit or Loss
Financial assets that are measured at FVPL are recognised on the Balance Sheet when the Council becomes a party to the contractual provisions of a financial instrument and are initially measured and carried at fair value. Fair value gains and losses are recognised as they arrive in the Surplus or Deficit on the Provision of Services.
The fair value measurements of the financial assets are based on the following techniques:
• instruments with quoted market prices – the market price; and
• other instruments with fixed and determinable payments – discounted cash flow analysis.
The inputs to the measurement techniques are categorised in accordance with the following three levels:
• Level 1 inputs – quoted prices (unadjusted) in active markets for identical assets that the 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, either directly or indirectly;
• Level 3 inputs – unobservable inputs for the asset.
Any gains and losses that arise on the derecognition of the asset are credited or debited to the Financing and Investment Income and Expenditure line in the CIES.
x Foreign Currency Translation
Where the Council has entered into a transaction denominated in a foreign currency the transaction is converted into sterling at the exchange rate applicable on the date the transaction was effective. Where amounts in foreign currency are outstanding at the year end, they are reconverted at the spot exchange rate for 31 March. Resulting gains or losses are recognised in the Financing and Investment Income and Expenditure line in the CIES.
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xi Government Grants and Contributions
Whether paid on account, by instalments or in arrears, government grants and third party contributions and donations are recognised as due to the Council when there is reasonable assurance that: • The Council will comply with the conditions attached to the payments; and • The grants or contributions will be received.
Amounts recognised as due to the Council are not credited to the CIES until conditions attached to the grant or contribution have been satisfied. Conditions are stipulations that specify that the future economic benefits or service potential embodied in the asset in the form of grant or contribution are required to be consumed by the recipient as specified, or future economic benefits or service potential must be returned to the transferor. Monies advanced as grants and contributions for which conditions have not been satisfied are carried in the Balance Sheet as creditors. When conditions are satisfied, the grant or contribution is credited to the relevant service line (attributable revenue grants and contributions) or Taxation and Non-specific Grant Income (non-ringfenced revenue grants and all capital grants) in the CIES.
Where capital grants are credited to the CIES, they are reversed out of the General Fund balance in the MIRS. Where the grant has yet to be used to finance capital expenditure, it is posted to the Capital Grants Unapplied Reserve. Where it has been applied, it is posted to the CAA. Amounts in the Capital Grants Unapplied Reserve are transferred to the CAA once they have been applied to fund capital expenditure.
Business Improvement Districts There are currently eight Business Improvement District (BID) schemes operating in Cornwall, in Truro, Falmouth, Newquay, Camborne, St Austell, Newham, St Ives and Penzance. These schemes are funded by a BID levy paid by non-domestic ratepayers. The Council acts as principal under the scheme and accounts for income received and expenditure incurred (including contributions to the BID project) within the relevant services within the CIES. xii Intangible Assets
Expenditure on non-monetary assets that do not have physical substance but are controlled by the Council as the result of past events (e.g. software licences) is capitalised when it is expected that future economic benefits or service potential will flow from the intangible asset to the Council.
Internally generated assets are capitalised where it is demonstrable that the project is technically feasible and is intended to be completed (with adequate resources being available) and the Council will be able to generate future economic benefits or deliver service potential by being able to sell or use the asset. Expenditure is capitalised where it can be measured reliably as attributable to the asset and is restricted to that incurred during the development phase (research expenditure cannot be capitalised).
Expenditure on the development of websites is not capitalised if the website is solely or primarily intended to promote or advertise the Council’s goods or services.
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Intangible assets are measured initially at cost. Amounts are only revalued where the fair value of the assets held by the Council can be determined by reference to an active market. In practice, no intangible asset held by the Authority meets this criterion, and they are therefore carried at amortised cost. The depreciable amount of an intangible asset is amortised over its useful life to the relevant service line(s) in the CIES. An asset is tested for impairment whenever there is an indication that the asset might be impaired – any losses recognised are posted to the relevant service line(s) in the CIES. Any gain or loss arising on the disposal or abandonment of an intangible asset is posted to the Other Operating Expenditure line in the CIES.
Where expenditure on intangible assets qualifies as capital expenditure for statutory purposes, amortisation, impairment losses and disposal gains and losses are not permitted to have an impact on the General Fund balance. The gains and losses are therefore reversed out of the General Fund balance in the MIRS and posted to the CAA and (for any sale proceeds greater than £10,000) the Capital Receipts reserve. xiii Interests in Companies and Other Entities
The Council has material interests in companies and other entities that have the nature of subsidiaries, associates and jointly controlled entities and require it to prepare group accounts. In the Council’s own single-entity accounts, the interests in companies and other entities are recorded as financial assets at cost, less any provision for losses. See group accounts on page 121. xiv Joint Operations
Joint operations are activities undertaken where the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement. The activities undertaken by the Council in conjunction with other joint operators involve the use of the assets and resources of those joint operators. In relation to its interest in a joint operation, the Council as a joint operator recognises:
• its assets, including its share of any assets held jointly;
• its liabilities, including its share of any liabilities incurred jointly;
• its revenue from the sale of its share of the output arising from the joint operation;
• its share of the revenue from the sale of the output by the joint operation;
• its expenses, including its share of any expenses incurred jointly. xv Leases
Leases are classified as finance leases where the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the property, plant or equipment from the lessor to the lessee. All other leases are classified as operating leases. Where a lease covers both land and buildings, the land and buildings elements are considered separately for classification.
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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.
The Council as Lessee Finance Leases 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 Council are added to the carrying amount of the asset. Premiums paid on entry into a lease are applied to writing down the lease liability. Contingent rents are charged as expenses in the periods in which they are incurred. Lease payments are apportioned between: • a charge for the acquisition of the interest in the property, plant or equipment – applied to write down the lease liability; and • a finance charge (debited to the Financing and Investment Income and Expenditure line in the CIES). Property, plant and equipment recognised under finance leases is accounted for using the policies applied generally to such assets, subject to depreciation being charged over the lease term if this is shorter than the asset’s estimated useful life (where ownership of the asset does not transfer to the authority at the end of the lease period).
The authority is not required to raise council tax to cover depreciation or revaluation and impairment losses arising on leased assets. Instead, a prudent annual contribution is made from revenue funds towards the deemed capital investment in accordance with statutory requirements. Depreciation and revaluation and impairment losses are, therefore, substituted by a revenue contribution in the General Fund balance, by way of an adjusting transaction with the CAA in the MIRS for the difference between the two.
Operating Leases Rentals paid under operating leases are charged to the CIES as an expense of the services benefiting from use of the leased property, plant or equipment. Charges are made on a straight-line basis over the life of the lease, even if this does not match the pattern of payments (e.g. there is a rent-free period at the commencement of the lease).
The Council as Lessor Finance Leases Where the Council grants a finance lease over a property or an item of plant or equipment, the relevant asset is written out of the Balance Sheet as a disposal. At the commencement of the lease, the carrying amount of the asset in the Balance Sheet (whether property, plant and equipment or assets held for sale) is written off to the Other Operating Expenditure line in the CIES as part of the gain or loss on disposal. A gain, representing the Council’s net investment in the lease, is credited to the same line in the CIES also as part of the gain or
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loss on disposal (i.e. netted off against the carrying value of the asset at the time of disposal) matched by a lease (long-term debtor) asset in the Balance Sheet. Lease rentals receivable are apportioned between: • a charge for the acquisition of the interest in the property – applied to write down the lease debtor (together with any premiums received); and • finance income (credited to the Financing and Investment Income and Expenditure line in the CIES). The gain credited to the CIES on disposal is not permitted by statute to increase the General Fund balance and is required to be treated as a capital receipt. Where a premium has been received, this is posted out of the General Fund balance to the Capital Receipts reserve in the MIRS. Where the amount due in relation to the lease asset is to be settled by the payment of rentals in future financial years, this is posted out of the General Fund balance to the Deferred Capital Receipts reserve in the MIRS. When the future rentals are received, the element for the capital receipt for the disposal of the asset is used to write down the lease debtor. At this point, the deferred capital receipts are transferred to the Capital Receipts reserve. The written-off value of disposals is not a charge against council tax, as the cost of fixed assets if fully provided for under separate arrangements for capital financing. Amounts are therefore appropriated to the CAA from the General Fund balance in the MIRS.
Operating Leases Where the Council grants an operating lease over a property or an item of plant or equipment, the asset is retained in the Balance Sheet. Rental income is credited to the Other Operating Expenditure line in the CIES. Credits are made on a straight-line basis over the life of the lease, even if this does not match the pattern of payments (e.g. there is a premium paid at the commencement of the lease). Initial direct costs incurred in negotiating and arranging the lease are added to the carrying amount of the relevant asset and charged as an expense over the lease term on the same basis as rental income. xvi Property, Plant and Equipment
Assets that have physical substance and are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and that are expected to be used during more than one financial year 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 is probable that the future economic benefits or service potential associated with the item will flow to the Council and the cost of the item can be measured reliably. Expenditure that maintains but does not add to an asset’s potential to deliver future economic benefits or service potential (i.e. repairs and maintenance) is charged as an expense when it is incurred.
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Where the spend is on individual items, which may be properly capitalised but the total expenditure falls below the £10,000 level set as de minimis, the amounts will be charged as revenue to the CIES in place of capital charges.
Measurement Assets are initially measured at cost, comprising: • the purchase price; • any costs attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management; and • the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
The Council does not capitalise borrowing costs incurred whilst assets are under construction.
The cost of an asset, acquired other than by purchase, is deemed to be its fair value, unless the acquisition does not have commercial substance (i.e. it will not lead to a variation in the cash flows of the Council). In the latter case, where an asset is acquired via an exchange, the cost of the acquisition is the carrying amount of the asset given up by the Council.
Donated assets are measured initially at fair value. The difference between fair value and any consideration paid is credited to the Taxation and Non-specific Grant Income line of the CIES, unless the donation has been made conditionally. Until conditions are satisfied, the gain is held in the Donated Assets Account. Where gains are credited to the CIES, they are reversed out of the General Fund balance to the CAA in the MIRS.
Assets are then carried in the Balance Sheet using the following measurement bases: • infrastructure assets – depreciated historical cost; • infrastructure (Tamar Bridge Toll Bridge) – depreciated replacement cost; • community assets and assets under construction – historical cost; • dwellings – current value, determined using the basis of existing use value for social housing (EUV-SH); • all other assets – current value, determined as the amount that would be paid for the asset in its existing use (existing use value – EUV).
Where there is no market-based evidence of current value because of the specialist nature of an asset, DRC is used as an estimate of current value.
For non-property assets that have short useful lives or low values (or both), depreciated historical cost basis is used as a proxy for current value.
Assets included in the Balance Sheet at current value are revalued sufficiently regularly to ensure that their carrying amount is not materially different from their current value at the year end, but as a minimum every five years. Increases in valuations are matched by credits to the Revaluation Reserve to recognise unrealised gains. Exceptionally, gains might be credited to the CIES where they arise from the reversal of a loss previously charged to a service.
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Where decreases in value are identified, they are accounted for as follows: • 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); • 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 CIES.
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 CAA.
Impairment Assets are assessed at each year end as to whether there is any indication that an asset may be impaired. Where indications exist and any possible differences are estimated to be material, the recoverable amount of the asset is estimated and, where this is less than the carrying amount of the asset, an impairment loss is recognised for the shortfall. Where impairment losses are identified, they are accounted for as follows: • 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); • 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 CIES. Where an impairment loss is reversed subsequently, the reversal is credited to the relevant service line(s) in the CIES, up to the amount of the original loss, adjusted for depreciation that would have been charged if the loss had not been recognised.
Depreciation Depreciation is provided for on all property, plant and equipment assets by the systematic allocation of their depreciable amounts over their useful lives. An exception is made for assets without a determinable finite useful life (i.e. freehold land and certain community assets) and assets that are not yet available for use (i.e. assets under construction). Depreciation is calculated on the following bases: • dwellings and other buildings – straight-line allocation over the useful life of the property as estimated by the valuer; • vehicles, plant, furniture and equipment – straight-line allocation over the useful life of each class of assets in the Balance Sheet, as advised by a suitably qualified officer; • infrastructure – straight-line allocation over the useful life, as advised by a suitably qualified officer; • infrastructure (Wave Hub) – straight-line allocation over 5 years; • infrastructure (Tamar Bridge Toll Bridge) – straight-line over the useful life of the bridge, as estimated by the valuer.
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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.
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 historical cost being transferred each year from the Revaluation Reserve to the CAA.
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 CIES. 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.
Assets that are abandoned or scrapped are not reclassified as assets held for sale.
When an asset is disposed of or decommissioned, the carrying amount of the asset in the Balance Sheet (whether property, plant and equipment or assets held for sale) is written off to the Other Operating Expenditure line in the CIES as part of the gain or loss on disposal. Receipts from disposals (if any) are credited to the same line in CIES also as part of the gain or loss on disposal (i.e. netted off against the carrying value of the asset at the time of disposal). Any revaluation gains accumulated for the asset in the Revaluation Reserve are transferred to the CAA.
Amounts received for a disposal in excess of £10,000 are categorised as capital receipts. A proportion of receipts relating to housing disposals are payable to the government. The balance of receipts is required to be credited to the Capital Receipts Reserve and can then only be used for new capital investment or set aside to reduce the Council’s underlying need to borrow. Receipts are appropriated to the Capital Receipts reserve from the General Fund balance in the MIRS. The written-off value of disposals is not a charge against council tax, as the cost of fixed assets is fully provided for under separate arrangements for capital financing. Amounts are appropriated to the CAA from the General Fund balance in the MIRS. xvii Private Finance Initiative (PFI) and Similar Contracts
PFI and similar contracts are agreements to receive services, where the responsibility for making available the property, plant and equipment needed to provide the services passes to the PFI contractor. As the Council is deemed to control the services that are provided under
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its PFI schemes and as ownership of the property, plant and equipment will pass to the Council at the end of the contracts for no additional charge, the Council carries the fixed assets used under the contracts on its Balance Sheet as part of property, plant and equipment.
The original recognition of these assets at fair value (based on the cost to purchase the property, plant and equipment) is balanced by the recognition of a liability for amounts due to the scheme operator to pay for the capital investment. For certain schemes, the liability may be written down by an initial capital contribution. Non-current assets recognised on the Balance Sheet are revalued and depreciated in the same way as property, plant and equipment owned by the Council. The amounts payable to the PFI operators each year are analysed into five elements: • fair value of the services received during the year – debited to the relevant service in the CIES; • finance cost – an interest charge on the outstanding Balance Sheet liability, debited to the Financing and Investment Income and Expenditure line in the CIES; • contingent rent – increases in the amount to be paid for the property arising during the contract, debited to Financing Investment Income and Expenditure line in the CIES; • payment towards liability – applied to write down the Balance Sheet liability towards the PFI operator (the profile of write-downs is calculated using the same principles as for a finance lease); • lifecycle replacement costs – a proportion of the amount payable is posted to the Balance Sheet as a prepayment and then recognised as additions to property, plant and equipment when the relevant works are eventually carried out. xviii Provisions and Contingent Liabilities
Provisions Provisions are made where an event has taken place that gives the Council a legal or constructive obligation that probably requires settlement by a transfer of economic benefits or service potential and a reliable estimate can be made of the amount of the obligation.
Provisions are charged as an expense to the appropriate service line in the CIES in the year that the Council becomes aware of the obligation and are measured at the best estimate at the Balance Sheet date of the expenditure required to settle the obligation, taking into account relevant risks and uncertainties.
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 – where it becomes less than probable that a transfer of economic benefits will now be required (or a lower settlement than anticipated is made) the provision is reversed and credited back to the relevant service.
Where some or all of the payment required to settle a provision is expected to be recovered from another party (e.g. from an insurance claim) this is only recognised as income for the relevant service if it is virtually certain that reimbursement will be received if the Council settles the obligation.
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Contingent Liabilities
A contingent liability arises where an event has taken place that gives the Council 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 Council. 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. xix Reserves
The Council 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 MIRS. When expenditure to be financed from a reserve is incurred, it is charged to the appropriate service in that year to be included within the Surplus or Deficit on the Provision of Services in the CIES. The reserve is then appropriated back into the General Fund balance in the MIRS so that there is no net charge against council tax for the expenditure.
Certain reserves are kept to manage the accounting processes for non-current assets, financial instruments and retirement and employee benefits and do not represent usable resources for the Council – these reserves are explained in the relevant policies. xx Revenue Expenditure Funded from Capital under Statute
Expenditure incurred during the year that may be capitalised under statutory provisions but that does not result in the creation of a non-current asset has been charged as expenditure to the relevant service in the CIES in the year. Where the Council has determined to meet the cost of this expenditure from existing capital resources or by borrowing, a transfer in the MIRS from the General Fund balance to the CAA then reverses out the amounts charged so that there is no impact on the level of council tax.
xxi Value Added Tax (VAT)
VAT payable is included as an expense only to the extent that is not recoverable from Her Majesty’s Revenue and Customs. VAT receivable is excluded from income. xxii Accounting for Schools
Local Authority Maintained Schools Local Authority maintained schools form an integral part of the Council’s accounts. The Code of Practice on Local Authority Accounting in the United Kingdom confirms that the balance of control for local authority maintained schools (i.e. those categories of school identified in the
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School Standards and Framework Act 1998, as amended) lies with the local authority. The Code also stipulates that those schools’ assets, liabilities, reserves and cash flows are recognised in the local authority financial statements (and not the Group Accounts). Their income and expenditure is included within the Schools line within the CIES and their assets and liabilities are included within the relevant headings on the Balance Sheet. Their reserves are included in the General Fund Schools balance, which forms part of the Council’s Usable Reserves.
The following table shows the number of maintained schools still held by the Council and their share of the net cost of services, fixed asset and reserve balances as these are material items:
Total Balances as at Loss of Control through Academy 31st March 2020 transfer during 2019/20 Number of Net Cost Schools as Expenditure Income of Fixed Fixed Number of at 1st April during during Services Assets Assets Schools School Type Level 2019 2019/20 2019/20 2019/20 Fixed Assets NBV Reserves NBV Reserve transferred £m £m £m £m £m £m £m Community Primary 23 5.965 (4.860) 1.105 66.768 (2.814) 0.000 0.000 0 All assets owned and maintained by the Council and held on the Council's balance sheet. Capital expenditure is funded by the Council. No restrictions on Secondary 1 1.685 (1.034) 0.651 use or disposal. 29.440 (0.694) 0.000 0.000 0
Trust Primary 23 3.619 (2.978) 0.641 25.516 (1.743) 0.000 0.000 0 Assets are owned by the Trust via a freehold transfer from the Council but are maintained by the Council and held on the Council's balance sheet. Capital expenditure is funded by the Council. As part of the freehold transfer assets must be used for education and there are restrictions on Secondary 6 3.994 (4.320) (0.326) their disposal. 67.547 1.003 6.381 (0.206) 1
Assets are owned and maintained by the Church and are not held on the Council's balance sheet. The majority of the capital expenditure is funded by the Voluntary- Council. Assets are leased aided (VA) Primary 6 1.149 (0.964) 0.185 in by the Council. 0.147 (0.459) 0.000 0.000 0
Assets are owned by the Church but maintained by the Council and held on the Council's balance sheet. Capital expenditure is Voluntary funded by the Council. Controlled Assets are leased in by the (VC) Primary 3 0.410 (0.413) (0.003) Council. 3.813 (0.728) 0.000 0.000 0
Totals 62 16.822 (14.569) 2.253 193.231 (5.435) 6.381 (0.206) 1
The table above shows the number of maintained schools still held by the Council and their share of the Net Cost of Services, Fixed Asset and Reserve balances as these are the material items. During the year a maintained school transferred to Academy status, where the Council loses control of a maintained school it will dispose of the fixed assets, through either a freehold transfer or finance lease (see below), and it will transfer any reserve balance to the Academy after all outstanding transactions, including settling any outstanding debtor and creditor balances, have been accounted for.
De-recognition of Academy School Assets Academies are independently managed schools which operate outside the control of the Council, with funding provided directly by central government. Where the Council owns the freehold for these schools and issues a long lease (125 years) to the academy trust for the land and buildings, for accounting purposes due to the length of the lease, the transfers of
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
buildings are treated as disposals. If the school had previously transferred to trust status the Council will have transferred the freehold of the assets to the trust and therefore on conversion to academy status both the land and building assets will be treated as disposals.
Accounting for Trust School Assets The Council continues to account for trust school assets on its balance sheet even after a transfer order has been signed as it has determined that the balance of control of these assets still lies with the Council.
Funding for Academy Schools and Trust Schools Academy schools receive their revenue and capital funding direct from the government and account for their income and expenditure, together with assets and liabilities within their own accounts. Trust schools still receive their funding via the Council and their income and expenditure, assets and liabilities are accounted for in the Council’s CIES and Balance Sheet. Any outstanding Trust school balances at the balance sheet date are held as part of the Council’s usable reserves. xxiii Accounting for the Collection Fund
Billing authorities are required by statute to maintain a separate fund (the Collection Fund) for the collection and distribution of amounts due in respect of council tax and national non- domestic rates.
Council Tax In its capacity as a billing authority the Council acts as an agent, collecting and distributing council tax on behalf of the major preceptors of the Fund - Devon and Cornwall Police and itself. While council tax income credited to the Collection Fund is the accrued income for the year, regulations determine when it should be released from the Collection Fund and transferred to the Council’s General Fund or transferred to Devon and Cornwall Police.
The amount credited to the Council’s General Fund under statute is the Council’s demand on the Fund for that year, plus the Council’s share of the surplus on the Collection Fund for the previous year. This amount may be more or less than the accrued income for the year, any difference is then transferred to the General Fund via the Collection Fund Adjustment Account and reversed out through the MIRS.
Since the collection of council tax is, in substance, an agency arrangement, the cash collected by the Council belongs proportionately to itself and Devon and Cornwall Police. Therefore, there will be a debtor/creditor relationship between the Council and the Police since the cash paid to the latter in the year will not be equal to their share of the total cash collected.
The balance sheet includes the Council’s share of the year end balances in respect of council tax relating to arrears, impairment allowances for doubtful debts, overpayments and prepayments and appeals.
National Non-Domestic Rates (NNDR) From 1 April 2017 the Council retained 100% of income collected compared to prior regulations where the Council retained 50% of the income collected and 50% passed to
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central government. Under the new legislative framework, the Council bears the risks and rewards that the amount collected could be less or more than predicted.
Regulations determine the amount of NNDR that must be included in the Council’s General Fund. Therefore, the difference between the income included in the CIES and the amount required by regulation to be credited to the General Fund is taken to the Collection Fund Adjustment Account and included as a reconciling item in the MIRS.
The Balance Sheet this year includes the full 100% of the end of year balances in respect of NNDR relating to arrears, impairment allowances for doubtful debts, overpayments and prepayments and appeals. xxiv Fair Value
The Council measures some of its non-financial assets, such as surplus assets, assets held for sale, investment properties, and some of its financial instruments, such as equity share holdings, at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either:
• In the principal market for the asset or liability; or • Where no principal market, the most advantageous market for the asset or liability.
The Council measures the fair value of an asset or liability on the same basis that market participants would use when pricing the asset or liability (assuming those market participants were acting in their economic best interest).
When measuring the fair value of a non-financial asset, the Council takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Council uses appropriate valuation techniques for each circumstance, maximising the use of relevant known data and minimising the use of estimates or unknowns. This takes into account the three levels of categories for inputs to valuations for fair value assets:
• Level 1 – quoted prices; • Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; • Level 3 – unobservable inputs for the asset or liability. xxv Inventories
Inventories are included in the Balance Sheet at the lower of cost and net realisable value, on a “first in, first out” basis. Inventories in the Fire Brigade workshops are valued on a “last in, first out basis” – although this is a departure from IAS 2, the amounts concerned are not material to the Council’s accounts.
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Housing Development Programme stock is valued at the cost to the Council, it is the Council’s intention to sell the properties to a Company we own, so it is outside of the ordinary course of business.
xxvi Heritage Assets
Heritage assets are recognised and measured (including the treatment of revaluation gains, losses, impairments and disposals) in accordance with the Council’s accounting policies on property, plant and equipment. However, some of the measurement rules are relaxed in that additions to the Collections may be in the form of acquisitions or donations. Acquisitions are initially recognised at cost and donations are recognised at an appropriate value, such as the price paid by the donor or the value accepted in lieu of inheritance tax. Collections will be reviewed with sufficient regularity to ensure valuations remain current and items may be valued by internal or external valuers or by using insurance valuations where appropriate.
The assets within the Collections are deemed to have indeterminate lives and a high residual value, hence the Council does not consider it appropriate to charge depreciation.
There are a number of items that would not have been valued and the Council considers that obtaining valuations for these would involve a disproportionate cost in comparison to the benefits to the users of the Council’s financial statements.
The Council’s heritage assets are not significant in value and are therefore not shown in a separate note to the accounts.
Note Accounting Standards That Have Been Issued, But Have Not Yet Been 2 Adopted Where a new standard has been published but has not yet been adopted by the Code, the Council is required to disclose information relating to the impact of these accounting changes. This requirement applies to International Financial Reporting Standards (IFRS) that have not been applied in the 2019/20 Code and that came into effect on or before 1 January 2020.
For 2019/20 the following potentially relevant standards include:
• Amendments to IAS 28 Investments in Associates and Joint Ventures: Long-term Interests in Associates and Joint Ventures; • Annual Improvements to IFRS Standards 2015–2017 Cycle; and • Amendments to IAS 19 Employee Benefits: Plan Amendment, Curtailment or Settlement.
Application of the standards is required from 1 April 2019. Therefore, these changes will be reflected in the Council’s 2020/21 or future Statement of Accounts.
IFRS 16 Leases will require local authorities that are lessees to recognise most leases on their balance sheets as right-of-use assets with corresponding lease liabilities (there are exemptions for low-value and short-term leases). CIPFA/LASAAC have deferred implementation of IFRS 16 for local government to 1 April 2021. Local Authorities are not
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required to include IFRS 16 in their consideration of accounting standards that have been issued but not adopted in their 2019/20 accounts.
Note Critical Judgements in Applying Accounting Policies 3 In applying the accounting polices set out in Note 1 the Council has had to make certain judgements about complex transactions or those involving uncertainty about future events. Key judgements made in the Statement of Accounts include: • Future funding - there is a high degree of uncertainty about future levels of funding for local government. However, this uncertainty is not yet sufficient to provide an indication that the Council’s assets might be impaired as a result of a need to reduce levels of service provision; • Valuation of Newquay Airport - the valuation of Newquay Airport in these accounts is highly dependent on the valuation basis used which is, in turn, determined by the Council’s intentions with regard to its future ownership of the Airport and the extent to which verifiable external market evidence of value can be established. The Council remains of the view that the most appropriate basis of valuation is DRC based on the remaining service potential rather than a market-based estimate; • Classification of Tamar Toll Bridge as an Infrastructure Asset – The Tamar Bridge is classified as an infrastructure asset. The CIPFA Code requires infrastructure assets to be valued at Depreciated Historic Cost (DHC). The value of the Tamar Bridge on a DHC basis would be £20.056m. The carrying value has been measured on Depreciated Replacement Cost (DRC). The value of the Tamar Bridge using the DRC basis is £60.532m. This is a departure from the Code of Practice as the Council believe that the current valuation methodology represents a more accurate valuation of the bridge. • Trust Schools and Voluntary-aided Schools Assets – a review of the accounting treatment of trust schools and voluntary-aided schools non-current assets required a determination as to whether those assets are included within the single entity balance sheet of Cornwall Council. In accordance with the Code assets can be included on the Council’s balance sheet where the asset is controlled as a result of past events and from which future economic benefits or service potential are expected to flow to the Council and as long as it can be measured reliably. This determination was undertaken after applying a number of tests to establish whether the assets were effectively controlled by the Council or the School. These tests included a combination of who employs the staff, who sets the admissions criteria, who allocates the revenue funding, who owns and/or maintains the fixed assets and who funds the capital expenditure and who can change the use of the fixed assets. As a result of applying these tests the Council has determined that trust schools should be included within its non-current assets on its balance sheet whereas voluntary-aided schools should be excluded. This is because the trust school assets had previously been transferred under a freehold transfer to the trust for the purpose of providing school premises only and with conditions on their use and disposal, the service potential still flows to the Council, who are responsible for providing the school service. The asset is measured reliably by undertaking a DRC valuation. Voluntary-aided school assets have been excluded as they belong to external organisations who control their use and disposal. Land was only considered separately where it related to playing fields which are owned by the Council but used by voluntary-aided schools.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Assumptions made about the Future and other major sources of Estimation 4 Uncertainty
The Statement of Accounts contains estimated figures that are based on assumptions made by the Council about the future or that 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.
Items in the Council’s Balance Sheet at 31 March 2020 for which there is a significant risk of material adjustment in the forthcoming financial year:
Item Uncertainties Effect if Actual Results Differ from Assumptions
Property, Assets are included on the basis of valuations The impact of a change in valuation or Plant and and assessed useful lives determined by the useful life would be to affect the Equipment Council's Property Systems and Assurance carrying value of the asset in the Manager on the basis of condition surveys and balance sheet and the charge for standards of professional practice set out by the depreciation or impairment in the Royal Institute of Chartered Surveyors (RICS). CIES. The assumptions underlying such valuations and the assessment of useful lives are subject to If the average useful life for each revision and the valuation would, therefore, be category of assets charged with expected to change accordingly. The carrying depreciation in 2019/20 was increased value of this long term asset at the end of the by one year it would result in a reporting period was £2,448.990m. decrease in the depreciation charged to the net cost of services of The Covid-19 pandemic has had a global impact £2.975m. If the average useful life on financial markets. This makes judgements was decreased by one year it would around valuations much more challenging as the result in an increase in the previous market evidence which is used to depreciation charged to the net cost inform valuations is less reliable given the of services of £3.380m. substantially increased market uncertainty. The above changes do not have an Valuations are generally undertaken within impact on the Council's General Fund guidance provided by the Royal Institution of position as the Council is not required Chartered Surveyors (RICS) “Red Book”. RICS to fund such non-cash charges from current guidance is that valuations should be council tax receipts. reported on the basis of “material valuation uncertainty”. This means that less certainty and a higher degree of caution should be attached to valuations than would normally be the case. As the future impact of Covid-19 on real estate markets is unknown, property valuations will be kept under review.
Valuation The Council’s HRA properties are valued on a Changes in valuations of HRA of HRA beacon methodology. This leads to the whole properties have an impact on Dwellings portfolio being valued based on a number of depreciation charges which would information sources such as local house prices potentially impact on the HRA balance and sales of comparable property. and the Major Repairs Reserve.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Item Uncertainties Effect if Actual Results Differ from Assumptions
Due to the uncertain impact of Covid-19 valuations are undertaken on the basis of “material valuation uncertainty” meaning that valuations are less certain.
Pensions Estimation of the net liability to pay pensions The impact of a change in the Liability depends on a number of complex judgements actuarial assumptions will be to relating to the discount rate used, the rate at increase or decrease the net pension which salaries are projected to increase, liability shown in the balance sheet changes in retirement ages, mortality rates, and and the cost shown in the CIES. expected return on pension fund assets. A firm of consulting actuaries is engaged to provide the For the Cornwall Council LGPS a 0.5% Council with expert advice about the decrease in the real discount rate assumptions to be applied. Those assumptions would approximate to a 9% increase are detailed in Note 39 to the accounts. The to the employer or £174.619m in carrying value of this long term liability at the monetary terms. A 0.5% increase in end of the reporting period was £1,025.414m. the salary interest rate would result in an increase to the employer of 1% or £16.513m and finally a 0.5% increase in the pension increase rate would result in an 8% increase or £156.775m to the employer. These changes do not have an impact on the Council's General Fund position as the Council is not required to fund such non-cash charges from council tax receipts.
Impairment As at 31st March 2020 the Council had a balance The Council will monitor its collection allowance of short-term debtors of £139.628m. The rates of debt and will undertake a for Debts Council makes an impairment allowance against quarterly review of those that are those debts for amounts which may become significant and which do not fall within uncollectable. The impairment allowance is the remit of its credit control team. If currently £37.596m. The Council cannot be there are indications the current certain that this impairment allowance is assumptions used in calculating the sufficient to offset any losses through non- impairment allowance are significantly payment of debts. The Covid-19 pandemic has wrong then they will be reviewed and made the assessment of which debts may the impairment allowance adjusted become uncollectable much more uncertain. accordingly with the corresponding This is due to the uncertainty around which potential impact for the Council’s organisations and individuals may become revenue account. A 10% increase economically unviable due to the impact of the would result in a £13.963m increase pandemic. in provision.
Valuation The Covid-19 pandemic has had a global impact Changes in the value of company- of Group on financial markets. This makes judgements owned assets could impact on their Assets around valuations much more challenging as the profit and loss accounts and previous market evidence which is used to potentially on the return they provide inform valuations is less reliable given the the Council where it is a shareholder. substantially increased market uncertainty.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
This list does not include assets and liabilities that are carried at fair value based on a recently observed market price.
Material Uncertainties
There are material uncertainties around valuations in the following areas:
Property, Plant and Equipment – (Valuations undertaken at 31st March 2020 – Covid-19 implications)
Non-current asset valuations are based on market conditions and are reviewed annually to ensure that they are materially correct when reported within the annual statement of accounts. The outbreak of Covid-19 has had a significant impact on Cornwall Council both global economies and financial markets. As a result of these unprecedented circumstances less reliance on previous market evidence can be made when assessing valuations at 31st March 2020. As a result valuations are therefore reported on the basis of ‘material valuation uncertainty’ as per the RICS Red Book Global. Less certainty therefore exists in the accuracy of the valuations reported. It is not currently possible to accurately predict the full impact of the Covid-19 pandemic as there is insufficient evidence available at the current time. Therefore valuations reported have been based on market conditions prior to this crisis on the assumption normal market conditions will be restored.
The material uncertainties are as follows:
Cornwall Airport Limited
Due to Covid 19 there is a material uncertainty in relation to the valuation of assets at Cornwall Airport. These assets are valued on a Depreciated Replacement Cost (DRC) basis which is considered appropriate by the Council’s valuer. The total value of these assets is included in the Council’s balance sheet at £59.475m.
Tamar Bridge valuation
Due to Covid 19 there is a material valuation uncertainty in relation to the valuation of the Tamar Bridge. Its value in Cornwall’s accounts (at 50% of its total value through the Joint Committee with Plymouth City Council) is £60.532m.
Housing Revenue Account assets
Due to Covid 19 there is a material valuation uncertainty in relation the value of the Housing Revenue Account (HRA) assets. These are valued at £557.071m in the Council’s accounts and a 0 - 10% change in that valuation could result in a change in value of between £0m and £55.707m.
Other Land and Buildings
Due to Covid 19 there is a material valuation uncertainty in relation to Other Land and Buildings. These are valued at £941.714m in the Council’s accounts. A change in that valuation of between 0% - 10% could result in a change in value of between £0m and £94.171m.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Pension Fund
There are uncertainties in the financial markets caused by the current Coronavirus pandemic. Market activity is being impacted in all sectors and, as at the valuation date, it is not considered that valuers can rely upon previous comparable market evidence to fully inform opinions of value. Due to these uncertainties, there is a risk that the estimated values may be under or overstated. There is a material valuation uncertainty within the pension fund accounts in relation to Pooled Property Funds. Total pooled funds are £135m. It is estimated that there could be a fall in valuation of 0-10% which would be between £0m and £13.5m.
The current response to COVID-19 means that valuers are faced with an unprecedented set of circumstances on which to base a judgement. Valuations are therefore reported on the basis of ‘material valuation uncertainty’ as set out in VPGA 10 of the RICS Valuation – Global Standards. Consequently, less certainty – and a higher degree of caution – should be attached to the valuations than would normally be the case.
Note Material Items of Income and Expense 5 The Council has no material items of income and expense.
Note Events after the Reporting Period 6 The Statement of Accounts was authorised for issue by Chief Operating Officer and Section 151 Officer on 30 June 2020. 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 2020, the figures in the financial statements and notes have been adjusted in all material respects to reflect the impact of this information.
Whilst the Covid-19 Pandemic arose before the end of the 2019/20 financial year, its continuation will impact on the Council in to 2020/21. Whilst the ultimate impact on the Council’s financial position cannot at this stage be quantified the Council’s Chief Operating Officer is regularly reporting to Members on the latest forecast financial implications. This included a report to Cabinet on 17 June 2020 setting out that over £328m of Government support had been received. The report also set out estimated net cost of Covid at that point was £11m. Regular updates will continue to be made to Members as part of routine financial reporting.
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Note Expenditure and Funding Analysis 7 The Expenditure and Funding Analysis (EFA) shows how annual expenditure is used and funded from resources (government grants, rents, council tax and business rates) by the Council in comparison with those resources consumed or earned by the Council in accordance with generally accepted accounting practices. It also shows how this expenditure is allocated for decision making purposes between the Council’s directorates. Income and expenditure accounted for under generally accepted accounting practices is presented more fully in the CIES.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
9
Note
-
£m
5.657
5.657
0.254
8.511
8.628
0.368
78.646
76.987
80.377
(72.989)
(14.201)
571.780
101.361
105.253
204.242
(263.620)
(269.277)
(493.134)
the
Statement
Income and
Expenditure
Comprehensive
Net Expenditure in
£m
1.353
8.596
0.398
8.269
5.036
(6.296)
(5.362)
72.989
30.088
95.270
18.658
17.991
46.627
(52.369)
125.358
Total Adjustments
-
£m
0.655
1.167
0.006
0.006
0.392
0.118
0.046
0.536
0.211
(1.224)
(1.879)
(0.512)
(0.147)
(0.001)
(Note (Note 2)
Other Differences
-
£m
0.168
1.550
3.163
0.392
5.176
6.590
2.961
6.489
3.533
(5.485)
57.066
57.066
32.529
24.537
Pensions Pensions
Adjustment
Net change for the
-
£m
1.179
5.580
0.124
1.244
1.292
(1.929)
(7.846)
17.147
67.637
69.566
13.090
11.283
43.620
(50.490)
Adjustments betweenAdjustments the Funding and basis Accounting
Adjustment for Adjustment
Capital Purposes
£m
(1.099)
(7.905)
(0.085)
(0.030)
52.369
13.990
58.329
83.370
58.626
72.108
(46.712)
476.510
199.206
(523.222)
HRA
Net Expenditure
chargeable to the
General Fund and
£m
(1.099)
(7.905)
(0.085)
(5.756)
(0.220)
(0.007)
(0.459)
13.990
(44.915)
(24.791)
(18.583)
(556.816)
(511.901)
chargeable to the
at the net amount
General Fund and
Adjustment to arriveAdjustment
HRA balancesHRA (Note 1)
-
-
-
-
£m
24.761
64.085
58.846
72.115
(11.321)
510.104
521.425
101.953
199.665
resource
management
as reportedas for
Directorate Total
Transfer to/from reserves for statutory this for costs movements relates finance amount to reserves to/from for net change Instruments (Financial Adjustment Transfer Account).
Note 2: The values within net cost Accumulated to relate values for net services change Absences2:Note of The Adjustment. line relates the the Collection toon amount income expenditure Fund. Other for and net Within change The the row
and £41.431m in relation toin relation PublicPFI £41.431m and and grant. Health
Public Health (£24.789m) reclassification of the Public Health grant from non specific grant to specific, and the Other Income and Expenditure line (£565.500m) for Council Tax, Council Business grants, reclassification specific Publicthe non for Public toof (£24.789m) specificgrant from Health rates specific, grant non Health and line Expenditure (£565.500m) Government and the Income Other and
Note 1: Neighbourhoods and Customer and Support Services contain PFI technical adjustments relating to reallocation of the unitary charge (Neighbourhoods £18.467m, Customer and Support Services £5.376m), £5.376m), Services Support and Customer contain £18.467m, PFI technicalServices Support and Customer and adjustments the to(Neighbourhoods unitary relating of charge reallocation 1:Note Neighbourhoods
Add Surplus on General Fund, HRA and Earmarked balance in balance year Earmarked Fund, and HRA Add Surplus General on
Opening General Fund, HRA and Earmarked balances Earmarked at Fund, and HRA March 31 2019 General Opening
Other income expenditure Other and
Joint Committees Joint
Local Local Authority HRA
Schools-managed Expenditure Schools-managed
Corporate Items Corporate
Wellbeing and PublicWellbeing and Health
Customer and Support Services Support and Customer
Neighbourhoods
Economic Growth and Economic Development and Growth
Together for Families for Together
Adult Social Care
Closing GeneralClosing Fund,and HRA Earmarked Reserve balance at March31 2020
(Surplus) or deficit(Surplus)
Adjustments betweenAdjustments accountingand basis underfunding basis regulations
(Surplus) or deficit(Surplus) on of servicesprovision
Net Cost of ServicesNet Cost Transfer (to)/from Reserves for Statutory for Movements Reserves (to)/from Transfer 2019/20
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
9
Note
-
£m
0.805
1.417
(5.485)
(5.485)
13.668
24.657
81.484
74.169
90.747
70.855
(11.020)
113.538
519.262
172.480
(269.277)
(263.792)
(119.023)
(405.724)
the
Statement
Income and
Expenditure
Comprehensive
Net Expenditure in
£m
1.382
8.844
1.523
2.789
4.775
1.396
(3.210)
34.184
97.010
14.421
25.811
39.279
(12.171)
119.023
131.194
Total Adjustments
-
£m
7.899
8.266
0.001
0.001
0.006
0.122
0.019
0.103
0.006
(0.367)
(0.613)
(0.012)
59.661
51.762
(Note (Note 2)
Other Differences
-
£m
0.277
1.047
4.292
7.777
0.244
3.041
3.682
1.819
3.231
2.188
58.761
58.761
31.163
27.598
Pensions Pensions
Adjustment
Net change for the
£m
0.601
1.104
1.066
1.273
1.538
(5.245)
(4.257)
(0.912)
(0.780)
64.534
69.779
10.742
22.648
37.357
(63.933)
Adjustments betweenAdjustments the Funding and basis Accounting
Adjustment for Adjustment
Capital Purposes
£m
(0.577)
(7.810)
(0.753)
(0.106)
12.171
15.813
55.673
71.380
51.468
66.080
(17.656)
422.252
171.084
(439.908)
HRA
Net Expenditure
chargeable to the
General Fund and
£m
(0.577)
(7.810)
(0.753)
(6.266)
(0.261)
(0.110)
(0.624)
15.813
(46.574)
(25.465)
(20.521)
(502.023)
(455.449)
chargeable to the
at the net amount
General Fund and
Adjustment to arriveAdjustment
HRA balancesHRA (Note 1)
-
-
-
-
£m
15.541
25.359
61.939
91.901
51.729
66.190
484.367
468.826
171.708
resource
management
as reportedas for
Directorate Total
Transfer to/from reserves for statutory this for costs movements relates finance amount to reserves to/from for net change Instruments (Financial Adjustment Transfer Account).
Note 2: The values within net cost Accumulated to relate values for net services change Absences2:Note of The Adjustment. line relates the the Collection toon amount income expenditure Fund. Other for and net Within change The the row
and £43.650m in relation toin relation PublicPFI £43.650m and and grant. Health
Public Health (£25.461m) reclassification of the Public Health grant from non specific grant to specific, and the Other Income and Expenditure line (£550.767m) for Council Tax, Council Business grants, reclassification specific Publicthe non for Public toof (£25.461m) specificgrant from Health rates specific, grant non Health and line Expenditure (£550.767m) Government and the Income Other and
Note 1: Neighbourhoods and Customer and Support Services contain PFI technical adjustments relating to reallocation of the unitary charge (Neighbourhoods £20.393m, Customer and Support Services £5.994m), £5.994m), Services Support and Customer contain £20.393m, PFI technicalServices Support and Customer and adjustments the to(Neighbourhoods unitary relating of charge reallocation 1:Note Neighbourhoods
Add Surplus on General Fund, HRA and Earmarked balance in balance year Earmarked Fund, and HRA Add Surplus General on
Opening General Fund, HRA and Earmarked balances Earmarked at Fund, and HRA March 31 2018 General Opening
Other income expenditure Other and
Joint Committees Joint
Local Local Authority HRA
Schools-managed Expenditure Schools-managed
Corporate Items Corporate
Wellbeing and PublicWellbeing and Health
Customer and Support Services Support and Customer
Neighbourhoods
Economic Growth and Economic Development and Growth
Together for Families for Together
Adult Social Care
Closing GeneralClosing Fund,and HRA Earmarked Reserve balance at March31 2019
(Surplus) or deficit(Surplus)
Adjustments betweenAdjustments accountingand basis underfunding basis regulations
(Surplus) or deficit(Surplus) on of servicesprovision
Net Cost of ServicesNet Cost Transfer (to)/from Reserves for Statutory for Movements Reserves (to)/from Transfer Comparative2018/19 Figures Restated
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Adjustments for Capital Purposes Adjustments for capital purposes – this column adds in depreciation and impairment and revaluation gains and losses in the services lines, and for: • Other Operating Expenditure – adjusts for capital disposals with a transfer of income on disposal of assets and the amounts written off for those assets; • Financing and Investment Income and Expenditure – the statutory charges for capital financing i.e. MRP and other revenue contributions are deducted from other income and expenditure as these are not chargeable under generally accepted accounting practices; • Taxation and Non-specific Grant Income and Expenditure – capital grants are adjusted for income not chargeable under generally accepted accounting practices. Revenue grants are adjusted from those receivable in the year to those receivable without conditions or for which conditions were satisfied throughout the year. The Taxation and Non-specific Grant Income and Expenditure line is credited with capital grants receivable in the year without conditions or for which conditions were satisfied in the year.
Net Change for the Pensions Adjustments Net change for the removal of pension contributions and the addition of IAS19 Employee Benefits pension related expenditure and income. • For services this represents the removal of the employer pension contributions made by the Council as allowed by statute and the replacement with current service costs and past service costs; • For Financing and Investment Income and Expenditure the net interest on the defined benefit liability is charged to the CIES.
Other Statutory Adjustments Other statutory adjustments between amounts debited/credited to the CIES and amounts payable/receivable to be recognised under statute: • For Financing and Investment Income and Expenditure the other statutory adjustments column recognises adjustments to the General Fund for the timing differences for premiums and discounts; • The charge under Taxation and Non-specific Grant Income and Expenditure represents the difference between what is chargeable under statutory regulations for Council tax and NNDR that was projected to be received at the start of the year and the income recognised under generally accepted accounting practises in the Code. This is a timing difference as any difference will be brought forward in future surpluses or deficits on the Collection Fund.
Other Non-statutory Adjustments Other non-statutory adjustments represent amounts debited/credited to service segments which need to be adjusted against the ‘Other income and expenditure from the Expenditure and Funding Analysis’ line to comply with the presentational requirements in the CIES: • For Financing and Investment Income and Expenditure the other non-statutory adjustments column recognises adjustments to service segments, e.g. for interest income and expenditure and changes in the fair values of investment properties;
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
• For Taxation and Non-specific Grant Income and Expenditure the other non-statutory adjustments column recognises adjustments to service segments, e.g. for unringfenced government grants.
Note Expenditure and Income Analysed by Nature 8 The Council’s expenditure and income is analysed as follows:
Reconciliation to Subjective Analysis 31 March 31 March 2020 2019 £m £m
Fees, charges and other service income (226.715) (222.274) Interest and investment income (10.170) (11.846) Income from council tax (322.115) (306.103) Income from business rates (142.706) (158.741) Government grants and contributions (497.923) (521.971)
Total Income (1,199.629) (1,220.935)
Employee expenses 346.577 333.090 Other service expenses 725.709 720.605 Capital charges 118.767 130.997 Interest payments 45.433 101.716 Precepts and levies 24.214 22.108 Payments to Housing Capital Receipts Pool 0.819 1.092 Gain or loss on disposal of fixed assets 16.756 24.865
Total Expenditure 1,278.275 1,334.473
(Surplus) or deficit on the provision of services 78.646 113.538
Note Adjustments between Accounting Basis and Funding Basis under 9 Regulations
This note details the adjustments that are made to total comprehensive income and expenditure in accordance with proper accounting practice to determine the resources that are available to meet future capital and revenue expenditure.
The adjustments are made against the following reserves:
General Fund Balance
The General Fund is the statutory fund into which all of the receipts of the Council are required to be paid and out of which all liabilities of the Council 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 Council is statutorily empowered to
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
spend on its services or on capital investment at the end of the financial year. For housing authorities, the balance is not available to be applied to funding HRA services.
Housing Revenue Account Balance
The Housing Revenue Account balance reflects the statutory obligation to maintain a revenue account for local authority council housing provision in accordance with Part VI of the Local Government Housing Act 1989. It contains the balance of income and expenditure as defined by the 1989 Act that is available to fund expenditure in connection with the Council’s landlord function.
Major Repairs Reserve
The Council is required to maintain the MRR which is restricted to being applied to new capital investment in HRA assets or the financing of historical capital expenditure by the HRA. The balance shows the total that has yet to be applied at year end.
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 (reserve) holds the grants and contributions received towards capital projects for which the Council has met the conditions that would otherwise require repayment of the monies but which have yet to be applied to the 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.
Further information describing the nature and purpose of the General Fund Schools balance, the Earmarked General Fund reserves and the Ports balances can be found in the MIRS.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
2019/20 adjustments Movement in Usable Reserves General Housing Capital Capital Major Movement Fund Revenue Receipts Grants Repairs in Unusable Balance Account Reserve Unapplied Reserve Reserves £m £m £m £m £m £m Adjustments primarily involving the Capital Adjustment Account: Reversal of items debited or credited to the Comprehensive Income and Expenditure Statement : Charges for depreciation of non-current assets (57.221) (23.969) - - - 81.190 Revaluation losses on property, plant and equipment (12.695) 18.713 - - - (6.018) Amortisation of intangible assets (0.972) (0.027) - - - 0.999 Capital grants and contributions applied 52.710 1.755 - (16.282) - (38.183) Revenue expenditure funded from capital under statute (41.657) - - - - 41.657 Amounts of non-current assets written off on disposal or sale as (17.869) 1.114 (22.654) - - 39.409 part of the gain/loss on disposal to the Comprehensive Income and Expenditure Statement Insertion of items not debited or credited to the Comprehensive Income and Expenditure Statement: Statutory provision for the financing of capital investment 24.564 - - - - (24.564) Capital expenditure charged against the General Fund and 23.649 2.448 - - - (26.097) HRA balances Long Term Debtors/Loans - arrangements and repayments - - (4.831) - - 4.831 Adjustments primarily involving the Capital Grants Unapplied Account: Application of grants to capital financing transferred to the - - - 4.938 - (4.938) Capital Adjustment Account Adjustments primarily involving the Capital Receipts Reserve: Use of Capital Receipts to finance new capital expenditure - - 19.984 - - (19.984) Contribution from the Capital Receipts Reserve to finance the (0.819) - 0.819 - - - payments to the Government capital receipts pool Transfer from Deferred Capital Receipts Reserve upon receipt of cash - - (0.002) - - 0.002 Adjustments primarily involving the Major Repairs Reserve: Use of the Major Repairs Reserve to finance new - - - - 15.657 (15.657) capital expenditure Posting of HRA resources from revenue to the Major Repairs Reserve - 13.129 - - (13.129) - Adjustments Primarily involving the Financial Instruments Adjustment Account: Amount by which finance costs charged to the Comprehensive 1.874 0.005 - - - (1.879) Income and Expenditure Statement are different from finance . costs chargeable in the year in accordance with statutory requirements Adjustments primarily involving the Pensions Reserve: Reversal of items relating to retirement benefits debited/credited (107.583) (3.630) - - - 111.213 to the Comprehensive Income and Expenditure Statement Employer's pensions contributions and direct payments to 52.409 1.738 - - - (54.147) pensioners payable in the year Adjustments primarily involving the Collection Fund Adjustment Account: Amount by which council tax and non-domestic rating income credited 0.512 - - - - (0.512) to Comprehensive Income and Expenditure Statement is different from council tax and non-domestic rating income calculated for the year in accordance with statutory requirements Adjustments primarily involving the Accumulated Absences Account: Amount by which officer remuneration charged to Comprehensive (1.167) - - - - 1.167 Income and Expenditure Statement on an accruals basis is different from remuneration chargeable in the year in accordance with statutory requirements
Total Adjustments (84.265) 11.276 (6.684) (11.344) 2.528 88.489
Total General Fund and HRA Movement (72.989)
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
2018/19 adjustments Movement in Usable Reserves General Housing Capital Capital Major Movement Fund Revenue Receipts Grants Repairs in Unusable Balance Account Reserve Unapplied Reserve Reserves £m £m £m £m £m £m Adjustments primarily involving the Capital Adjustment Account: Reversal of items debited or credited to the Comprehensive Income and Expenditure Statement : Charges for depreciation of non-current assets (57.795) (17.392) - - - 75.187 Revaluation losses on property, plant and equipment (10.260) 8.938 - - - 1.322 Amortisation of intangible assets (0.950) - - - - 0.950 Capital grants and contributions applied 75.421 1.681 - (13.884) - (63.218) Revenue expenditure funded from capital under statute (46.957) - - - - 46.957 Amounts of non-current assets written off on disposal or sale as (26.085) 1.184 (5.847) - - 30.748 part of the gain/loss on disposal to the Comprehensive Income and Expenditure Statement Insertion of items not debited or credited to the Comprehensive Income and Expenditure Statement: Statutory provision for the financing of capital investment 25.936 - - - - (25.936) Capital expenditure charged against the General Fund and 31.530 2.529 (0.076) - - (33.983) HRA balances Long Term Debtors/Loans - arrangements and repayments - - (0.813) - - 0.813 Adjustments primarily involving the Capital Grants Unapplied Account: Application of grants to capital financing transferred to the - - - 17.219 - (17.219) Capital Adjustment Account Adjustments primarily involving the Capital Receipts Reserve: Use of Capital Receipts to finance new capital expenditure - - 16.048 - - (16.048) Contribution from the Capital Receipts Reserve to finance the (1.092) - 1.092 - - - payments to the Government capital receipts pool Transfer from Deferred Capital Receipts Reserve upon receipt of cash - - (0.002) - - 0.002 Adjustments primarily involving the Major Repairs Reserve: Use of the Major Repairs Reserve to finance new - - - - 14.518 (14.518) capital expenditure Posting of HRA resources from revenue to the Major Repairs Reserve - 12.711 - - (12.711) - Adjustments Primarily involving the Financial Instruments Adjustment Account: Amount by which finance costs charged to the Comprehensive (51.783) 0.021 - - - 51.762 Income and Expenditure Statement are different from finance . costs chargeable in the year in accordance with statutory requirements Adjustments primarily involving the Pensions Reserve: Reversal of items relating to retirement benefits debited/credited (107.828) (2.967) - - - 110.795 to the Comprehensive Income and Expenditure Statement Employer's pensions contributions and direct payments to 50.373 1.661 - - - (52.034) pensioners payable in the year Adjustments primarily involving the Collection Fund Adjustment Account: Amount by which council tax and non-domestic rating income credited (8.266) - - - - 8.266 to Comprehensive Income and Expenditure Statement is different from council tax and non-domestic rating income calculated for the year in accordance with statutory requirements Adjustments primarily involving the Accumulated Absences Account: Amount by which officer remuneration charged to Comprehensive 0.367 - - - - (0.367) Income and Expenditure Statement on an accruals basis is different from remuneration chargeable in the year in accordance with statutory requirements
Total Adjustments (127.389) 8.366 10.402 3.335 1.807 103.479
(119.023) Total General Fund and HRA Movement
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Transfers to/from Earmarked Reserves 10 This note shows amounts set aside from the General Fund and HRA balances in earmarked reserves to provide financing for future expenditure plans and amounts posted back from earmarked reserves to meet General Fund and HRA expenditure in 2019/20:
Balance Transfers Transfers Balance at Transfers Transfers Balance at at 1 April Out In 31 March Out In 31 March 2018 2018/19 2018/19 2019 2019/20 2019/20 2020 £m £m £m £m £m £m £m
Capital earmarked reserve (78.208) 50.457 (60.591) (88.342) 64.691 (58.885) (82.536) Revenue earmarked reserves:- Adult Social Care (4.881) 11.328 (10.593) (4.146) 3.613 - (0.533) Together for Families^ (9.621) 16.717 (14.883) (7.787) 3.512 (1.443) (5.718) Economic Growth and Development (5.206) 1.568 (0.466) (4.104) 3.092 (2.667) (3.679) Neighbourhoods (3.776) 0.760 (0.017) (3.033) 1.282 - (1.751) Customer and Support Services (3.020) 2.337 (2.619) (3.302) 2.367 (0.500) (1.435) Wellbeing and Public Health (1.516) 0.500 (0.602) (1.618) 0.807 (0.277) (1.088) Corporate Items (12.618) 8.398 (10.749) (14.969) 8.667 (9.530) (15.832) Schools (0.558) 0.060 (0.065) (0.563) 0.236 (0.020) (0.347) Local Authority HRA (3.560) 1.592 (3.000) (4.968) 2.355 (2.308) (4.921) Joint Committees (2.564) 0.730 - (1.834) 0.438 - (1.396) PFI Reserves (55.345) 2.770 (6.806) (59.381) 1.944 (0.523) (57.960) Wave Hub reserve (9.825) 1.000 (0.312) (9.137) 0.907 - (8.230) Redundancy reserve (9.642) 4.339 - (5.303) 2.108 - (3.195) Covid-19 Grant reserve - - - - 1.599 (18.153) (16.554) Other general reserves (12.026) 3.922 (0.204) (8.308) 4.082 (0.250) (4.476)
Total (212.366) 106.478 (110.907) (216.795) 101.700 (94.556) (209.651)
^ Change of Directorate name from Children, Schools and Families to Together for Families The two most significant reserves set out above are: • The Capital reserve (£82.536m) which is funds set aside to finance future investment in assets; • PFI reserves (£57.960m) which are monies set aside to offset future PFI liabilities.
Note Other Operating Expenditure 11
31 March 31 March 2020 2019 £m £m Parish Council precepts 24.214 22.108 Payments to the Government Capital Housing Receipts Pool 0.819 1.092 Exceptional transfer of academy school assets - 24.313 (Gains)/losses on the disposal of non-current assets 16.756 0.552
Total 41.789 48.065
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Financing and Investment Income and Expenditure 12
31 March 31 March 2020 2019 £m £m Interest payable and similar charges 45.433 48.093 Exceptional LOBO premium on redemption - 53.623 Net interest on the net defined benefit liability/(asset) 32.529 31.162 Interest receivable and similar income (6.959) (7.036) Other investment income (3.211) (4.810)
Total 67.792 121.032
Note Taxation and Non-specific Grant Income 13
31 March 31 March 2020 2019 £m £m Council tax income (322.853) (314.336) Non-domestic rates income and expenditure (141.456) (158.774) Non ringfenced government grants (119.204) (79.831) Capital grants and contributions (18.690) (30.146) Collection Fund (surplus)/deficit (0.512) 8.266
Total (602.715) (574.821)
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Property, Plant and Equipment 14
Movements on Balances 2019/20 Vehicles, Infrastructure Assets Total Other Plant, Infra- Tamar Bridge Comm- Under Property, PFI Assets Council Land and Furniture, structure Toll Bridge unity Con- Plant and Included Dwellings Buildings Equipment Assets Asset Assets struction Equipment in PPE £m £m £m £m £m £m £m £m £m Cost or Valuation
At 1 April 2019 511.455 954.456 272.199 880.101 63.115 34.173 35.686 2,751.185 240.631
Additions 25.137 23.535 10.954 48.190 - 4.058 41.661 153.535 0.242 Accumulated Depreciation and Impairment written (35.310) (10.056) (4.717) - - - - (50.083) (6.272) out to Gross Carrying Amount after Revaluation Revaluation increases/(decreases) recognised 14.808 22.972 3.650 - - - - 41.430 7.616 in the Revaluation Reserve Revaluation increases/(decreases) recognised 17.857 (11.372) - - (0.467) - - 6.018 (0.268) in the surplus/deficit on the Provision of Services Derecognition - disposals (2.659) (28.280) (26.090) (0.011) - (0.497) - (57.537) (0.342) Assets reclassified (to)/from Held for Sale - (0.063) - - - - - (0.063) - Assets reclassified (to)/from Other Categories - 2.741 0.001 - 0.314 - (3.056) - - Other movements in cost or valuation 0.060 30.825 - - - 0.013 (30.898) - 0.007
At 31 March 2020 531.348 984.758 255.997 928.280 62.962 37.747 43.393 2,844.485 241.614
Accumulated Depreciation and Impairment
At 1 April 2019 (12.128) (37.187) (115.331) (215.414) (2.430) (0.332) 0.001 (382.821) (9.212)
Depreciation charge (23.389) (17.753) (15.376) (24.653) - (0.019) - (81.190) (7.251) Accumulated Depreciation written out to 35.310 10.056 4.717 - - - - 50.083 6.272 Gross Carrying Amount Derecognition - disposals - 1.837 16.587 0.008 - - - 18.432 0.028 Other movements in depreciation and impairment (0.004) 0.003 0.001 - - - 0.001 0.001 -
At 31 March 2020 (0.211) (43.044) (109.402) (240.059) (2.430) (0.351) 0.002 (395.495) (10.163)
Net Book Value at 31 March 2020 531.137 941.714 146.595 688.221 60.532 37.396 43.395 2,448.990 231.451 at 1 April 2019 499.327 917.269 156.868 664.687 60.685 33.841 35.687 2,368.364 231.419
Comparative Movements 2018/19 Vehicles, Infrastructure Assets Total Other Plant, Infra- Tamar Bridge Comm- Under Property, PFI Assets Council Land and Furniture, structure Toll Bridge unity Con- Plant and Included Dwellings Buildings Equipment Assets Asset Assets struction Equipment in PPE £m £m £m £m £m £m £m £m £m Cost or Valuation
At 1 April 2018 496.945 933.626 262.385 812.656 58.827 30.769 25.435 2,620.643 249.430
Additions 18.652 23.478 12.161 55.248 3.522 3.374 18.432 134.867 0.082 Accumulated Depreciation and Impairment written (16.483) (14.853) (4.670) - - - - (36.006) (7.290) out to Gross Carrying Amount after Revaluation Revaluation increases/(decreases) recognised 5.588 56.810 5.800 - - 0.011 - 68.209 (0.840) in the Revaluation Reserve Revaluation increases/(decreases) recognised 8.975 (10.297) - - - - - (1.322) (0.751) in the surplus/deficit on the Provision of Services Derecognition - disposals (2.503) (28.160) (3.475) (0.010) - - - (34.148) - Assets reclassified (to)/from Held for Sale - (0.921) - (0.135) - - - (1.056) - Assets reclassified (to)/from Other Categories - - - - 0.766 - (0.766) - - Other movements in cost or valuation 0.281 (5.227) (0.002) 12.342 - 0.019 (7.415) (0.002) -
At 31 March 2019 511.455 954.456 272.199 880.101 63.115 34.173 35.686 2,751.185 240.631
Accumulated Depreciation and Impairment
At 1 April 2018 (11.765) (35.452) (106.655) (191.567) (1.904) (0.315) - (347.658) (9.229)
Depreciation charge (16.847) (17.649) (16.291) (23.857) (0.526) (0.017) - (75.187) (7.273) Accumulated Depreciation written out to 16.483 14.853 4.670 - - - - 36.006 7.290 Gross Carrying Amount Derecognition - disposals 0.001 1.044 2.863 0.010 - - - 3.918 - Assets reclassified to/(from) Other Categories - 0.018 - - - - - 0.018 - Other movements in depreciation and impairment - (0.001) 0.082 - - - 0.001 0.082 - - At 31 March 2019 (12.128) (37.187) (115.331) (215.414) (2.430) (0.332) 0.001 (382.821) (9.212)
Net Book Value at 31 March 2019 499.327 917.269 156.868 664.687 60.685 33.841 35.687 2,368.364 231.419 at 1 April 2018 485.180 898.174 155.730 621.089 56.923 30.454 25.435 2,272.985 240.201
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Depreciation
The following average useful lives have been used in the calculation of depreciation: • Council dwellings: 30 years • Other land and buildings: 20-60 years • Vehicles, plant, furniture and equipment: 5-15 years • Infrastructure: 35 years • Infrastructure Wave Hub: 5 years • Infrastructure (Tamar Bridge Toll Bridge): 120 years
Effects of Changes in Estimates
In 2019/20 the Council made no changes to its accounting estimates for property, plant and equipment.
Significant Assets
In 2016/17 the Cornwall Energy Recovery Centre (CERC) became operational and was transferred from assets under construction to other land and buildings and vehicles, plant furniture and equipment. Its net book value at the end of 2019/20 was £151.621m (£154.140m 2018/19), split into £39.483m (£38.936m 2018/19) other land and buildings and £112.137m (£113.204m 2018/19) vehicles, plant and equipment. This asset has been constructed as part of the Waste PFI scheme, details can be found in note 37.
Capital Commitments
At the year end, the Council had significant commitments under capital contracts. The following table lists all those schemes that have committed expenditure in excess of £5.000m for 2020/21, which also have capital contracts totalling £5.000m or more in place:
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
2019/20 2018/19 £m £m
Expenditure approved in capital programme 1,054.010 1,001.752
Expenditure committed for the following year 471.135 380.993
Schemes committing over £5m spend in year with capital contract commitments of over £5m in place: Housing Revenue Account Works 18.569 16.831 St Austell to A30 Link Road 30.903 8.458 Superfast Broadband Phase 2 2.662 6.518 Waste Contract 33.051 -
Schemes committing spend in year with no capital contract commitments or commitments under £5m in place: Vehicle and Plant Replacement (Fire) 2.823 7.963 Local Authority New Build Schemes 52.889 10.931 HIP - Affordable Housing (CCFP3) 10.072 1.585 Hayle Harbour Development 15.593 6.717 Basic Need 8.171 10.742 CTO Fleet Transfer - 12.000 Spaceport Cornwall 6.021 - St Austell Resilent Regeneration (StARR) - Delivery ESIF 7.484 0.826 Structural Maintenance of Carriageways (inc LTP3) 34.157 31.588 Purchase of Land at Langarth Farm 5.673 0.110 Langarth Garden Village 9.952 68.174 HDP Development - Maudlin Farm 7.061 0.688 HDP - Bodmin Phase 2 10.907 0.984 Saints Trail - Cycling, Safety and Integration Schemes 15.187 1.888 Cornwall Investment Programme 22.908 26.853 Renewables & Wind Power Opportunities (Phase 1) - 8.557 Tamar Bridge and Torpoint Ferry Joint Committee 15.422 5.382 Private Sector Housing 7.577 7.403 Private Rented Accommodation 33.300 19.650
Total 350.382 253.848
Schemes with balances under £5m with no capital commitments over £5m in 2019/20 have been removed from the comparator. The 18/19 comparator figures relate to committed spend
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Revaluations
The Council carries out a rolling programme that ensures that all property, plant and equipment required to be measured at current value is revalued at least every five years. Vehicles, plant, furniture and equipment assets that are of low value and/or short lives are currently not valued as their historic cost is used as a proxy for current value, however, as the CERC equipment asset is significant in value and has a longer life it is valued yearly. The Wave Hub asset is also assessed yearly for impairment as it is also a significant asset. All valuations were overseen internally by the Council’s Property Systems and Assurance Manager. Valuations of land 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 significant assumptions applied to revaluations have been listed below and the detailed assumptions are set out in the Council’s “Instructions to Valuers” and “Terms of Engagement” documents:
• For specialised properties it is assumed that there is no active market but that the land element could be sold at its market value. It is assumed that the building costs would be in line with published indices and asset lives are in line with those given in the depreciation note;
• For council dwellings the assumption is that the Beacon assets are typical of their asset class and that all such properties will continue to be let for social housing purposes;
• For other property, plant and equipment the assumption is that local market conditions provide an accurate guide as to appropriate valuation;
• Valuations of land and buildings generally exclude moveable furniture and equipment but include fixed plant and machinery;
• No structural surveys or internal inspections are carried out and it is assumed that the premises are in a reasonable state of repair;
• No allowance is made for costs of disposal;
• No allowance is made for rights, obligations or liabilities arising from the Defective Premises Act 1972 or any effect of the Environmental Protection Act 1990.
History of revaluations:
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Infra- Vehicles, structure Assets Other Plant, Infra- Tamar Bridge Comm- Under Council Land and Furniture, structure Toll Bridge unity Con- Dwellings Buildings Equipment Assets Asset Assets struction Total £m £m £m £m £m £m £m £m
Carried at historical cost - 46.882 34.458 688.221 - 37.396 43.395 850.352
Valued at current value as at: 31 March 2020 531.137 283.185 112.137 - 60.532 - - 986.991 31 March 2019 - 210.621 - - - - - 210.621 31 March 2018 - 186.841 - - - - - 186.841 31 March 2017 - 158.422 - - - - - 158.422 31 March 2016 - 55.763 - - - - - 55.763
Net Book Value 531.137 941.714 146.595 688.221 60.532 37.396 43.395 2,448.990
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Financial Instruments 15 Categories of Financial Instrument The following categories of financial instruments are carried in the Balance Sheet:
Long-term Current Total 31 March 31 March 31 March 31 March 31 March 31 March 2020 2019 2020 2019 2020 2019 £m £m £m £m £m £m
Financial Assets
Investments Amortised cost Treasury Investments 96.500 136.500 159.871 122.463 256.371 258.963 Local authority bonds 5.095 5.154 - - 5.095 5.154 Fair value through profit or loss Treasury Investments 0.922 1.204 - - 0.922 1.204
Total Investments 102.517 142.858 159.871 122.463 262.388 265.321
Debtors Amortised cost Debtors 57.318 33.017 - - 57.318 33.017 Financial assets carried at contract amounts - - 107.925 61.194 107.925 61.194 Statutory debtors~ - - 31.703 29.367 31.703 29.367
Total included in Debtors 57.318 33.017 139.628 90.561 196.946 123.578
Cash and cash equivalents Amortised cost Short Term cash investments - - 139.448 80.516 139.448 80.516 Other bank balances - - (40.381) (16.203) (40.381) (16.203)
Total Cash and cash equivalents - - 99.067 64.313 99.067 64.313
Financial Liabilities
Borrowings Amortised cost Financial liabilities at amortised cost - treasury (690.402) (688.547) (235.627) (107.661) (926.029) (796.208)
Total included in borrowings (690.402) (688.547) (235.627) (107.661) (926.029) (796.208)
Liabilities Amortised cost PFI liability (105.609) (111.180) (5.571) (3.393) (111.180) (114.573) Other liabilities - leases (2.093) (2.054) - - (2.093) (2.054)
Total Liabilities (107.702) (113.234) (5.571) (3.393) (113.273) (116.627)
Creditors Amortised cost Financial liabilities at amortised cost - creditors (2.752) (2.433) - - (2.752) (2.433) Financial liabilities carried at contract amounts - - (93.320) (106.216) (93.320) (106.216) Statutory creditors~ - - (14.892) (15.814) (14.892) (15.814) Leases - - (0.066) (2.141) (0.066) (2.141)
Total Creditors (2.752) (2.433) (108.278) (124.171) (111.030) (126.604)
~ the statutory debtors and creditors amounts are not financial instruments however have been included to match to the balance sheet
Interest due to be paid or received within the next 12 months in respect of both long- and short-term loans and investments is shown within the Current columns in the table above. Interest due at maturity of long-term investments is shown within the long-term columns in the table above. Instruments which have an option for premature redemption have been
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categorised according to their final maturity date, rather than assumptions being made regarding the likelihood for premature redemption. The Council has no material soft loans to disclose for 2019/20.
Financial Instruments Designated at Fair Value through Profit or Loss
The Council accounts for the Heartlands Trust endowment from the Big Lottery as an investment and as a reserve. The investment is made through CCLA which is a charitable fund manager and the investment forms part of a pooled fund. Under IFRS9 the Code now requires that pooled funds are measured at Fair Value through Profit or Loss. However, to mitigate the impact of the change there is a statutory override for a period of five years meaning that there is no impact on the Council’s CIES.
Income, Expense, Gains and Losses
Income, Expense, Gains and Losses 2019/20 2018/19
Surplus or Other Surplus or Other Deficit on the Comprehensive Deficit on the Comprehensive Provision Income and Provision Income and of Services Expenditure of Services Expenditure £m £m £m £m
Net (gain)/losses on: Financial assets measured at - - - 1.705 amortised cost Financial liabilities measured at - - 53.623 - amortised cost
Total net (gains)/losses - - 53.623 1.705
Interest revenue: Financial assets measured at (6.959) - (7.033) - amortised cost
Total interest revenue (6.959) - (7.033) -
Interest Expense 45.433 - 48.093 -
Fair Value of Financial Assets and Financial Liabilities Financial liabilities, financial assets represented by treasury investments and long-term debtors and creditors are carried in the Balance Sheet at amortised cost. Their fair values have been determined using a variety of techniques in order to reflect the true fair value as accurately as possible. Predominantly, valuation techniques have been employed with reference to prices quoted in an active market. In respect of some complex instruments, the counterparty to the trade has provided values. For instruments with no optionality, the present value of the cash flows has been used to determine the fair value. The following assumptions should be noted: • Where an instrument will mature in the next 12 months, the carrying amount is assumed to approximate fair value;
• No premature repayments have been assumed;
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• The fair value of trade and other receivables is taken to be the invoiced or billed amount;
• No assumptions about credit loss have been made;
• For loans from the Public Works Loan Board (PWLB) transfer values (new loan rates) from the PWLB have been applied to provide the fair value under PWLB debt redemption procedures;
• The fair value for long term debtors is assumed to be the same as their carrying amount.
31 March 2020 31 March 2019 Carrying Fair Value Carrying Fair Value Amount Amount £m £m £m £m Financial Assets
Treasury Investments 256.371 259.757 258.963 271.841 Debtors 57.318 57.318 33.017 33.017
The £256.371m treasury investments in banks and building societies and other local authorities are all held at fixed rates and due to the prevailing interest rates being higher the fair value in the table above is also higher than the carrying amount. For all other investments the fair value is represented by its current value.
31 March 2020 31 March 2019 Carrying Fair Value Carrying Fair Value Amount Amount £m £m £m £m Financial Liabilities
Fixed interest rate PWLB (413.632) (496.396) (374.185) (481.335) Fixed interest rate LOBO's (272.995) (419.434) (274.100) (440.619) Financial liabilities held at amortised cost - treasury other (239.402) (252.613) (147.923) (160.831) Financial liabilities held at amortised cost - treasury (926.029) (1,168.443) (796.208) (1,082.785) PFI liability (111.180) (264.718) (114.573) (274.309) Other liabilities - leases (2.093) (2.093) (2.054) (2.054) Financial liabilities at amortised cost - creditors (2.752) (2.752) (2.433) (2.433)
The £926.029m carrying amount for financial instruments – treasury is all at fixed interest rates. Due to the prevailing interest rates being lower than these fixed rates as at the balance sheet date the fair value reflected in the table above is higher.
The Council has used a transfer value for the value of financial liabilities – treasury. The Council has also calculated an exit price fair value of (£1,711.634m), which is calculated using early repayments discount rates. The Council has no contractual obligation to pay these penalty costs and would not incur any additional cost if the loans run to their planned maturity date.
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Valuation of Financial Instruments carried at Fair Value
The valuation of financial instruments is classified into three levels, according to the quality and reliability of information used to determine fair values.
Level 1 - where fair values are derived from unadjusted quoted prices in active markets for identical assets or liabilities (quoted equities, quoted fixed securities, quoted index linked securities and unit trusts). Listed investments shown at bid prices. The bid value of the investment is based on the market quotation of the relevant stock exchange.
Level 2 - where market prices are not available, for example, where an instrument is traded in a market that is not considered to be active or where the valuation techniques are used to determine fair value and where these techniques use inputs that are based significantly on observable market data.
Level 3 - where at least one input that could have a significant effect on the instrument's valuation is not based on observable market data. Such instruments would include unquoted equity investments and hedge funds, neither of which the Council currently invests in.
The table below provides an analysis of the financial assets and liabilities grouped into the level at which fair value is observable.
Financial Instruments at Fair Value
The fair value hierarchy for financial assets and liabilities that are not measured at fair value in the balance sheet are as follows:
Financial assets and liabilities measured at fair value Input Level in Fair Value Valuation As at As at hierarchy Technique 31/03/2020 31/03/2019 Fair Value through Profit or Loss £m £m
Investments Treasury Investments Level 2 Prevailing benchmark rates 259.757 271.841 Ranging from 0.08% to 0.79% Borrowings PWLB Level 2 New borrowing discount rates ^ (496.396) (481.335) Ranging from 1.90% to 2.64% Lenders Option Borrowers Option (LOBO) Level 2 New market loan discount rates ^ (419.434) (439.507) Ranging from 2.41% to 2.48% Zero to Par Loan Level 2 New market loan discount rates ^ (56.138) (54.202) Discount rate 2.36% Short Term Level 2 New market loan discount rates ^ (196.475) (107.741) Ranging from 0.55% to 0.80%
Long Term Liabilities PFI Long Term Liability Level 3 PWLB annuity discount rate (264.718) (274.309) Ranging from 0.02% to 0.23%
^Where the discount rate is used the technique involves using present values of cashflow
The Zero to Par Loan is a particular form of treasury instrument where the interest is charged to the CIES annually but is not physically paid to the lender until the loan reaches maturity.
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There were no transfers between input levels during the year and there has been no change in the valuation techniques used during the year. The rates for each category will vary due to the nature, age and length of the investments and borrowings.
Note Inventories 16
Housing Development TBTF and Mount Provision for Salt Fuel Programme* Other Edgcumbe Obsolete Stock Total 2019/20 2018/19 2019/20 2018/19 2019/20 2018/19 2019/20 2018/19 2019/20 2018/19 2019/20 2018/19 2019/20 2018/19 £m £m £m £m £m £m £m £m £m £m £m £m £m £m
Balance outstanding at start of year 0.345 0.144 0.044 0.033 42.519 10.459 1.124 0.626 0.346 0.293 (0.079) (0.079) 44.299 11.476 Purchases 0.263 0.436 0.222 0.296 4.778 32.060 2.088 2.573 0.251 0.371 - - 7.602 35.736 Recognised as an expense (0.176) (0.235) (0.219) (0.285) (21.533) - (2.019) (2.075) (0.336) (0.318) - - (24.283) (2.913) in the year Written off balances ------(0.001) - - - - - (0.001) -
Balance outstanding at 0.432 0.345 0.047 0.044 25.764 42.519 1.192 1.124 0.261 0.346 (0.079) (0.079) 27.617 44.299 year end
*The Housing Development Programme is an initiative by the Council to acquire land and build houses to increase the supply of affordable housing in Cornw all. As the intention is to sell these houses (potentially to a Limited Liability Partnership) they are carried in the Council’s accounts as Inventory items.
Note Debtors 17
Current Long Term
31 March 31 March 31 March 31 March 2020 2019 2020 2019 £m £m £m £m Trade Receivables 29.516 23.660 - - Prepayments 32.678 5.705 - - Debtors for Local Taxation 29.616 26.574 - - Other Receivable Amounts 47.818 34.622 57.318 33.017
Total 139.628 90.561 57.318 33.017
Note Debtors For Local Taxation 18 The past due but not impaired amount for local taxation (council tax and non-domestic rates) can be analysed by age as follows: Council Tax NNDR
31 March 31 March 31 March 31 March 2020 2019 2020 2019 £m £m £m £m Less than three months - - - - Three to six months - - - - Six months to one year 9.284 8.192 3.638 3.282 More than one year 12.513 11.225 4.181 3.875
21.797 19.417 7.819 7.157
A bad debt provision of £17.003m Council Tax and £4.188m NNDR has been provided for to offset the debt.
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Note Cash and Cash Equivalents 19
31 March 31 March 2020 2019 £m £m Cash held by the Council 1.720 1.592 Overdraft held by the Council (0.012) (4.857) Bank current accounts asset 6.595 7.924 Bank current accounts liability (49.426) (22.564) Short-term deposits 140.190 82.218
Total Cash and Cash Equivalents 99.067 64.313
Note Creditors 20 Current Long Term
31 March 31 March 31 March 31 March 2020 2019 2020 2018 £m £m £m £m Trade Payables (10.772) (13.329) - - Receipts in Advance (12.025) (13.346) - - Other Payables (85.481) (97.496) (2.752) (2.433)
Total (108.278) (124.171) (2.752) (2.433)
Note Provisions 21 Provisions are required for any financial liabilities or losses which are likely or certain to be incurred but where the amounts or the dates on which they will arise are uncertain. All provisions are charged to the appropriate service and can be used only for the purpose for which they were established, except where a review to determine the appropriateness of the level of the charge and the balance of the provision requires a change.
National Non Closed Domestic Other Long Total Long Total Short Landfill Rates Term Term Term Total Sites Appeals Provisions Provisions Provisions Provisions £m £m £m £m £m £m
Balance as at 1 April 2019 (8.880) (27.100) (3.327) (39.307) (2.732) (42.039) Additional provisions made in year - - (0.354) (0.354) (0.945) (1.299) Amounts used in year 0.171 0.400 - 0.571 1.743 2.314
Balance as at 31 March 2020 (8.709) (26.700) (3.681) (39.090) (1.934) (41.024)
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Closed Landfill Sites
The Closed Landfill Sites provision reflects the costs of decommissioning, restoration and after care costs of sites owned by the Council, the full costs of which are uncertain as at the balance sheet date.
National Non Domestic Rates Appeals (NNDR)
The provision is made in the Collection Fund for the estimated effect of outstanding appeals against rateable values and historical success rates in Cornwall.
None of the other provisions were individually significant at 31 March 2020.
Note Contingent Liabilities 22
A contingent liability arises where an event has taken place that gives the Council 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 Council. Currently, there are no contingent liabilities.
Note Unusable Reserves 23
31 March 31 March 2020 2019 £m £m
Revaluation Reserve (509.968) (485.581) Capital Adjustment Account (924.338) (952.483) Financial Instruments Adjustment Account 69.328 71.207 Deferred Capital Receipts Reserve (10.956) (1.194) Pensions Reserve 1,025.414 1,322.414 Collection Fund Adjustment Account (9.435) (8.923) Accumulated Absences Account 3.968 2.801
Total Unusable Reserves (355.987) (51.759)
Revaluation Reserve The Revaluation Reserve contains the gains made by the Council 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: • Revalued downwards or impaired and the gains are lost; • Used in the provision of services and the gains are consumed through depreciation; • 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 CAA.
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Revaluation Reserve 2019/20 2018/19 £m £m £m
Balance at 1 April (485.581) (430.556) Upward revaluation of assets (55.699) (97.542) Downward revaluation of assets and impairment losses not 14.269 29.421 charged to the (Surplus) or deficit on the provision of services (Surplus) or deficit on revaluation of non-current assets not (41.430) (68.121) posted to the (Surplus) or deficit on the provision of services Difference between fair value depreciation and historical cost 6.950 6.438 depreciation Accumulated gains on assets sold or scrapped 10.093 6.658 Amount written off to the Capital Adjustment Account 17.043 13.096
Balance at 31 March (509.968) (485.581)
Capital Adjustment Account
The CAA 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 provision. The account is debited with the cost of acquisition, construction or enhancement as depreciation, impairment losses and amortisations are charged to the CIES (with reconciling postings from the Revaluation Reserve to convert fair value figures to a historical cost basis). The account is credited with the amounts set aside by the Council as finance for the costs of acquisition, construction and enhancement. The Account contains accumulated gains and losses on investment properties and gains recognised on donated assets that have yet to be consumed by the Council. The Account also contains revaluation gains accumulated on property, plant and equipment before 1 April 2007, the date that the Revaluation Reserve was created to hold such gains. Note 9 provides details of the source of all the transactions posted to the Account, apart from those involving the Revaluation Reserve.
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Capital Adjustment Account 2019/20 2018/19 £m £m £m
Balance at 1 April (952.483) (925.521) Reversal of items relating to capital expenditure debited or credited to the Comprehensive Income and Expenditure Statement: Charges for depreciation and impairment of non-current 81.190 75.187 assets Revaluation losses on Property, Plant and Equipment (6.018) 1.322 Amortisation of intangible assets 0.999 0.95 Revenue expenditure funded from capital under statute 41.657 46.957 Amounts of non-current assets written off on disposal or sale 39.409 30.748 as part of the (gain)/loss on disposal to the Comprehensive Income and Expenditure Statement
157.237 155.164
Adjusting amounts written out of the Revaluation Reserve (17.043) (13.096)
Net written out amount of the cost of non-current assets 140.194 142.068 consumed in the year
Capital financing applied in the year: Use of the Capital Receipts Reserve to finance new capital (19.984) (16.048) expenditure Use of the Major Repairs Reserve to finance new capital (15.657) (14.518) expenditure Capital grants and contributions credited to the (38.183) (63.218) Comprehensive Income and Expenditure Statement that have been applied to capital financing Application of grants to capital financing from the Capital (4.938) (17.219) Grants Unapplied Account Statutory provision for the financing of capital investment (24.564) (25.936) charged against the General Fund and HRA balances Capital expenditure charged against the General Fund (26.097) (33.983) and HRA balances Other adjustments 12.543 1.079
(116.880) (169.843)
Repayments of Long term debtors and loan agreements 4.831 0.813
Balance at 31 March (924.338) (952.483)
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Financial Instruments Adjustment Account
The Financial Instruments Adjustment Account absorbs the timing differences arising from the different arrangements for accounting for income and expenses relating to certain financial instruments and for bearing losses or benefiting from gains per statutory provisions. The Council uses the account to manage premiums paid on early redemption of loans. Premiums are debited to the CIES when they are incurred but reversed out of the General Fund balance to the account in the MIRS. Over time, the expense is posted back to the General Fund in accordance with statutory arrangements for spreading the burden on council tax. Discounts received have the opposite entries. In the Council’s case, this period is the unexpired term that was outstanding on the loans when they were redeemed. As a result, for the LOBO premium the balance on the account as at 31 March 2020 will be charged to the General Fund over the next 38 and 49 years.
Financial Instruments Adjustment Account 2019/20 2018/19 £m £m £m
Balance at 1 April 71.207 19.445 Premiums incurred in the year and charged to the - 53.623 Comprehensive Income and Expenditure Statement Proportion of premiums incurred in previous financial years (1.879) (1.861) to be charged against the General Fund balance in accordance with statutory requirements Amount by which finance costs charged to the Comprehensive (1.879) 51.762 Income and Expenditure Statement are different from finance costs chargeable in the year in accordance with statutory requirements
Balance at 31 March 69.328 71.207
Pensions 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 Council accounts for post-employment benefits in the 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 Council 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 Council has set aside to meet them. The statutory arrangement will ensure that funding will have been set aside by the time the benefits come to be paid.
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Pensions Reserve 2019/20 2018/19 £m £m
Balance at 1 April 1,322.414 1,143.088 Opening balance adjustment in year 10.530 - Remeasurements of the net defined benefit liability/(asset) (364.596) 120.565 Reversal of items relating to retirement benefits debited or credited to 111.213 110.795 the (Surplus) or deficit on the provision of services in the Comprehensive Income and Expenditure Statement Employer's pensions contributions and direct payments to (54.147) (52.034) pensioners payable in the year
Balance at 31 March 1,025.414 1,322.414
Note Cash Flow Statement – Operating Activities 24
The cash flows for operating activities include the following items:
2019/20 2018/19 £m £m Interest received (7.611) (7.350) Interest paid 43.599 45.992 Dividends received (2.457) (2.059)
Net cash flows from operating activities 33.531 36.583
The surplus or deficit on the provision of services has been adjusted for the following non- cash movements: 2019/20 2018/19 £m £m
Depreciation and impairment (81.190) (75.187) Downward valuations 6.018 (1.322) Amortisation (0.999) (0.950) Adjustment for movements in fair value of investments classified (0.282) (0.316) as Fair Value through Profit & Loss a/c Losses or Gains on derecognition of loans & advances in year (2.663) (1.909) Adjustments for effective interest rates (1.907) (1.817) Increase/(decrease) in interest creditors 0.014 (0.325) Increase/(decrease) in creditors (35.569) 5.934 Increase/(decrease) in interest and dividend debtors (0.215) 0.368 Increase/(decrease) in debtors 42.091 (7.543) Increase/(decrease) in inventories (16.682) 32.823 Movement in pension liability (57.066) (58.761) Unwinding of discount on Deferred Receipts - 0.017 Contributions to/(from) provisions 1.015 0.563 Carrying amount of non-current assets and non-current assets (39.409) (30.748) held for sale, sold or de-recognised
Adjustment to net cash flows from operating activities (186.844) (139.173)
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The surplus or deficit on the provision of services has been adjusted for the following items that are investing and financing activities:
2019/20 2018/19 £m £m
Capital grants credited to (surplus)/deficit on the provision 55.519 69.314 of services Proceeds from the sale of property, plant and equipment, 32.418 5.847 investment property and intangible assets
Adjustment to net cash flows from operating activities 87.937 75.161
Note Cash Flow Statement – Investing Activities 25
2019/20 2018/19 £m £m Purchase of property, plant and equipment, investment property and 167.748 137.892 intangible assets Purchase of short-term and long-term investments 307.700 110.000 Other payments for investing activities 35.940 10.043 Proceeds from the sale of property, plant and equipment, investment (22.656) (5.849) property and intangible assets Proceeds from short-term and long-term investments (309.700) (170.000) Capital grants received (6.282) (64.678) Loan repayments received (55.360) (4.374)
Net cash flows from investing activities 117.390 13.034
Note Cash Flow Statement – Financing Activities 26
2019/20 2018/19 £m £m
Cash receipts of short and long-term borrowing (1,428.424) (1,042.558) Other (receipts)/payments from financing activities (9.747) 1.262 Cash payments for the reduction of the outstanding liabilities relating 5.500 6.597 to finance leases and on-balance sheet PFI contracts Repayments of short and long-term borrowing 1,300.788 976.997
Net cash flows from financing activities (131.883) (57.702)
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Note Cash Flow Statement – Reconciliation of Liabilities arising from Financing 27 Activities
Other non- 2018/19 Financing cash 2019/20 31st March cash flows changes 31st March £m £m £m £m Long-term borrowings (688.547) - (1.855) (690.402) Short-term borrowings (107.661) (128.026) 0.060 (235.627) Lease Liabilities (2.054) - (0.039) (2.093) On balance sheet PFI liabilities (114.573) - 3.393 (111.180)
Total liabilities from financing activities (912.835) (128.026) 1.559 (1,039.302)
Note Pooled Budgets 28 The Council has entered into three pooled budget arrangements with the Kernow Clinical Commissioning Group (KCCG), as listed below: • Integrating Community Equipment Services, where the objective is to provide a pool for the effective procurement of health and social care equipment in Cornwall; • Carers’ Pooled Budget, a joint committee to support carers in Cornwall. This budget supports the joint commissioning of support and services for carers in line with the joint Strategic Needs Assessment and Cornwall Carers Strategy; Further details of the above two have not been disclosed as they are immaterial. • Mental Health Pooled Fund, where the objective is to provide a fully integrated service to mental health clients. Details are set out in the following table:
Mental Health Pooled Fund 2019/20 2018/19 £m £m
Funding provided to the pooled budget: - - Cornwall Council - Adult Care and Support (7.025) (6.866) Kernow Clinical Commissioning Group (38.816) (37.237) (45.841) (44.103)
Expenditure met from the pooled budget: Cornwall Council - Adult Care and Support 6.968 6.866 Kernow Clinical Commissioning Group 38.760 37.243 45.728 44.109
Net (Surplus) or deficit arising on the pooled budget during the year (0.113) 0.006
The Council has entered into a Better Care Fund (BCF) Agreement with the KCCG from 1 April 2016. This is an agreement under section 75 of the NHS Act 2006. The BCF is an overarching agreement consisting of a number of separate pooled and aligned budgets – this note deals with the pooled budgets only. Although the section 75 agreement is effective for
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2019/20, the BCF includes funds passed to the Council under section 256 of the NHS Act 2006 by NHS England. In addition to the Mental Health Pooled Fund (above) for 2019/20 these funds were allocated as budgeted contributions as follows:
• Contribution of £1.714m to the Integrating Community Equipment Services pooled budget with KCCG totalling £5.620m • Contribution of £0.649m to Carers’ Pooled Budget with KCCG totalling £2.101m
This expenditure is included within the net cost of services in the CIES. The Council was the host of two of the three pooled budgets for 2019/20 with the KCCG hosting the Mental Health Pooled Fund.
Note Members’ Allowances 29 The Council paid the following amounts to members of the Council during the year:
2019/20 2018/19 £m £m Remuneration paid during the year: Allowances 2.150 2.094 Expenses 0.004 0.003 Travel 0.106 0.103
Total 2.260 2.200
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Note Officers’ Remuneration 30
The remuneration paid to the Council’s senior employees is detailed below.
During the year the Directorate for Children, Families was renamed as the Directorate for Together for Families. Salary, Compensation Fees and Expense for loss of Pension Allowances Bonuses Allowances office Contribution Total £ £ £ £ £ £ Chief Executive - Kate Kennally 2019/20 180,423 - - - 31,574 211,997 2018/19 176,885 - - - 30,955 207,840
Strategic Director, Adult Social Care - 2019/20 155,583 - 1,257 - 27,227 184,067 Helen Charlesworth-May 2018/19 148,429 - 729 - 25,975 175,133
Strategic Director, Together for 2019/20 116,687 - 2,361 - 20,420 139,468 Families 1 2018/19 152,670 - 2,662 - 26,717 182,049
Strategic Director, Together for 2019/20 54,516 - 6,165 - 9,540 70,221 Families 1 2018/19 ------Chief Operating Officer 2019/20 109,001 - - - 18,872 127,873 and Section 151 Officer 2 2018/19 27,818 - - - 4,868 32,686
Chief Operating Officer 2019/20 71,940 - - - 1,727 73,667 and Section 151 Officer (Interim) 2 2018/19 ------
Service Director, Resources 2019/20 ------and Section 151 Officer 3 2018/19 76,103 - - - 13,318 89,421 Acting Service Director, Wellbeing and 2019/20 138,923 - 5,087 - - 144,010 Public Health 4 2018/19 78,883 - 4,885 - 12,603 96,371
Strategic Director, Neighbourhoods 5 2019/20 149,342 - 851 - 26,135 176,328 2018/19 151,728 - 900 - 26,552 179,180 Strategic Director, Neighbourhoods 5 2019/20 5,720 - - - - 5,720 2018/19 ------
Strategic Director, Economic Growth 2019/20 125,017 - 297 - (1,535) 123,779 and Development 6 2018/19 126,766 - 1,525 - 12,647 140,938
Strategic Commercial Growth Advisor 7 2019/20 - - 543 - - 543 2018/19 82,173 - 3,951 - 14,380 100,504
Service Director, Assurance 2019/20 101,235 - - - 17,716 118,951 and Monitoring Officer 2018/19 100,349 - 6,594 - 17,561 124,504 Service Director (Resilient Cornwall) 2019/20 54,569 - - - - 54,569 and Chief Fire Officer 8 2018/19 106,998 - - - - 106,998 Service Director (Resilient Cornwall) 2019/20 68,973 - 3 - - 68,976 and Chief Fire Officer (Interim) 8 2018/19 ------
Service Director, Finance and Commercial 2019/20 154,380 - - - 3,458 157,838 and Service Director, People, Change & Digital (Interim) - Richard Williams 9 Service Director, Resources and Service 2019/20 51,460 - - - 1,153 52,613 Director, Commercial (Interim) - Richard Williams Service Director, Resources and Service 2018/19 18,000 - - - 403 18,403 Director, Commercial (Interim) - Richard Williams
Head of Financial Planning & Business 2019/20 173,160 - - - 4,156 177,316 Intelligence, Head of Accountancy and 2018/19 10,360 - - - 249 10,609 Deputy Section 151 Officer (Interim) - Clare Williams
Notes 1 Strategic Director for Together for Families - The retirement of the previous Director occurred on 31/12/19, with the appointment of a new Director being made from 31/10/19. 2 Chief Operating Officer and Section 151 Officer - Officer resigned from position with effect from 28/2/20, with an Interim appointment being made from 1/12/19. 3 Service Director for Resources and Section 151 Officer 18/19 - joint role held until formally appointed to Chief Operating Officer and Section 151 Officer on 1/1/19. Equivalent figures for 19/20 not applicable. 4 Acting Service Director for Wellbeing and Public Health - secondment facility arranged with Devon County Council, utilising the services of the Director and Deputy Director of Public Health originally for a 12mth period from 1/10/18 but subsequently extended to 31/3/20. 5 Strategic Director, Neighbourhoods - Current Director retired 31/3/20. A new director was appointed on 16/3/20. 6 18/19: Directorship changed during the year on 10/9/18, when an Interim appointment was made. 19/20: formal appointment of Director made. 7 The Strategic Commercial Growth Adviser left the Council on 31/03/2019. No further appointment has been made. 8 The Service Director (Resilient Cornwall) and Chief Fire Officer resigned form post on 30/9/19. An interim appointment was made on 1/9/19. 9 Effective from 1/7/19, the Resources Service was split into two new Services, Finance and Commercial, and People, Change & Digital.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
The Council’s other employees receiving more than £50,000 remuneration for the year (excluding employer’s pension contributions) were paid the following amounts showing: • School staff – includes teachers and other school-based staff; • Other staff – other Council employees.
Remuneration Bands (£): Number of Employees Restated 2019/20 2018/19 School Other School Other From To Staff Staff Total Staff Staff Total
50,000 54,999 26 96 122 20 67 87 55,000 59,999 14 51 65 14 48 62 60,000 64,999 8 25 33 8 19 27 65,000 69,999 5 21 26 8 29 37 70,000 74,999 6 15 21 1 6 7 75,000 79,999 - 4 4 - 4 4 80,000 84,999 - 7 7 - 6 6 85,000 89,999 - 2 2 1 1 2 90,000 94,999 2 3 5 2 9 11 95,000 99,999 - 7 7 1 1 2 100,000 104,999 1 3 4 - 3 3 105,000 109,999 - 2 2 - 1 1 110,000 114,999 - - - - 1 1 115,000 119,999 1 1 - - - 125,000 129,999 - 3 3 - - - 145,000 149,999 1 - 1 1 - 2 2 1 150,000 154,999 1 - - - - 2 2 1 155,000 159,999 - 1 1 - - - 170,000 174,999 1 ------1 175,000 179,999 - - - - 2 2 180,000 184,999 - 1 1 - - -
62 243 305 55 201 256
1 Incorrect grouping stated in 18/19 financial statements, now restated
Note that, consistent with the approach taken in prior years, this table includes senior employees also included in the previous table. It does not include employees of Joint Committees.
The number of exit packages with total cost per band and total cost of the compulsory and other redundancies are set out in the following table:
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
(a) (b) (c) (d) (e) Exit package Number of Number of other Total number of Total cost of cost band compulsory departures agreed exit packages by exit packages (including special redundancies cost band in each band payments) (b) + (c) 2019/20 2018/19 2019/20 2018/19 2019/20 2018/19 2019/20 2018/19
£0 - £20,000 20 25 33 42 53 67 0.373 0.625
£20,001 - £40,000 3 5 15 28 18 33 0.485 1.102
£40,001 - £60,000 3 1 2 6 5 7 0.246 0.422
£60,001 - £80,000 - 1 5 2 5 3 0.351 0.212
£80,001 - £100,000 - 1 - 2 - 3 - 0.350
£100,001 - £150,000 1 1 1 3 2 4 0.218 0.510
£150,001 - £200,000 1 - - 3 1 3 0.160 0.648
Total cost included in bandings and CIES 28 34 56 86 84 120 1.833 3.869
Note External Audit Costs 31 The Council has incurred the following costs in relation to the audit of the Statement of Accounts, certification of grant claims and statutory inspections and to non-audit services provided by the Council’s external auditors.
2019/20 2018/19 £m £m Fees payable with regard to external audit services carried out by 0.205 0.162 the appointed auditor for the year Fees payable for the certification of grant claims and returns 0.031 0.024 for the year Fees in respect of other services provided during the year 0.028 0.028 Rebate received during the year for prior year audits from PSAA^ (0.021) - Fees in respect of extra audit work as a result of an objection 0.023 0.035
Total 0.266 0.249
^ PSAA - Public Sector Audit Appointments
As a result of the 2018/19 audit additional fees have been incurred by the Council in 2019/20, this is the consequence of extra work Grant Thornton has undertaken in relation to the McCloud judgement and PPE revaluations, and the use of their own experts in relation to HRA and Tamar Bridge and Torpoint Ferry.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Dedicated Schools Grant 32 The Council’s expenditure on schools is funded primarily by grant monies provided by the Department for Education, through the Dedicated Schools Grant (DSG). DSG is ring fenced and can only be applied to meet expenditure properly included in the Schools Budget. The Schools Budget includes elements for a range of educational services provided on an authority-wide basis and for the Individual School’s Budget, which is divided into a budget share for each maintained school.
Details of the deployment of DSG receivable for 2019/20 are as follows: -
2019/20 Individual Schools Central Budgets Expenditure (ISB) Total £m £m £m
Final DSG for 2019/20 before academy recoupment (76.066) (308.155) (384.221) Academy figure recouped for 2019/20 11.653 243.089 254.742
Total DSG after academy recoupment 2019/20 (64.413) (65.066) (129.479)
Plus: Brought forward from 2018/19 (0.669) (1.374) (2.043)
Agreed initial budgeted distribution in 2019/20 (65.082) (66.440) (131.522)
In-year adjustments (2.082) 1.541 (0.541)
Final budget distribution for 2019/20 (67.164) (64.899) (132.063)
Less: Actual central expenditure 68.856 - 68.856 Less Actual ISB deployed to schools - 63.417 63.417
Carry-forward (Surplus)/Deficit to 2020/21 1.692 (1.482) 0.210
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Grant Income 33 The Council credited the following grants, contributions and donations to the CIES in 2019/20:
2019/20 2018/19 £m £m Credited to Taxation and Non-specific Grant Income Private Finance Initiative (PFI) Grant (16.429) (16.429) Housing Benefit and Council Tax Administration Grant (1.713) (1.745) Learning Disability and Health Reform Grant (0.759) (0.748) New Homes Bonus Scheme Grant (11.706) (11.988) Small Business Rate Relief Grant (30.910) (28.667) Business Rates Cap Compensation (5.131) (3.592) Bus Service Operators Grant (0.773) (0.773) Improved Better Care Fund (16.903) (9.080) Adult Social Care Support Grant (7.941) (1.746) COVID-19 Government Grants (18.153) - Other Non Specific Grants (8.786) (5.063)
Total (119.204) (79.831)
Credited to Services Together for Families Dedicated Schools Grant (132.063) (135.700) Sixth Forms Funding (1.745) (2.792) Skills Funding Agency Grant (3.135) (3.073) Pupil Premium Grant (4.361) (4.778) Troubled Families Grant (1.982) (2.275) Special Education Needs (SEN) Grant (0.818) (0.925) School PE and Sport Grant (0.955) (1.089) Big Lottery Fund HeadStart Grant (2.459) (2.744) Better Care Fund (3.944) (7.940) Economic Growth and Development Ministry of Housing, Communities and Local Government (2.217) (2.457) Department for Transport Other Non Specific Grants (0.323) (0.372) Local Authority HRA Rent Rebates Granted to HRA Tenants: subsidy (17.408) (19.256) Other Housing Services Mandatory Rent Allowances: subsidy (114.728) (135.445) Mandatory Rent Rebates outside HRA: subsidy (1.345) (1.345) Wellbeing and Public Health Public Health Grant (24.789) (25.461)
Other Revenue Grants (18.626) (19.385) REFCUS Grant Funding (29.131) (46.957)
Total (360.029) (411.994)
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
The Council has received a number of grants, contributions and donations that have yet to be recognised as income as they have conditions attached to them that will require the monies or property to be returned to the giver if these conditions are not met.
The balances at the year-end are as follows:
Long-term Liabilities
2019/20 2018/19 31 March 31 March £m £m
Grant Receipts in Advance - Capital Grants Ministry of Housing, Communities and Local Government (4.070) (3.831) Department for Education (0.705) (1.052) Homes and Communities Agency (2.099) (1.825) Department of Health (0.926) (1.344) Department for Transport - (0.444) Environment Agency (0.041) (0.214) Department for Business, Energy and Industrial Strategy (1.573) - South Western Ambulance Service NHSFT - (0.013) S106 Agreements (25.913) (25.163) Other Capital Grants (4.202) (0.201)
Total (39.529) (34.087)
Note Related Parties 34
The Council is required to disclose material transactions with related parties – bodies or individuals that have the potential to control or influence the Council or to be controlled or influenced by the Council. Disclosure of these transactions allows readers to assess the extent to which the Council 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 Council.
Central Government Central government has effective control over the general operations of the Council – it is responsible for providing the statutory framework within which the Council operates, provides the majority of its funding in the form of grants, and prescribes the terms of many of the transactions that the Council has with other parties (e.g. council tax bills, housing benefits). Grants received from government departments are set out in the subjective analysis in Note 8 Expenditure and Funding Analysed by Nature. Grant receipts outstanding at 31 March 2020 are shown in Note 33.
Members Members of the Council have direct control over the Council’s financial and operating policies. The total of the allowances paid to Members in 2019/20 is shown in Note 29.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
At formal committee meetings, Members are expected to make formal declarations of interest if there is an interest that could have an effect on any of the agenda items being discussed. Details of each Member’s declarations of interest are recorded by Committee Services and are open to public inspection on the Council’s website. A review of the information contained in the declarations of interest for each of the 123 councillors for 2019/20 was carried out. Additionally, Members were asked to complete a short questionnaire in order to identify any positions held (either by them or members of their close family) with outside bodies on behalf of the Council or material transactions (over a de minimis level of £10,000) with the Council. Further cross-checks were made against the Council’s register of significant partnerships, procurement records and commercially available company search information. The information review and returned questionnaires highlighted a small number of relevant transactions with organisations to which Members were connected: • Details of transactions with subsidiary companies, associated and jointly controlled entities are provided in Notes G1 to G11 to the Council’s Group accounts; • The Council supports a number of charitable and other not-for-profit organisations to which Members are connected in their capacity as trustees or directors. Relevant declarations were made in respect of the majority of these organisations.
Officers Senior officers could also potentially be in a position to influence the policies of the Council (though this influence is limited by the Council’s budgetary control framework and scheme of delegation). Officers were also asked to complete the same short questionnaire as Members which highlighted a small number of relevant transactions detailed below: • Details of transactions with subsidiary companies, associated and jointly controlled entities are provided in Notes G1 to G11 to the Council’s Group Accounts; • The Council has entered into an arrangement with the Council of the Isles of Scilly for the provision of a number of support services. In addition, the Council of the Isles of Scilly’s monitoring officer and S151 officer responsibilities were undertaken by Officers of Cornwall Council. Apart from these relationships, no related party transactions were recorded with any key management personnel.
Other Public Bodies (subject to common control by central government) Pooled Budget Arrangements – the Council has three pooled budget arrangements with the KCCG for the provision of mental health services, integrating community equipment services, and to commission support and service for carers. Transactions and balances outstanding are detailed in Note 28. Joint Working Arrangements – the Council has a number of joint working arrangements with other public bodies.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Those with a total turnover of £1m or more are listed in the table below:
2019/20 2018/19
Gross Gross Council Gross Gross Council Income Expenditure Contribution* Income Expenditure Contribution* £m £m £m £m £m £m
Learning Disability Complex Cases Pooled Fund (1.985) 4.076 2.091 (1.968) 4.145 2.177 Learning Disability Supported Living Fund (12.770) 20.249 7.479 (12.678) 19.583 6.905 Devon and Cornwall Safety Camera Partnership (1.969) 2.093 - (1.820) 1.842 - * The Cornwall Council Contribution is the only element charged to the CIES and included within the net cost of services.
Pension Fund – Cornwall Council is the administering body for the Cornwall Pension Fund. During the financial year we charged the fund £1.205m for expenses incurred in providing these services (£1.178m in 2018/19). This is comprised of £0.968m administrative costs and £0.237m oversight and governance costs (£0.964m administrative costs and £0.214m oversight and governance costs in 2018/19).
Entities Controlled or Significantly Influenced by the Council Companies and Joint Ventures – the Council has substantial interests in subsidiary companies, associated and jointly controlled entities and is, therefore, required to produce Group Accounts. All Group entities are related parties and relevant details are disclosed in Notes G1 to G11 to the Council’s Group Accounts. Other Organisations – the Council has Members, officers or members of their close family that have been appointed to the following organisations which have received more than £0.100m in payments, including grants, from the Council during the year: 2019/20 2018/19 Council Council Contribution Contribution £m £m
Royal Cornwall Hospital Trust 3.401 4.724 Cornwall Community Development Ltd 1.034 0.542 Jubilee Pool 0.691 - Hall for Cornwall Trust 0.606 2.193 Bodmin College 0.298 0.228 Tregolls School AN Academy 0.235 0.221 Cornwall Education Learning Trust 0.230 - In Caring Hands Limited 0.199 0.246 Falmouth University 0.186 0.871 Kernow Learning MAT 0.173 - Barnardo's Centre 0.166 - Newquay Education Trust 0.145 0.121 Food for Change/Cornwall Food Foundation 0.105 - Looe Harbour Commissioners - 0.475 Council of the Isles of Scilly - 0.335 St Austell BID - 0.100
Total 7.469 10.056
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Capital Expenditure and Capital Financing 35
The total amount of capital expenditure incurred in the year is shown in the table as follows (including the value of assets acquired under finance leases and PFI/PPP contracts), 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 Council, the expenditure results in an increase in the Capital Financing Requirement (CFR), a measure of the capital expenditure incurred historically by the Council that has yet to be financed. The CFR is analysed in the second part of this note.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
2019/20 2018/19 £m £m
Opening capital financing requirement 986.107 966.783
Capital investment Property, Plant and Equipment 152.982 134.867 Intangible Assets 0.204 0.327 Heritage Assets 0.046 - HRA Land Appropriations now Capitalised 0.554 - HDP Capitalised Stock 25.526 - HDP Capitalisation of stock sold to Treveth 12.293 - Assets Held For Sale 0.044 0.432 Advances to Long-Term Debtors 28.118 8.554 Revenue Expenditure Funded from Capital under Statute 41.657 52.664
Sources of finance Capital receipts (19.984) (16.048) Government grants and contributions (43.121) (80.437) CTO Fleet Transfer to partially offset capital debtor (9.763) - Prior year long term debtor adjustment - (1.651) Sums set aside from revenue: Direct revenue contributions/specific reserves (41.754) (54.208) MRP/loans fund principal (24.564) (25.936) Disposal of assets previously acquired under finance leases (0.034) (0.006) Long term/short term debtor (1.415) (0.282) Other adjustments 0.370 1.048
Closing capital financing requirement 1,107.266 986.107
Explanation of movements in year Increase in underlying need to borrow (unsupported by government 123.404 45.319 financial assistance) Adjustment for HDP assets now capitalised and funded via borrowing 33.844 - including HRA land appropriations CTO Fleet transfer to reduce borrowing required (9.763) - Assets acquired under finance leases 0.140 - Disposal of assets previously acquired under finance leases (0.034) (0.006) Other adjustments 0.370 1.048 Amount set aside for HRA Attributable Debt (0.823) (0.819) Long term debtor adjustments (transfer to/(from) short term debtors) (1.415) (0.282) Less MRP payments (see above) (24.564) (25.936)
Increase/(decrease) in capital financing requirement 121.159 19.324
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Leases 36 The Council as Lessee
The Council has acquired a number of assets for schools, waste vehicles and property under finance leases and a number of vehicles under operating leases. The notes for these balances have not been included as they are not material.
The Council as Lessor
Finance Leases
The Council leases out property under finance leases. The notes for these balances have not been included as they are not material.
Operating Leases
The Council leases out property and equipment under operating leases. The future minimum lease payments receivable under non-cancellable leases in future years are:
31 March 31 March 2020 2019 £m £m Not later than one year 5.975 6.506 Later than one year and not later than five years 15.888 14.897 Later than five years 40.002 43.535
61.865 64.938
Total contingent rents are recognised as income in the period. Property, plant and equipment assets provided under operating leases are combined with owned assets and not shown separately.
Note Private Finance Initiatives and Similar Contracts 37
Private Finance Initiative (PFI) is an outsourcing method between a public sector body, such as Cornwall Council, and a private sector organisation to deliver public services using non- current assets. It transfers responsibility, but not accountability, for the delivery of public services to a private company or companies. The private sector company operates the non- current asset and provides finance. The details of each PFI scheme are unique, but it is essentially a way of funding major capital investments. Contracts typically last for up to 30 years, during which time the non-current asset is leased by the public sector body. For each PFI scheme there is a detailed specification of services to be provided to the public; the Council is able to specify exactly who receives the services provided and is able to restrict the ability of the operator to offer services to particular categories of users if it so wishes.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
The contracts specify the minimum standards that have to be adhered to with deductions from the fee payable if facilities are unavailable of if the performance drops below minimum standards. They will also specify the minimum acceptable condition to which the buildings and any plant and equipment must be maintained. The contractor is also obliged to hand over the non-current assets at the end of the contract in a specified condition at nil cost. Cornwall Council currently has four PFI schemes as detailed below:
Fire Stations PFI Scheme 2019/20 was year 19 of a 27 year PFI contract for the construction of ten new fire stations, the refurbishment of twenty one existing fire stations and the operation and maintenance of all of these stations until the end of the PFI contract in 2028.
PFI Contract Grouped Education 2019/20 was year 16 of a 28 year contract for the repairs, maintenance and facilities management services in the schools constructed and refurbished under the contract. The contractor has constructed two new schools and upgraded/refurbished a further fifteen existing schools to the standard of the new buildings and operate and maintain the infrastructure for a period of twenty five years.
Leisure PFI Scheme 2019/20 was year 16 of a 32 year PFI contract for the construction and operation of a leisure centre in Penzance. The contractor took on the obligation to construct the leisure centre and to maintain it in a minimum acceptable condition and to procure and maintain the plant and equipment needed to operate the leisure centre.
Waste PFI Scheme 2019/20 was year 14 of a 34 year PFI contract for the construction/upgrading and subsequent operation of a number of waste disposal facilities within Cornwall. The PFI scheme was split into two distinct phases: • Phase 1 - the upgrading and operation of existing and new collection and recycling facilities, along with general refuse collection. Phase 1 became operational during financial year 2006/2007. • Phase 2 - the design, build and subsequent operation of the Cornwall Energy Recovery Centre (CERC). Phase 2 became operational during financial year 2016/17.
Property, plant and equipment The assets used to provide services for the PFI Schemes are recognised on the Council’s Balance Sheet. Movements in their value over the year are detailed in the analysis of the movement on the property, plant and equipment balance in Note 14.
Payments
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
The Council makes an agreed payment each year which is increased each year by inflation and can be reduced if the contractor fails to meet availability and performance standards in any year but which is otherwise fixed. Payments remaining to be made under each PFI contract at 31 March 2020 (excluding any estimation of inflation and availability/performance deductions) are as follows:
Fire PFI Scheme Reimbursement Payment of Capital Contingent for Services Expenditure Interest Rent Total £m £m £m £m £m Payable in 2020/21 0.922 0.380 0.534 0.143 1.979 Payable within two to five years 3.949 1.994 1.648 0.648 8.239 Payable within six to ten years 3.059 2.267 0.548 0.668 6.542 - - - Total 7.930 4.641 2.730 1.459 16.760
Education PFI Scheme Reimbursement Payment of Capital Contingent for Services Expenditure Interest Rent Total £m £m £m £m £m Payable in 2020/21 4.667 1.442 2.793 0.270 9.172 Payable within two to five years 19.909 7.274 9.636 1.228 38.047 Payable within six to ten years 26.016 13.028 7.315 2.057 48.416 Payable within eleven to fifteen years 10.693 6.958 1.032 1.093 19.776
Total 61.285 28.702 20.776 4.648 115.411
Penzance Leisure Centre PFI Scheme Reimbursement Payment of Capital Contingent for Services Expenditure Interest Rent Total £m £m £m £m £m Payable in 2020/21 0.383 0.168 0.604 0.110 1.265 Payable within two to five years 2.428 0.433 2.211 0.159 5.231 Payable within six to ten years 2.838 1.308 2.280 0.529 6.955 Payable within eleven to fifteen years 3.144 2.443 1.168 0.718 7.473 Payable within sixteen to twenty years 0.121 0.275 0.036 0.308 0.740
Total 8.914 4.627 6.299 1.824 21.664
Waste PFI Scheme Reimbursement Payment of Capital Contingent for Services Expenditure Interest Rent Total £m £m £m £m £m Payable in 2020/21 21.562 3.581 8.861 3.981 37.985 Payable within two to five years 101.822 11.639 30.869 16.330 160.660 Payable within six to ten years 138.414 25.421 29.309 28.693 221.837 Payable within eleven to fifteen years 174.703 26.984 13.057 27.479 242.223 Payable within sixteen to twenty years 170.162 5.584 2.041 6.619 184.406 - Total 606.663 73.209 84.137 83.102 847.111
Although the payments made to the contractor are described as unitary payments they have been calculated to compensate the contractor for the fair value of the services they provide,
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
the capital expenditure incurred and the interest payable whilst the capital expenditure remains to be reimbursed. The outstanding liability to effectively reimburse the contractor for capital expenditure incurred is as follows:
Penzance Leisure Waste PFI Waste PFI Education Centre Scheme - Scheme - Fire PFI PFI PFI Contract Deferred 2019/20 Scheme Scheme Scheme Payment Income Total £m £m £m £m £m £m
Balance outstanding at start of year (4.978) (30.016) (4.674) (74.905) (30.929) (145.502) Payments during the year 0.336 1.314 0.047 1.696 - 3.393 Income released during the year - - - - 1.509 1.509
Balance outstanding at year-end (4.642) (28.702) (4.627) (73.209) (29.420) (140.600)
Note Pension Schemes Accounted for as Defined Contribution Schemes 38 Teachers employed by the Council are members of the Teachers’ Pension Scheme, administered by the DfE. The Scheme provides teachers with specified benefits upon their retirement, and the Council contributes towards the costs by making contributions based on a percentage of members’ pensionable salaries.
The Scheme is technically a defined benefit scheme. However, the Scheme is unfunded and the DfE uses a notional fund as the basis for calculating the employers’ contribution rate paid by local authorities. The Council is not able to identify its share of underlying financial position and performance of the Scheme with sufficient reliability for accounting purposes. For the purposes of this Statement of Accounts, it is accounted for on the same basis as a defined contribution scheme.
The Council is responsible for the costs of any additional benefits awarded upon early retirement outside of the terms of the teachers’ scheme. These costs are accounted for on a defined benefit basis and detailed in Note 39.
Note Defined Benefit Pension Schemes 39 Participation in Pension Schemes As part of the terms and conditions of employment of its employees, the Council makes contributions towards the cost of post-employment benefits. Although these benefits will not actually be payable until employees retire, the Council has a commitment to make the payments that needs to be disclosed at the time that employees earn their future entitlement. The Council participates in two post-employment schemes: • The Local Government Pension Scheme, administered locally by Cornwall Council. This is a funded defined benefit final salary scheme, meaning that the Council and employees pay contributions into a fund, calculated at a level intended to balance the pension liabilities with investment assets;
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
• Arrangements for the award of discretionary post-retirement benefits upon early retirement – this is an unfunded defined benefit arrangement, under which liabilities are recognised when awards are made. However, there are no investment assets built up to meet these pension liabilities and cash has to be generated to meet actual pension payments as they eventually fall due.
Teachers’ Pension Scheme This is a notionally-funded, defined benefit scheme that is managed by the Teachers Pension Agency. This means we pay contributions as if it was a funded scheme, when in fact it is not. As a consequence, it is not possible for us to identify our share of the underlying scheme assets and liabilities. This scheme is not funded, therefore there is no need for a full actuarial valuation. We made contributions at a rate of 16.48% (April 2019 to August 2019) and 23.68% (September 2019 to March 2020) in 2019/20 (16.48% 2018/19) totalling £6.748m for 2019/20 (£5.871m 2018/19) and we are also responsible for costs relating to added years and associated inflation increases, totalling £1.683m in 2019/20 (£1.697m 2018/19). We are responsible for a percentage of the statutory benefits previously funded by the DfE in cases of early retirement, which amounted to £1.240m in 2019/20 (£1.228m 2018/19).
Uniformed Fire fighters Fire fighters have the option of joining one of the Fire Fighters’ Pension Schemes. The schemes provide defined benefits upon retirement and we contribute towards the costs by making contributions based on a percentage of members’ pensionable pay. In 2019/20, we paid £3.086m (£1.538m 2018/19) towards fire fighters pensions in respect of fire fighters retirement benefits, representing 27.4% on the 2006 scheme and 37.3% on the 1992 scheme, 37.3% on the Modified Scheme and 28.8% on the 2015 Scheme (11.9%, 21.7%, 21.7% and 14.3% 2018/19) of pensionable pay. Employer Pension Contribution rates are increasing across all schemes which will apply for four years from 1 April 2019. There were no contributions remaining payable at the year-end across any of the schemes detailed above. The schemes are defined benefit schemes. Although the schemes are unfunded, (that is, there are no investment assets), fire fighters pensions use a notional fund as the basis for calculating the employers and employees contribution rates paid by fire authorities.
NHS Pension Scheme ICES Pooled Fund We have 3 employees who are covered by the provisions of the NHS Pension Scheme in the ICES Pooled Fund. The scheme is an unfunded, defined benefit scheme that covers NHS employers, General Practices and other bodies allowed under the direction of the Secretary of State, in England and Wales. As a consequence, it is not possible for us to identify our share of the underlying scheme assets and liabilities. We contributed at a rate of 14.3% in 2019/20 (14.3% 2018/19) totalling £0.014m (£0.018m 2018/19).
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Public Health On 1 April 2013 public health staff were transferred from Primary Care Trusts (PCTs) to local authorities. Consequently, we have 27.27 FTE employees (30.52 FTE’s 2018/19) who are covered by the provisions of the NHS Pension Scheme in Public Health. The scheme is an unfunded, defined benefit scheme that covers NHS employers, General Practices and other bodies allowed under the direction of the Secretary of State, in England and Wales. As a consequence, it is not possible for us to identify our share of the underlying scheme assets and liabilities. We contributed at a rate of 14.38% in 2019/20 (14.38% in 2018/19) totalling £0.148m (£0.172m in 2018/19).
Public Health Nursing Service On 1 April 2019 Public Health Nursing (Health Visiting, School Nursing and Specialist Speech and Language Therapy) transferred into Cornwall Council from Cornwall Partnership NHS Foundation Trust (CFT). Consequently, we have 148.5 FTE employees who are covered by the provisions of the NHS Pension Scheme in the Public Health Nursing Service. The scheme is an unfunded, defined benefit scheme that covers NHS employers, General Practices and other bodies allowed under the direction of the Secretary of State, in England and Wales. As a consequence, it is not possible for us to identify our share of the underlying scheme assets and liabilities. We contributed at the appropriate rate in 2019/20 totalling £0.812m. Following a consultation, the Department of Health and Social Care (DHSC) confirmed that the employer contribution rate would increase from 14.38% to 20.68% per cent (including the 0.08% scheme administration levy) from 1 April 2019. The increase is required to meet the cost of scheme benefits, following advice from the Government Actuary’s Department as part of the 2016 scheme valuation process. The government committed to providing additional funding for the NHS to cover the cost increase, with local authorities required to cover the remaining proportion of the cost increase relating to changes announced in Budget 2016. The council is responsible for 2.5% of the increase with the remaining 3.8% being funded by the Department of Health and Social Care (DHSC).
Cornwall Council Group For the purposes of the pension fund disclosure notes the following tables and narrative include the following entities, Cornwall Council, Cornwall Housing Ltd, Cormac Solutions Ltd, Corserv Ltd, Cornwall Development Company Ltd, Cornwall Airport Ltd and 50% Tamar Bridge Torpoint Ferry, and 50% Mount Edgcumbe. The pension liabilities as at 31 March 2020 relating to each entity are Cornwall Council £734.785m, Cornwall Housing Ltd £8.025m, Cormac Solutions Ltd £44.860m, Corserv Ltd £1.369m, Cornwall Development Company Ltd £5.861m, Cornwall Airport Ltd £0.808m, 50% Tamar Bridge Torpoint Ferry £3.328m, and 50% Mount Edgcumbe £0.678m.
So as to avoid confusion with Cornwall Council disclosures we have referred throughout the note to them as the Cornwall Council Group.
Cornwall Council has an agreement with Cornwall Housing Ltd, Cormac Solutions Ltd and the Pension Fund known as a pass through arrangement in relation to pension liabilities. This financial year a new agreement was signed which added Corserv Ltd, Cornwall Development Company Ltd and Cornwall Airport Ltd. This arrangement means that Cornwall Council, as the parent company, bear the risks in relation to these schemes. They are therefore included on Cornwall Council’s balance sheet.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Transactions Relating to Post-employment Benefits We recognise the cost of retirement benefits in the reported cost of services when they are earned by employees, rather than when the benefits are eventually paid as pensions. However, the charge we are required to make 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 via the MIRS. The following transactions have been made in the CIES and the General Fund Balance via the MIRS during the year:
Cornwall Council Group Firefighters Pension Scheme Pension Arrangements 31 March 31 March 31 March 31 March 2020 2019 2020 2019 £m £m £m £m Comprehensive Income and Expenditure Statement Cost of Services: Current Service Cost 75.986 62.719 5.300 5.300 Past Service Costs (0.077) 5.676 (1.000) 9.300 (Gain)/loss from settlements (1.526) (3.362) - - Financing and Investment Income and Expenditure Net interest on the net defined benefit liability/(asset) 26.430 24.562 6.100 6.600
Total Post-employment Benefits charged to the Surplus or 100.813 89.595 10.400 21.200 Deficit on the Provision of Services
Other Post-employment Benefits Charged to the Comprehensive Income and Expenditure Statement Remeasurement of the net defined benefit liability comprising: Return on plan assets (excluding the amount included 47.265 (51.874) - - in the net interest expense) Actuarial (gains) and losses arising on changes in (88.147) (0.117) (8.000) (17.900) demographic assumptions Actuarial (gains) and losses arising on changes in (212.948) 181.567 (23.000) 18.000 financial assumptions Other experience (83.566) 1.789 3.800 (10.900)
Total Post-employment Benefits charged to the Comprehensive Income and Expenditure Statement (236.583) 220.960 (16.800) 10.400
Movement in Reserves Statement Reversal of net charges made to the Surplus or Deficit on the (100.813) (89.595) (10.400) (21.200) Provision of Services for post-employment benefits in accordance with the Code Actual amount charged against the General Fund Balance for pensions in the year: Employers' contributions payable to scheme 49.647 47.734 4.500 4.300
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Pension Assets and Liabilities recognised in the Balance Sheet The amount included in the Balance Sheet arising from the Council’s obligation in respect of its defined benefit plans is as follows:
Cornwall Council Group Firefighters Pension Scheme Pension Arrangements 2019/20 2018/19 2019/20 2018/19 £m £m £m £m
Present value of the defined benefit obligation (2,214.397) (2,493.071) (225.700) (247.000) Fair value of plan assets 1,414.683 1,417.657 - -
Net liability arising from defined benefit obligation (799.714) (1,075.414) (225.700) (247.000)
Reconciliation of the movements in the Fair Value of the Scheme (plan) Assets
Cornwall Council Group Firefighters Pension Scheme Pension Arrangements 2019/20 2018/19 2019/20 2018/19 £m £m £m £m
Opening fair value of scheme assets 1,417.657 1,337.140 - -
Current Service Cost (0.001) - - - Effect of settlements (3.371) (4.513) - - Interest Income 34.478 35.959 - - Remeasurement gain/(loss): The return on plan assets, excluding the amount (47.265) 51.874 - - included in the net interest expense Changes in financial assumptions (0.170) 0.038 - - Contributions from employer 49.647 47.734 4.500 4.300 Contributions from employees into the scheme 10.994 10.366 1.300 1.300 Benefits paid (70.155) (60.941) (5.800) (5.600) Other 20.762 - - - Effect of business combinations and disposals 2.107 - - -
Closing fair value of scheme assets 1,414.683 1,417.657 - -
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Reconciliation of Present Value of the Scheme Liabilities (Defined Benefit Obligation) Funded Liabilities Unfunded Liabilities Cornwall Council Group Firefighters Pension Scheme Pension Arrangements 2019/20 2018/19 2019/20 2018/19 £m £m £m £m
Opening balance at 1 April (2,493.071) (2,239.328) (247.000) (240.900)
Current service cost (75.985) (62.719) (5.300) (5.300) Interest income (60.908) (60.521) (6.100) (6.600) Contributions from scheme participants (10.994) (10.366) (1.300) (1.300) Remeasurement gains and (losses): Actuarial gains/(losses) arising from changes in 213.118 (181.605) 23.000 (18.000) financial assumptions Actuarial gains/(losses) arising from changes in 88.147 0.117 8.000 17.900 demographic assumptions Other Experience 83.566 (1.789) (3.800) 10.900 Past service cost 0.592 (5.676) 1.000 (9.300) Benefits paid 70.155 60.941 5.800 5.600 Liabilities extinguished on settlements 4.897 7.875 - - Other (31.292) - - - Transfers (in)/out from other authorities (2.622) - - -
Closing balance at 31 March (2,214.397) (2,493.071) (225.700) (247.000)
Local Government Pension Scheme Assets
Cornwall Council Group* Cornwall Council Group* Fair Value of Scheme Assets Fair Value of Scheme Assets Quoted prices in active markets Quoted prices not in active markets Reworded^ 31 March 31 March 31 March 31 March 2020 2019 2020 2019 £m £m £m £m Cash and cash equivalents 18.113 10.699 - -
Private Equity: All - - 43.348 45.502 Sub total private equity - - 43.348 45.502
Other Investment funds: Infrastructure - - 79.175 46.570 Equities 538.041 516.508 - 30.814 Bonds 59.385 102.910 - - Hedge Funds - - 91.628 95.660 Liability Driven Investment^ - - 280.684 266.378 Other 149.252 160.097 153.868 141.319 Sub total other investment funds 746.678 779.515 605.355 580.741
Total assets 764.791 790.214 648.703 626.243
* This does not contain Mount Edgcumbe ^ Reworded to be more informative about the investment
The Pension Fund has no direct holdings in equities. It does hold is units in Funds of Global Equities, Emerging Markets and Frontier Market Funds run by various investment managers.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
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. Both the Cornwall Council pension scheme and the Firefighters’ pension scheme liabilities have been valued by Hymans Robertson LLP, an independent firm of actuaries, estimates for the Council Fund being based on the latest full valuation of the scheme as at 1 April 2019. Discretionary payment liabilities have been calculated by our Council’s Pension Fund Section. The significant assumptions used by the actuary are as follows
Cornwall Council Firefighters Pension Scheme Pension Arrangements 31 March 31 March 31 March 31 March 2020 2019 2020 2019
Long-term expected rate of return on assets in the scheme:
Equity investments -1.7% 6.6% N/A N/A Bonds -1.7% 6.6% N/A N/A Other -1.7% 6.6% N/A N/A
Mortality Assumptions: Longevity at 65 for current pensioners: Men 21.4 years 22.1 years 26.4 years 27.3 years Women 23.6 years 24.5 years 28.5 years 29.4 years Longevity at 65 for future pensioners: Men 22.3 years 24.0 years 27.5 years 28.4 years Women 25.1 years 26.4 years 29.7 years 30.6 years Rate of inflation 1.9% 2.5% 1.9% 2.5% Rate of increase in salaries 1.9% 2.6% 2.8% 3.5% Rate of increase in pensions 1.9% 2.5% 1.9% 2.5% Rate for discounting scheme liabilities 2.3% 2.4% 2.3% 2.4%
The Firefighters’ arrangement has no assets to cover its liabilities.
The estimation of the defined benefit obligations is sensitive to the actuarial assumptions set out in the table above. The sensitivity analysis below has been determined based on reasonably 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 the other assumptions remain constant. The assumptions in longevity, for example, assume that life expectancy increases or decreases for men and women. In practice, this is unlikely to occur, and changes in some of the assumptions may be interrelated. The estimations in the sensitivity analysis have followed the accounting policies for the scheme, i.e. on an actuarial basis using the projected unit credit method. The methods and types of assumptions used in preparing the sensitivity analysis below did not change from those used in the previous period.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Impact on the Defined Benefit Obligation in the Scheme*
Increase in Decrease in Assumption Assumption £m £m
Rate of inflation (increase or decrease by 0.5%) 180.839 (180.839) Rate of increase in salaries (increase or decrease by 0.5%) 20.245 (20.245) Rate of increase in pensions (increase or decrease by 0.5%) 180.839 (180.839) Rate for discounting scheme liabilities (increase or decrease by 0.5%) 202.683 (202.683)
* This does not contain Mount Edgcumbe
Asset and Liability Matching (ALM) Strategy
The Pensions Committee of Cornwall Council has agreed to an asset and liability matching strategy (ALM) that matches, to the extent possible, the types of assets invested to the liabilities in the defined benefit obligation. The Fund has matched assets to the pensions’ obligations by investing in long-term fixed interest securities and also by employing a liability driven investment, which hedges an element of the Fund’s interest rate and inflation risk. This is balanced with a need to maintain the liquidity of the Fund to ensure that it is able to make current payments. As is required by the pensions and (where relevant) investment regulations the suitability of various types of investment have been considered, as has the need to diversify investments to reduce the risk of being invested in too narrow a range. A large proportion of the assets relate to equities (30% of scheme assets in March 2020; 33% in March 2019) and bonds (24% in March 2020; 26% in March 2019). The scheme also invests in alternative asset classes (e.g. property unit trusts and diversified growth funds) as a part of the diversification of the scheme’s investments. The ALM strategy is monitored annually or more frequently if necessary.
Impact on the Council’s Cash Flows
The objectives of the scheme are to keep employers’ contributions at as constant a rate as possible. The Council has agreed a strategy with the scheme’s actuary to achieve a funding level of 100% over the next 20 years. Funding levels are monitored on a quarterly basis. The next triennial valuation is due to start at 31 March 2022 based on the previous 3 years data.
The Cornwall Council Group anticipates paying £44.090m expected contributions to the scheme in 2020/21.
The weighted average duration of the defined benefit obligation for Cornwall Council scheme members is 19 years, 2019/20 (17.7 years 2018/19).
Further information can be found in the Pension Fund Annual Report, which is available upon request from County Hall, Truro, TR1 3AY.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Nature and Extent of Risks Arising from Financial Instruments 40 The Council’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 Council; • Liquidity risk – the possibility that the Council might not have funds available to meet its commitments to make payments; • Market risk – the possibility that financial loss might arise for the Council as a result of changes in such measures as interest rates and stock market movements. The over-riding objective of the Council’s Treasury Management Strategy is to seek to minimise the risks inherent within the treasury operations and the framework within which the risks are managed is contained within the Council’s detailed Treasury Management Practices. Sophisticated techniques for managing risk are being utilised to further improve the risk profile of the portfolios.
Credit Risk Credit risk arises from deposits with banks and financial institutions, as well as credit exposures to the Council’s customers. The risk is minimised through the Annual Investment Strategy which requires that deposits are not made with financial institutions unless they meet identified minimum credit criteria. Caution is exercised in determining the creditworthiness of investment counterparties, even if they meet the minimum criteria above. In the event that any institutions are at the minimum criteria and are on negative rating watch, monies are not placed with that organisation until such time that the negative outlook is revised. Geographical limits are considered to ensure an appropriate spread of risk. Sovereign ratings will be taken account of when placing funds with institutions outside of the UK.
In addition, the Council monitors Credit Default Swap Spreads which also contribute to forming a view of the creditworthiness of the investment counterparties. Market intelligence is also considered before entering into any investments with proposed counterparties meeting the minimum criteria.
Customers for goods and services are assessed, taking into account their financial position, past experience and other factors, within individual credit limits being set in accordance with parameters set by the Council.
Amounts Arising from Expected Credit Losses
Credit risk in relation to treasury investments is considered very low and their have been no defaults within the year or impairments. The reason is due to who we invest with being namely Local Authorities, and the fact we have a risk adverse Treasury Management Strategy, with the primary objective relating to security of capital, followed by liquidity of investments, and then secure optimum performance (yield), this ensures a prudent investment of surplus funds. The credit quality of debtors is reflected in the level of bad debt provision allowed for, the Council has short term debtor amount of £139.628 and long term debtors of £57.318m, with an impairment allowance of £37.596m.
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Credit Risk Exposure
The authority has the following exposure to credit risk at 31 March 2020.
Credit Gross risk carrying rating amount £m £m
12 month expected credit losses Loans and receivables - treasury Investments in other local authorities n/a 96.000 Shares in group companies n/a 0.500 Local authority bonds n/a 5.095 Loans and receivables - treasury Heartlands n/a 0.922
Simplified approach Loans and receivables - debtors n/a 57.318 Short term debtors n/a 139.628 Short term cash investments n/a 139.448 Other bank balances n/a (40.381)
The CIPFA Code stipulates that Investments in other local authorities are exempt from the credit risk rating meaning that Local Authority Bonds are also exempt. Similarly shares in group companies wholly owned by the Council are exempt from credit risk. The Heartland investment is backed by the Heartlands reserve.
A simplified approach was used for the other debtor financial assets, with each asset class being reviewed, short term debtors contains a bad debt provision, which amounts to £37.596m.
Liquidity Risk
The Council has a comprehensive cash flow management system that seeks to ensure that cash is available as needed. If unexpected movements happen the Council has ready access to borrowings from the money markets and the Public Works Loans Board. The Council needs to ensure there is sufficient liquidity within the investment portfolio, which is achieved by placing limits on the proportion of investments maturing in relevant time periods. The Council recognises that not all financial instruments will run to their final maturity date as some instruments provide the counterparty with an option to prematurely cancel. The table below shows maturity analysis for the final maturity date.
The maturity analysis of financial liabilities and financial assets is as follows:
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
Cash and Cash Financial Financial Equivalents Liabilities Assets Net £m £m £m £m
Less than one year 99.067 (235.627) 159.870 23.310 Between one and two years - - 91.000 91.000 Between two and five years - - 6.125 6.125 Between five and ten years - (0.020) 0.561 0.541 Between ten and twenty years - - 3.410 3.410 Between twenty and fifty years - (674.382) - (674.382) More than fifty years - (16.000) - (16.000) No fixed maturity date - - 1.422 1.422
99.067 (926.029) 262.388 (564.574)
The category for financial assets maturing in less than one year includes investments w hich are short term - thus enabling liquidity in the event it is required.
Market Risk
Interest Rate Risk The Council is exposed to significant risk in terms of its exposure 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 interest rates would have the following effects: • Borrowings at fixed rates – the fair value of the borrowings will fall; • Borrowings at variable rates – the interest expense charged to the surplus or deficit on the provision of services will rise; • Investments at fixed rates – the fair value of the assets will fall; • Investments at variable rates – the interest income credited to the surplus or deficit on the provision of services will rise. Borrowings, treasury investments and debtors are not carried at fair value, so nominal gains and losses on fixed rate borrowings and investments (excluding investments which are short term) 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 Other Comprehensive Income and Expenditure. The Treasury Management team has an active strategy for assessing interest rate exposure that feeds into the setting of the annual budget.
At 31 March 2020, if interest rates and discount rates had been 1% higher or lower with all other variables held constant, the financial effect would be:
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
If interest rates had been 1% higher with all other variables held constant the financial effect would be: £m
Increase in interest payable on variable rate borrowings Increase in interest receivable on variable rate investments 0.130
Impact on (surplus) or deficit on the provision of services at 31 March 2020 0.130
If interest rates had been 1% lower with all other variables held constant the financial effect would be:
Decrease in interest payable on variable rate borrowings Decrease in interest receivable on variable rate investments (0.130)
Impact on (surplus) or deficit on the provision of services at 31 March 2020 (0.130)
An increase of 1% in discount rates would lead to changes in the fair value of investments and borrowings: £m
Decrease in fair value of borrowing liabilities (2.438) Decrease in fair value of investment assets (164.984)
A decrease of 1% in discount rates would lead to changes in the fair value of investments and borrowings: £m
Increase in fair value of borrowing liabilities 0.922 Increase in fair value of investment assets 244.109
Changes in fair value have no impact on (surplus) or deficit on the provision of services at 31 March 2020 Included within the numbers of the table above are LOBO’s financial instruments, and a 1% increase in discount rate would decrease the fair value of the LOBO liability by (£83.565m), while a 1% decrease would increase the fair value by £127.724m. As set out in the table below sets out the frequency of the LOBO options. At each option date there is potential for the interest rate to change. Any changes in these interest rates would impact on the sensitivity analysis set out above.
Lender’s Option Borrower’s Option Loans (LOBO’s)
The Council has a number of Lender Option Borrower Option (LOBO) loans. There are risks associated with these types of instruments which are impacted by their maturity dates, and in the context of the different types of LOBO’s, the frequency of the LOBO option dates. The carrying amounts in the balance sheet and the fair values are as disclosed below. The comparable par amounts, maturities and LOBO option frequency dates are as follows:
31 March 2020 31 March 31 March 2020 Current Contractual 2020 31 March 2020 31 March 2020 Principal plus Interest Rate Original Remaining Frequency of Accrued Interest (Range) Maturity Maturity LOBO Options £m
Fixed interest rate LOBO's (276.511) 3.53% - 5.24% 60-70 years 45-59 years 6 months - 5 years
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
31 March 2019 31 March 31 March 2019 Current Contractual 2019 31 March 2019 31 March 2019 Principal plus Interest Rate Original Remaining Frequency of Accrued Interest (Range) Maturity Maturity LOBO Options £m
Fixed interest rate LOBO's (277.596) 3.53% - 5.24% 60-70 years 46-60 years 6 months - 5 years
The Council’s treasury management strategy considers the whole portfolio of its borrowing and investment portfolio, not just individual transactions. New borrowing would normally be taken on a short term basis to take advantage of historically low rates of interest, with a view to continuing to roll over short term debt until an interest rate increase is anticipated, at which time the Council will enter into long term agreements to “lock in” interest rates over the long term.
The carrying amounts and fair values of the Council’s LOBO’s are as follows:
31 March 31 March 31 March 31 March 2020 2020 31 March 2019 2019 31 March Carrying Accrued 2020 Fair Carrying Accrued 2019 Fair Value Interest Value Value Interest Value £m £m £m £m £m £m
Fixed interest rate LOBO's (272.995) (3.516) (419.434) (274.100) (3.496) (440.619)
The Council is required to account for financial instruments in accordance with International Financial Reporting Standard 9: Financial Instruments (IFRS9). The loans do not meet the requirements under IFRS9 to be accounted for at fair value through profit and loss. In this case they are accounted for at amortised cost. The Code would normally require the Council to calculate Effective Interest Rate (EIR) calculations in order to arrive at an appropriate valuation of the instruments in its accounts. However, in the case where it is not possible to reliably estimate the cash flows or expected life of a financial instrument then the contractual cash flows over the full contractual term of the financial instrument shall be used. The Council has applied this accounting treatment to its LOBO’s which is in compliance with the Code.
The Council does perform an EIR calculation on two of its fixed rate LOBO’s. At their inception in 2005 the total adjustment recognised in the CIES was £1.178m, which will be written down over their 60 year term, £0.007 was written down during 2019/20.
In 2018/19 the Council redeemed and refinanced its two inverse LOBO loans with a value totalling £85.000m. This removed the risk of paying relatively high interest rates during a period of prolonged low market rates. The two inverse LOBO loans were replaced by loans from the PWLB and as this is a different lender then the redemption is classified as loan extinguishment under IFRS9.
The premium payable on early redemption of the loans was £53.623m. Under the CIPFA Code premiums on early redemption of debt are chargeable to the CIES in the year of redemption. The premium is shown as an exceptional item in the Council’s CIES. However, under the CIPFA Code the impact on the General Fund in the year of payment of the premium is reversed out through the MIRS. The premium is then charged back to the
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Information Classification: CONTROLLED Notes to the Main Financial Statements Cornwall Council 2019/20 Statement of Accounts
General fund over the period of the remaining life of the loans, in 2019/20 this amounted to £1.151m.
Foreign Exchange Risk
The Council has no financial assets or liabilities denominated in foreign currencies and thus have no exposure to loss arising from movements in exchange rates.
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
Group Financial Statements
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
Group Movement in Reserves Statement (as follows) This statement shows the movement in the year on the different reserves held by the Group, analysed into “usable reserves” and other reserves.
Group Comprehensive Income and Expenditure Statement (below) This statement shows the accounting cost in the year of providing the Group’s services in accordance with generally accepted accounting practices.
Restated** 2019/20 2018/19
Expenditure Income Net Expenditure Income Net
£m £m £m £m £m £m Notes* Adult Social Care 267.355 (71.762) 195.593 246.879 (80.660) 166.219 Together for Families**^ 160.786 (81.703) 79.083 149.241 (79.360) 69.881 Economic Growth and Development** 156.362 (75.490) 80.872 148.699 (77.088) 71.611 Neighbourhoods 120.091 (26.469) 93.622 95.937 (27.457) 68.480 Customer and Support Services 91.976 (14.890) 77.086 101.962 (19.404) 82.558 Wellbeing and Public Health 27.051 (26.727) 0.324 27.737 (26.360) 1.377 Corporate Items 160.126 (144.444) 15.682 198.528 (166.701) 31.827 Schools-managed Expenditure 93.524 (85.013) 8.511 110.401 (96.733) 13.668 Local Authority HRA 8.658 (40.257) (31.599) 10.911 (39.618) (28.707) Joint Committees 6.615 (6.361) 0.254 6.775 (5.970) 0.805 Group Companies 143.464 (26.403) 117.061 150.067 (38.632) 111.435
Group cost of services 1,236.008 (599.519) 636.489 1,247.137 (657.983) 589.154
Other operating expenditure 41.543 23.781 11* Exceptional transfer of academy school assets - 24.313 11* Other operating expenditure line 41.543 48.094 11* Financing and investment income and expenditure 68.841 68.282 12* Exceptional LOBO premium on redemption - 53.623 12* Financing and investment income and expenditure line 68.841 121.905 12* Taxation and non-specific grant income (602.715) (574.821) 13*
(Surplus) or deficit on provision of services 144.158 184.332
Tax expenses of subsidiaries 0.044 (0.040)
Group (Surplus)/Deficit 144.202 184.292
Surplus or deficit on revaluation of (41.430) (68.121) property, plant and equipment Surplus or deficit on revaluation of - 1.705 available-for-sale financial assets Remeasurements of the pension net defined benefit liability/(asset) (364.596) 122.123 Other recognised gains and losses 1.490 0.806
Other comprehensive income and expenditure (404.536) 56.513
Total comprehensive income and expenditure (260.334) 240.805
* Note numbers refer to Cornwall Council notes that are not materially different ** Restated as a result of a directorate restructure, details can be found in note 1 **^ Directorate renamed from Children, Schools and Families to Together for Families
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
-
-
-
-
£m
Total
(67.157)
(68.903)
171.902
171.902
240.805
(718.766)
(327.491)
(327.491)
(260.334)
(391.275)
(563.177)
Reserves
-
-
-
-
£m
9.372
3.153
3.153
6.219
(4.048)
53.737
72.056
(13.420)
(13.420)
(67.157)
(68.903)
Share of
Reserves of Reserves
Subsidiaries
-
-
-
-
-
-
£m
Total
Council
168.749
168.749
168.749
(714.718)
(314.071)
(314.071)
(314.071)
(400.647)
(569.396)
Reserves
-
-
-
-
***
£m
88.489
55.211
55.211
(51.759)
158.690
103.479
(355.987)
(304.228)
(392.717)
(392.717)
(210.449)
Unusable
Reserves**
-
-
-
-
£m
Total
(9.843)
78.646
78.646
10.059
Usable
(88.489)
113.538
113.538
(358.731)
(348.888)
(103.479)
(358.947)
Reserves**
-
-
-
-
-
-
-
-
£m
2.528
2.528
1.807
1.807
Major
(0.671)
(3.199)
(5.006)
Repairs
Reserve
-
-
-
-
-
-
-
-
£m
3.335
3.335
Grants
Capital
(29.185)
(11.344)
(11.344)
(17.841)
(21.176)
Reserve
-
-
-
-
-
-
-
-
£m
(6.684)
(6.684)
10.402
10.402
Capital
(65.255)
(58.571)
(68.973)
Reserve
Receipts
-
-
-
-
HRA
Total
8.366
(2.349)
(2.334)
11.276
(18.164)
(13.625)
(13.625)
(15.815)
(10.700)
(10.700)
(13.481)
Reserves
-
-
-
-
-
-
-
-
£m
HRA
0.047
0.047
(4.921)
(4.968)
(1.408)
(1.408)
(3.560)
Reserves
Earmarked
-
-
£m
1.408
8.366
(2.396)
(0.047)
(0.926)
(9.921)
11.276
(13.243)
(13.625)
(13.625)
(10.847)
(10.700)
(10.700)
Account
Housing
Revenue
-
-
-
-
£m
Fund
Total
8.006
(3.151)
92.271
92.271
(84.265)
124.238
124.238
General
(245.456)
(253.462)
(127.389)
(250.311)
Reserves**
-
-
-
-
-
-
-
-
£m
Ports
(0.950)
(0.119)
(0.119)
(0.831)
(0.094)
(0.094)
(0.737)
Balances
.
-
-
-
-
-
-
-
-
GF
£m
7.097
7.097
(3.021)
(3.021)
(204.730)
(211.827)
(208.806)
Reserves
Earmarked
-
-
-
-
-
-
-
-
£m
Fund
0.090
0.090
(4.502)
(4.592)
(0.265)
(0.265)
(4.327)
Schools
General
Balance
-
-
£m
Fund
0.938
0.229
3.380
(7.068)
92.271
92.271
(35.274)
(84.265)
(36.212)
(36.441)
124.238
124.238
General
(127.389)
Balance**
Notes * Notes
9
9
10
10
basis under basisregulations under
basis under basisregulations under
*** Details of the Unusable Reserves can be seen in Cornwall Council note 23 and G3 for share of subsidiaries of share G3 for and note Council 23 can seen be in Cornwall *** Reserves Details the Unusable of
** Restated due to prior year reporting error ** year reporting toRestated due prior
* Note numbers refer to Cornwall Council notesCouncil that tonot materiallyare Cornwall different refer * numbers Note
Balance at March31 carried 2020 forward
(Increase)/Decrease in Year
Transfers (to)/from Earmarked Reserves Earmarked (to)/from Transfers
Adjustments accounting basis between funding and
Reserves(to)/from
Net (Increase)/Decrease before transfer
AccountsCouncil
Adjustment between Group AccountsAdjustment Group Cornwall between and
Total Comprehensive Income and Expenditure Statement Expenditure and Income Comprehensive Total
Movement in duringreserves 2019/20
Balance at March31 carried 2019 forward**
(Increase)/Decrease in Year**
Transfers (to)/from Earmarked Reserves Earmarked (to)/from Transfers
Adjustments accounting basis between funding** and
Reserves(to)/from
Net (Increase)/Decrease before transfer**
AccountsCouncil
Adjustment between Group AccountsAdjustment Group Cornwall between and
Total Comprehensive Income and Expenditure Statement** Expenditure and Income Comprehensive Total
Restated Movement in duringreserves 2018/19** Balance at March31 carried 2018 forward Group Movement inStatement Reserves
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
Group Balance Sheet (as follows)
The Balance Sheet shows the value of the assets and liabilities recognised by the Group at 31 March 2020. The net assets of the Group are matched by Group reserves.
Group Cash Flow Statement (below)
The cash flow statement shows the changes to cash and cash equivalents of the Group during the reporting period. The statement shows how the Group generates and uses cash and cash equivalents by classifying cash flows as operating, investing and financing activities.
2019/20 2018/19
£m £m Notes
Net (surplus) or deficit on the provision of services 144.202 184.292
Adjustments to net surplus or deficit on the provision of services for (239.450) (213.398) G8 non-cash movements Adjustments for items included in the net surplus or deficit on the 87.937 68.176 G8 provision of services that are investing and financing activities
Net cash flows from operating activities (7.311) 39.070
Investing Activities 109.017 14.971 G9 Financing Activities (131.849) (50.122) G10 & 26*
Net (increase) or decrease in cash and cash equivalents (30.143) 3.919
Cash and cash equivalents at the beginning of the reporting period 81.347 85.266
Cash and cash equivalents at the end of the reporting period 111.490 81.347
* Note numbers with no "G" refer to Cornwall Council notes that are not materially different
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
Balance Sheet 31 March 2020 31 March 2019
£m £m Notes* Property, Plant and Equipment 2,491.846 2,364.884 14* Heritage Assets 3.081 3.086 Investment Properties - 0.550 Intangible Assets 2.504 3.746 Long Term Investments 102.017 142.358 15* Long Term Debtors 35.892 31.606 G6
Long Term Assets 2,635.340 2,546.230
Cash and Cash Equivalents 160.928 108.908 19* Current intangible assets - 0.389 Short Term Investments 146.665 111.713 15* Assets Held for Sale 10.096 10.276 Inventories 14.622 46.670 16* Short Term Debtors 160.294 104.649 G6
Current Assets 492.605 382.605
Cash and Cash Equivalents (49.438) (27.561) 19* Short Term Borrowing (246.119) (107.661) 26* Short Term Creditors (119.275) (140.747) G7 Provisions (1.934) (2.732) 21* PFI Short Term Liabilities (5.571) (3.393) 15* PFI Short Term Deferred Liabilities (1.509) (1.509) Grants Receipts in Advance - Revenue (46.832) (7.656) Grants Receipts in Advance - Capital (3.113) (5.555)
Current Liabilities (473.791) (296.814)
Long Term Creditors (2.752) (2.433) 15* Provisions (40.249) (40.147) 21* Long Term Borrowing (691.719) (688.513) 15* Pension Liability (1,025.414) (1,332.808) 39* PFI Long Term Liabilities (105.609) (111.180) 15* Other Long Term Liabilities (2.190) (2.140) 15* PFI Deferred Income (27.912) (29.420) Grants Receipts in Advance - Capital (39.543) (34.105) 33*
Long Term Liabilities (1,935.388) (2,240.746)
Net Assets 718.766 391.275
Usable Reserves (362.779) (339.516) Unusable Reserves (355.987) (51.759) 23*
Total Reserves (718.766) (391.275) G3
* Note numbers with no "G" refer to Cornwall Council notes that are not materially different. Part of the inventory figure in the single entity accounts is included within assets under construction (i.e. not inventory) in the group accounts. For 2019/20 this figure is £20m.
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
Notes to the Group Financial Statements
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Accounting Policies G1
Generally, the accounting policies for the Group accounts are the same as those applied to the single entity financial statements, except for the following policies which are specific to the Group accounts:
Basis of Identification of the Group Boundary
Group accounts are prepared by aggregating the transactions and balances of the Council and all its material subsidiaries, associates and joint ventures.
Subsidiary Boundary
A subsidiary is an entity which the Council controls through the power to govern their financial and operating polices so as to obtain benefits from the entities’ activities.
Control is usually presumed where the Council owns more than half the voting power of an entity (either directly or through other subsidiaries). However, this is not a defining criterion; the Council can have more than half the voting power but, exceptionally, not be in control and powers other than voting rights may grant control where the Council has less than half the voting power.
Associate Boundary
An associate is an entity for which the Council is an investor that has significant influence.
Significant influence is the power to participate in the financial and operating policy decisions of the investee (stopping short of control or joint control). It is presumed that holding 20% of the voting power of an investee (either directly or indirectly) brings significant influence but this presumption can be rebutted. It is possible for significant influence to be exerted where an investor has less than 20% of the voting power or where another party has majority ownership.
Joint Venture Boundary
Entities established with contractual or binding arrangements whereby two or more parties are committed to undertake an activity that is subject to their joint control, with strategic financial and operating decisions relating to the activity requiring the unanimous consent of the parties sharing control.
Accounting for Maintained Schools
Local Authority maintained schools are capable of being treated as separate entities and fall within the scope of the control criteria in IFRS 10 Consolidated Financial Statements. However, in order to simplify the consolidation process and to avoid consolidating a considerable number of separate, relatively small entities, the CIPFA Code of Practice confirms that the definition of the single entity financial statements includes all the transactions of local authority schools, this includes school income and expenditure as well as assets and liabilities. So, instead of these transactions being consolidated in the Group accounts, they are consolidated into the single entity financial statements. Please refer to the Council’s Accounting for Schools policy which can be found on page 58.
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
Materiality
In accordance with the above policy, our group relationships have been determined as follows:
Corserv Limited Subsidiary Consolidated Includes: Cormac Solutions Ltd Subsidiary Consolidated Cormac Contracting Ltd Subsidiary Consolidated Cornwall Housing Ltd Subsidiary Consolidated Cornwall Airport Ltd Subsidiary Consolidated Cornwall Development Company Ltd Subsidiary Consolidated Includes: Rural Economic Partnership Ltd Subsidiary Consolidated Via East Midlands Ltd Joint Venture Sold 2018/19 Corserv Property Ltd Subsidiary Consolidated Treveth Holdings LLP Subsidiary Consolidated
Kehelland Horticultural Centre Ltd Subsidiary Not Consolidated Wave Hub Ltd Subsidiary Not Consolidated Includes:Includes: Wave Hub Development Services Ltd Subsidiary Not Consolidated CSW Group Ltd Joint Venture Not Consolidated
The grounds for exclusion from consolidation of certain entities (individually and in aggregate) are not material to the true and fair view of the financial statements or to the understanding of users.
In addition, under the Accounts and Audit Regulations, Cornwall Port Health Authority (a statutory function of the Council) is required to produce separate accounts for the financial year 2019/20. These are also excluded from the Council’s Group accounts on the basis of materiality.
Basis of the Preparation of the Group Financial Statements
The Group accounts have been prepared using the Group accounts requirements of the 2019/20 Code. Companies or other reporting entities that are under the ultimate control of the Council have been included in the Council’s Group accounts, to the extent that they are material to the users of the financial statements in relation to their ability to see the complete economic activities of the Council and its exposure to risk through interests in other entities and participation in their activities. Subsidiaries have been consolidated by: • adding like items of assets, liabilities, reserves, income and expenses together on a line by line basis to those of other group members in the financial statements; and • eliminating intra-group balances and transactions in full.
Joint Ventures have been consolidated using the equity method by: • adjusting the investment originally recognised at cost for the company’s post- acquisition change in its share of the net assets of the investee; • including the company’s share of profits and losses in its Comprehensive Income and Expenditure Statement. Any share of the joint ventures profit or loss is shown in the
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
other recognised gains and losses line under other comprehensive income and expenditure on the Comprehensive Income and Expenditure Statement.
Corserv Ltd
Corserv Ltd is a 100% wholly owned subsidiary of Cornwall Council. It provides strategic direction and oversight for its arm’s length and commercial trading companies.
The registered office of the company is Corserv Ltd Head Office, Higher Trenant Road, Wadebridge, Cornwall, PL27 6TW. The company registration number is 09598549.
Arm’s Length and Commercial Trading Companies of Corserv Ltd: -
• Cormac Solutions Ltd is a company incorporated in England, the sole shareholder being Corserv Ltd. The company’s principal activity is delivering in-house construction and maintenance services for Cornwall Council and the wider public through partnership with Town and Parish Councils, local Small and Medium Enterprises (SMEs) and Social Enterprise Groups, providing a complete solution and helping communities grow and thrive in a sustainable way. The financial statements of the company can be obtained from the registered office at Cormac Head Office, Higher Trenant Road, Wadebridge, Cornwall, PL27 6TW. The company registration number is 07737430.
• Cormac Contracting Ltd is a 100% wholly owned subsidiary of Corserv Ltd. It delivers competitive solutions for all major and specialist construction projects. Working together with clients and supply chain to enhance whole life value while reducing total cost, improving quality, and innovating. Cormac Contracting Ltd are recognised as being one of the South West’s leading Civil Engineering contractors for the public and private sector. The financial statements of the company can be obtained from the registered office at Cormac Head Office, Higher Trenant Road, Wadebridge, Cornwall, PL27 6TW. The company registration number is 07737521.
• Cornwall Housing Ltd is an Arm’s Length Management Organisation (ALMO), Ltd by guarantee and without share capital. The company’s principal activity is managing and maintaining the Council’s stock of over 10,000 general needs houses across Cornwall. They look after about 400 leaseholders on behalf of the Council and manage other garages, shops and land in neighbourhoods with council housing. The company also looks after over 50 houses it owns itself. The financial statements of the company can be obtained from the registered office which is Chy Trevail, Beacon Technology Park, Bodmin, Cornwall, PL31 2FR. The company registration number is 04662007.
• Cornwall Airport Ltd is a company limited by shares, the sole shareholder being Corserv Ltd. The principal activity of the company is airport operations at Newquay Cornwall Airport. Funding income is provided by Cornwall Council for shortfalls arising from such activities that would typically be undertaken to operate an airport. This funding is under a Public Service Obligations Agreement. The financial statements of the company can be obtained from the registered office which is St Mawgan House, Cornwall Airport, Newquay, Carloggas, St Mawgan, Newquay, TR8 4RQ. The company registration number is 06098925.
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
• Cornwall Development Company Ltd is limited by guarantee and without share capital. The principal activity of the company is the undertaking of activities focused on achieving prosperity for Cornwall. These activities cover the promotion of the County for visitors and investors, the management of programmes of public sector funds, the development of new projects and advice and information to project promoters, a variety of services to businesses and organisations. Cornwall Development Company owns 100% of the ordinary share capital of Rural Economic Partnership Ltd, a company incorporated in England. The company’s principal activity is management of the three properties on the South Wheal Crofty site in Pool. The financial statements of the company can be obtained from the registered office at Bickford House, South Wheal Crofty, Station Road, Pool, Redruth TR15 3QG. The company registration number is 03668828.
• Corserv Property Ltd is a 100% wholly owned subsidiary of Corserv Ltd which is a 100% wholly owned subsidiary of Cornwall Council. It was set up to purchase, refurbish and manage a portfolio of private rented properties to provide temporary accommodation for homelessness clients in order to discharge Cornwall Council’s statutory homelessness duties. The registered office of the company is Head Office, Higher Trenant Road, Wadebridge, Cornwall, PL27 6TW. The company registration number is 12263854.
• Via East Midlands Ltd was a jointly owned company with Nottinghamshire County Council. Corserv Ltd owned 51% of the shares until disposal of the company in 2018/19 to Nottinghamshire County Council. The company’s principal activity was to deliver a sustainable highways service for Nottinghamshire.
Treveth Holdings LLP
Treveth Holdings LLP is a 99% owned subsidiary of Cornwall Council with 1% owned by Corserv Ltd. Its purpose is to support Cornwall Council’s Investment plan which includes the Housing Development Project. The registered office of the company is County Hall, Treyew Road, Truro, Cornwall, United Kingdom, TR1 3AY. The company registration number is OC426719
Kehelland Horticultural Centre Ltd
Kehelland Horticultural Centre Ltd is a charitable company limited by guarantee. The company registration number is 01714560. The company was incorporated with the object of affording relief of persons who are physically or mentally handicapped and provides training and sheltered employment in all country pursuits.
The accounts for 2019/20 have not been consolidated on the grounds of materiality.
Wave Hub Ltd
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
Wave Hub Ltd is a 100% wholly owned subsidiary of Cornwall Council, its core role is to manage the Wave Hub facility and facilitate testing of a range of offshore technologies including large scale wave energy devices, wave energy arrays, floating wind, hybrid wind/wave devices, major subcomponents and associated sub-sea equipment. The company registration number is 07875270.
Wave Hub Ltd owns 100% of the ordinary share capital of Wave Hub Development Services Ltd, a company incorporated in England. The company’s principal activity provides advice and guidance to support the growth of the offshore renewable energy sector. The company registration number is 10166467.
The financial statements of the companies can be obtained from the registered office at Wave Hub Ltd, Chi Gallos, Hayle Marine Renewables Business Park, North Quay, Hayle, Cornwall, TR27 4DD.
The accounts for 2019/20 have not been consolidated on the grounds of materiality.
CSW Group Ltd CSW Group Ltd is a Local Authority controlled company. The company is under the joint control of Devon County Council, Cornwall Council, Plymouth City Council and Torbay Council. Members have equal voting rights, so Cornwall Council’s share is 25%. For accounting purposes, the company is classified as a joint venture. The company provides a service for all young people, giving 13-19 year olds information, advice, guidance and practical help in preparing for adult and working life. It operates through a number of service brands including Connexions. The company recently changed its name to CSW Group Ltd from Careers South West Ltd (previously known as Connexions Cornwall and Devon Ltd). The registered office is at Poseidon House, Neptune Park, Plymouth, Devon, PL4 0SJ. The company registration number is 03029947. The accounts for 2019/20 have not been consolidated on the grounds of materiality.
Note Reconciliation to the Single Entity CIES G2
Restated*
2019/20 2018/19 £m £m (Surplus) or deficit per single entity Comprehensive Income 78.646 113.538 and Expenditure Statement* (Surplus) or deficit attributable to subsidiaries 65.556 70.754
Total Group (Surplus) or Deficit 144.202 184.292
* Restated due to incorrect figure reported 2018/19
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note G3 Analysis of Group Net Worth
2019/20 2018/19 £m £m
Cornwall Council 714.718 400.647 Cornwall Housing Ltd 2.791 4.560 Cornwall Airport Ltd 0.588 (0.696) Cornwall Development Company Ltd 0.388 (8.498) Rural Economic Partnership Ltd 0.592 0.516 Cormac Contracting Ltd (0.937) (0.896) Cormac Solutions Ltd 5.040 4.158 Corserv Ltd 1.123 1.710 Treveth Holdings LLP (1.011) - Corserv Property Ltd 5.778 - Group Adjustments (10.304) (10.226)
Total 718.766 391.275
Note Associated Risks G4 Cornwall Council has agreed to support Corserv Ltd through the provision of a cashflow facility enabling them to manage their cash position as they do not maintain their own cash reserves. The agreement provides a facility of up to £15.000m until 31 March 2023. As at 31 March 2020 Corserv Ltd had a loan of £10.250m outstanding with Cornwall Council. Cornwall Council also provided Corserv Ltd with a £12.000m loan in relation to fleet transferred to Cormac Solutions Ltd in 2019/20. Corserv Ltd are repaying quarterly over a 10 year period. At as 31 March 2020 the outstanding balance was £10.800m. Cornwall Housing Ltd has two outstanding loans from Cornwall Council to enable the building of new Council houses. As at 31 March 2020 these amounted to £1.445m. Cornwall Council has also provided Treveth Holdings LLP with a loan of £10.449m and a revolving credit facility of £2.956m in 2019/20.
Note Prior Period Adjustments, Changes in Accounting Policies and Errors G5
Prior period adjustments may arise as a result of a change in accounting policies or to correct a material error.
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 Group’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.
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Debtors G6
Current Long Term
31 March 31 March 31 March 31 March 2020 2019 2020 2019 £m £m £m £m
Trade Receivables 82.281 61.327 - - Prepayments 33.567 6.672 - - Debtors for Local Taxation 30.046 26.792 - - Other Receivable Amounts 14.400 9.858 35.892 31.606
Total 160.294 104.649 35.892 31.606
Note G7 Creditors
Current Long Term
31 March 31 March 31 March 31 March 2020 2019 2020 2019 £m £m £m £m
Trade Payables (47.470) (47.208) - - Receipts in Advance (14.905) (15.248) - - Other Payables (56.900) (78.291) (2.752) (2.433)
Total (119.275) (140.747) (2.752) (2.433)
Note G8 Cash Flow Statement – Operating Activities
The cash flows for operating activities include the following items:
2019/20 2018/19 £m £m
Interest received (7.801) (7.291) Interest paid 44.682 46.680 Dividends received (2.457) (2.199)
Net cash flows from operating activities 34.424 37.190
The surplus or deficit on the provision of services has been adjusted for the following non- cash movements:
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
2019/20 2018/19 £m £m
Depreciation and impairment (83.808) (78.516) Downward valuations 6.018 (1.074) Amortisation (0.999) (1.255) Adjustments for movements in fair value of investments classified (0.282) (0.316) as Fair Value through Profit & Loss a/c Adjustments for effective interest rates (1.907) (1.817) Losses or Gains on derecognition of loans & advances in year (2.663) (1.909) Increase/(decrease) in interest creditors 0.014 (0.325) Increase/(decrease) in creditors (34.962) (1.032) Increase/(decrease) in interest and dividend debtors (0.215) 0.368 Increase/(decrease) in debtors 56.742 1.639 Increase/(decrease) in inventories (11.961) 32.852 Movement in pension liability (57.066) (59.084) Unwinding of discount of Deferred Receipts - 0.017 Contributions to/(from) provisions 0.422 0.165 Carrying amount of non-current assets and non-current assets (39.409) (30.748) held for sale, sold or de-recognised Other non-cash items charged to the net surplus or deficit on (69.374) (72.363) the provision of services
Adjustment to net cash flows from operating activities (239.450) (213.398)
The surplus or deficit on the provision of services has been adjusted for the following items that are investing and financing activities:
2019/20 2018/19 £m £m
Capital grants credited to (surplus)/deficit on the provision 55.519 69.314 of services Proceeds from the sale of short-term (not considered to be cash - (6.985) equivalents) and long-term investments (includes investments in associates, joint ventures and subsidiaries) Proceeds from the sale of property, plant and equipment, 32.418 5.847 investment property and intangible assets
Adjustment to net cash flows from operating activities 87.937 68.176
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Cash Flow Statement –Investing Activities G9
2019/20 2018/19 £m £m
Purchase of property, plant and equipment, investment property and 185.491 140.037 intangible assets Purchase of short-term and long-term investments 282.946 108.500 Other payments for investing activities 34.966 11.316 Proceeeds from the sale of property, plant and equipment, investment (23.035) (5.820) property and intangible assets Proceeds from short-term and long-term investments (309.700) (170.000) Capital grants received (6.291) (64.688) Loan repayments received (55.360) (4.374)
Net cash flows from investing activities 109.017 14.971
Note Cash Flow Statement – Financing Activities G10
2019/20 2018/19 £m £m
Cash receipts of short and long-term borrowing (1,418.174) (1,042.558) Other (receipts)/payment from financing activities (9.747) 1.262 Cash payments for the reduction of the outstanding liabilities relating 5.500 6.597 to finance leases and on-balance sheet PFI contracts Repayments of short and long-term borrowing 1,290.572 977.031 Dividends paid - 7.546
Net cash flows from financing activities (131.849) (50.122)
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Information Classification: CONTROLLED Group Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note G11 Related Parties – Inter Group Eliminations
The following table shows the net movements between Cornwall Council and its subsidiaries and joint ventures, for those companies consolidated into the group account statements these transactions have been eliminated as appropriate:
2019/20 2019/20 2019/20 Total paid to Total paid to Net Movement Group Companies Cornwall Council (to)/from from Cornwall Council from Group Companies Cornwall Council £m £m £m
Cornwall Airport Ltd 0.089 (1.305) (1.216) Cornwall Development Company Ltd 3.334 (0.132) 3.202 Cormac Solutions Ltd 88.442 (4.912) 83.530 Cornwall Housing Ltd 40.659 (0.993) 39.666 Cormac Contracting Ltd 0.004 (0.122) (0.118) Corserv Ltd 0.121 (3.928) (3.807) Treveth Holdings LLP - (0.460) (0.460) Corserv Property Ltd 6.000 - 6.000 Wave Hub Ltd 0.619 (0.034) 0.585 CSW Group Ltd 0.819 - 0.819
Total 140.087 (11.886) 128.201
Note G12 Critical Judgements in Applying Accounting Policies
In applying the accounting polices set out in Note 1 the Council has had to make certain judgements about complex transactions or those involving uncertainty about future events. There is a Key judgement made in the Statement of Accounts relating to the Group Accounts as follows:
• Classification of Inventory as Assets Under Construction – A proportion of the inventory balance held on the Cornwall Council balance sheet is included in the group accounts balance sheet as Assets Under Construction (AUC). This is because those assets will remain within the group i.e. they will be transferred from Cornwall Council to one of its group undertakings. In order to establish what proportion of the inventory in the single entity accounts should be included within AUC in the group accounts a proportional split has been used based on the relative numbers of assets proposed for sale compared with those being held for rental in the Treveth LLP business plan.
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Information Classification: CONTROLLED Supplementary Financial Statements Cornwall Council 2019/20 Statement of Accounts
Supplementary Financial Statements
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Information Classification: CONTROLLED Supplementary Financial Statements Cornwall Council 2019/20 Statement of Accounts
Housing Revenue Account (HRA)- Income and Expenditure Statement
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Information Classification: CONTROLLED Supplementary Financial Statements Cornwall Council 2019/20 Statement of Accounts
Housing Revenue Account Income and Expenditure Statement
The HRA Income and Expenditure Statement shows the economic cost in the year of providing housing services in accordance with generally accepted accounting practices, rather than the amount to be funded from rents and government grants. The Council charges rents to cover expenditure in accordance with regulations; this may be different from the accounting cost. The increase or decrease in the year, on the basis of which rents are raised, is shown in the Movement on the HRA Statement.
2019/20 2018/19
£m £m Notes Expenditure Repairs and maintenance 7.889 8.127 Supervision and management: 11.572 10.853 Rents, rates, taxes and other charges 0.941 0.796 Depreciation and impairment of non-current assets 5.284 8.454 HR6 & 7
Total Expenditure 25.686 28.230
Income Dwelling rents (37.459) (37.323) Non-dwelling rents (1.336) (1.276) Charges for services and facilities (1.216) (1.031) Contributions towards expenditure (0.401) (0.163) Movement in the allowance for bad debts 0.155 0.173
Total Income (40.257) (39.620)
Net cost of HRA Services (14.571) (11.390) HRA services' share of Corporate and Democratic Core 0.370 0.370
Net (Income)/Expenditure of HRA services as included in the Comprehensive Income and Expenditure Statement (14.201) (11.020)
HRA share of the operating income and expenditure included in the Comprehensive Income and Expenditure Statement (Gain) or loss on sale of HRA non-current assets (1.113) (1.181) Interest payable and similar charges 3.283 3.105 Interest and investment income (0.181) (0.180) Net interest on the pension net defined liability/(asset) 0.342 0.259 Capital grants and contributions receivable (1.755) (1.683)
(Surplus) or deficit for the year on HRA Services (13.625) (10.700)
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Information Classification: CONTROLLED Supplementary Financial Statements Cornwall Council 2019/20 Statement of Accounts
Movement on the HRA Statement The overall objective of this Statement is to reconcile the outturn on the HRA Income and Expenditure Statement with the net surplus or deficit for the year on the HRA Balance.
2019/20 2018/19 £m £m Balance on the HRA at the end of the previous year (10.847) (9.921) (Surplus) or deficit for the year on the HRA Income and Expenditure Statement (13.625) (10.700) Adjustments between accounting basis and funding basis under statute 11.276 8.366 HR1
Net (increase) or decrease before transfers to or from reserves (2.349) (2.334)
Transfers (to) or from reserves (0.047) 1.408
(Increase) or decrease in year on the HRA (2.396) (0.926)
Balance on the HRA at the end of the current year (13.243) (10.847)
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Information Classification: CONTROLLED Supplementary Financial Statements Cornwall Council 2019/20 Statement of Accounts
Notes to the Housing
Revenue Account (HRA)
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Information Classification: CONTROLLED Supplementary Financial Statements Cornwall Council 2019/20 Statement of Accounts
Introduction As well as providing General Fund Housing Services, the Council is also a major provider of social rented accommodation in Cornwall. This includes sheltered facilities to meet the needs of elderly persons. The Council owns and is responsible for the management and maintenance of over 10,000 dwellings throughout the county ranging from bedsit flats to seven-bedroomed houses. The income and expenditure relating to the above dwellings and the Council’s landlord function is dealt with in the HRA.
Note Adjustments between Accounting Basis and Funding Basis Under HR1 Regulations on the HRA Balance
2019/20 2018/19 £m £m
Adjustments primarily involving the Capital Adjustment Account: Reversal of items debited or credited to the Comprehensive Income and Expenditure Statement: Charges for depreciation and impairment of non-current assets (23.969) (17.392) Revaluation losses on property, plant and equipment 18.713 8.938 Amortisation of intangible assets (0.027) - Capital grants and contributions applied 1.755 1.681 Amounts of non-current assets written off on disposal or sale as part of 1.114 1.184 the gain on disposal to the Comprehensive Income and Expenditure Statement Insertion of items not debited or credited to the Comprehensive Income and Expenditure Statement: Capital expenditure charged against the General Fund and HRA balances 2.448 2.529 Adjustments primarily involving the Major Repairs Reserve: Posting of HRA resources from revenue to the Major Repairs Reserve 13.129 12.711 Adjustments primarily involving the Financial Instruments Adjustment Account: Amount by which finance costs charged to the Comprehensive Income and 0.005 0.021 Expenditure Statement are different from finance costs chargeable in the year in accordance with statutory requirements Adjustments primarily involving the Pensions Reserve: Reversal of items relating to retirement benefits debited or credited to the (3.630) (2.967) Comprehensive and Expenditure Statement Employer's pensions contributions and direct payments to pensioners 1.738 1.661 payable in the year Total Adjustments 11.276 8.366
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Information Classification: CONTROLLED Supplementary Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Housing Stock HR2 31 March 2020 Movement 1 April 2019 1-bed dwellings 2,614 6 2,608 2-bed dwellings 4,187 4 4,183 3-bed dwellings 3,295 (18) 3,313 4 or more bed dwellings 136 (1) 137 Hostels 2 - 2 - Number of dwellings 10,234 (9) 10,243 -
Note Balance Sheet Valuation HR3 31 March 2020 Movement 1 April 2019 £m £m £m
Council dwellings 531.137 32.696 498.441 Housing Revenue Account land 1.110 (0.116) 1.226 Shops 0.489 (0.012) 0.501 Garages and other buildings 24.303 5.272 19.031 Vehicles, plant and equipment 0.005 - 0.005 Intangibles 0.027 (0.816) 0.843
Value of HRA assets 557.071 37.024 520.047
Note Vacant Possession Valuation HR4
The dwellings within the HRA are valued in the Balance Sheet on an Existing Use Value for Social Housing (EUV-SH) basis. This is different to the Vacant Possession Valuation which could be obtained if a tenant was not present, and the difference reflects the economic cost to the government of providing council housing at less than open market rents. In the South West the government has set an adjustment factor of 35% to be applied to the Vacant Possession Values to obtain the EUV-SH Valuation for the Council’s dwellings. As at 31 March 2020 the Vacant Possession Value of dwellings within the Council’s HRA was £1.490bn.
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Information Classification: CONTROLLED Supplementary Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Housing Revenue Account Capital Expenditure and Financing HR5
2019/20 2018/19 Capital Expenditure during the year: £m £m
Improvements to Council Stock 24.743 16.293 Intangible Assets - 0.001 New Build Construction 6.443 4.504
Total Expenditure 31.186 20.798
Financed from: Major Repairs Reserve 15.657 14.518 New Build Reserve 2.355 1.519 Capital Grants 2.262 2.096 Capital Receipts 3.678 0.870 Housing Revenue Account 0.093 0.935 Prudential Borrowing 7.141 0.860
Balance at 31 March 31.186 20.798
Note Depreciation HR6
2019/20 2018/19 £m £m Operational Assets: Council Dwellings 23.389 12.129 Other Land and Buildings 0.579 0.464 Vehicles, Plant and Equipment 0.001 0.001
Total Operational Assets Depreciation 23.969 12.594
Reversal of previous downward revaluations 10.906 4.718
Total Depreciation charged to Housing Revenue Account 34.875 17.312 Amortisation of Intangible Assets 0.027 0.080
Total Depreciation and Amortisation charged to Housing Revenue Account 34.902 17.392
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Information Classification: CONTROLLED Supplementary Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note Impairments and Revaluations HR7
The HRA had no impairments in 2019/20 (Nil in 2018/19). There were revaluations down of £38.036m (£9.079m in 2018/19) and reversal of previous revaluations down of £19.323m (£18.436m in 2018/19).
2019/20 2018/19 £m £m Operational Assets: Council Dwellings 17.858 8.938 Other Land and Buildings 0.855 -
Total Operational Assets Revaluations 18.713 8.938
Note Major Repairs Reserve HR8
The movement on the MRR in the year is detailed as follows:
2019/20 2018/19 £m £m
Balance at 1 April (3.199) (5.006)
Transfer from Housing Revenue Account (13.129) (12.711) Capital expenditure financing - Housing 15.657 14.518
Balance at 31 March (0.671) (3.199)
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Collection Fund
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Collection Fund Income and Expenditure Statement
The Collection Fund is an agent’s statement that reflects the statutory obligation for billing authorities to maintain a separate Collection Fund. The statement shows the transactions of the billing authority in relation to the collection from taxpayers and distribution to Cornwall Council and to Devon and Cornwall Police of the council tax and non-domestic rates.
2019/20 2019/20 2019/20 2018/19 2018/19 2018/19 NNDR Council Tax Total NNDR Council Tax Total £m £m £m £m £m £m Income Council tax receivable - (367.678) (367.678) - (344.389) (344.389) Business rates receivable (159.203) - (159.203) (162.487) - (162.487) - Total Income (159.203) (367.678) (526.881) (162.487) (344.389) (506.876) - - Expenditure Apportionment of previous years surplus Cornwall Council 5.377 1.983 7.360 5.206 11.160 16.366 Devon and Cornwall Police Authority - 0.236 0.236 - 1.304 1.304 Central Government - - - 0.244 - 0.244 Precepts, demands and shares Cornwall Council 148.960 320.870 469.830 149.868 303.176 453.044 Cornwall Council Designated Areas Grant 0.140 - 0.140 0.135 - 0.135 Cornwall Council Renewable Energy Grant 1.718 - 1.718 1.570 - 1.570 Devon and Cornwall Police Authority - 41.238 41.238 - 36.036 36.036 Business rates transitional protection (0.457) - (0.457) (0.042) - (0.042)
Charges to Collection Fund Less: write offs of uncollectable amounts 0.624 0.953 1.577 1.110 0.723 1.833 Less: increase/(decrease) in impairment allowance for doubtful debts 0.845 3.212 4.057 0.257 1.164 1.421 Less: cost of collection 1.145 - 1.145 1.126 - 1.126 Less: provision for backdated appeals (0.400) - (0.400) 3.290 - 3.290
Total Expenditure 157.952 368.492 526.444 162.764 353.563 516.327
(Surplus)/deficit for the year (1.251) 0.814 (0.437) 0.277 9.174 9.451
Collection Fund balance brought forward (5.398) (3.959) (9.357) (5.675) (13.133) (18.808) Collection Fund balance carried forward (6.649) (3.145) (9.794) (5.398) (3.959) (9.357)
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Notes to the Collection Fund
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Information Classification: CONTROLLED Supplementary Financial Statements Cornwall Council 2019/20 Statement of Accounts
Note The Total National Non-Domestic Rateable (NNDR) Value and the NNDR CF1 Multiplier
The Council is responsible for the collection of non-domestic rates in its area. From 1 April 2017 the Council retained 100% of income collected compared to prior regulations where the Council retained 50% of the income collected and 50% passed to central government.
The government specifies an amount to be collected, the multiplier, which for 2019/20 was 50.4p reducing to 49.1p for properties in receipt of Small Business Rate Relief with a rateable value of up to £51,000. The total rateable value for all non-domestic properties as at 31 March 2020 was £476.669m (£470.395m 2018/19).
Note The Council Taxbase CF2 To enable the Council to set the Council Tax each year, there is requirement to calculate the Council Taxbase.
This is derived from the number of domestic properties/dwellings in each Council Tax Band on the valuation list, applying discounts, exemptions and multiplying the result by a weighting factor applicable to each Band. Finally, the taxbase is adjusted to allow for an element of non-collection.
Adjusted Number of Band D Dwellings on Dwellings per Weighting Band D Non Equivalent Valuation Band Valuation List Band Factor MOD * MOD * Dwellings 2019/20
A 63,072 39,794 6/9 26,529 175 26,704 B 69,873 53,522 7/9 41,628 145 41,773 C 57,978 48,971 8/9 43,530 81 43,611 D 42,370 37,188 9/9 37,188 57 37,245 E 24,648 22,663 11/9 27,699 11 27,710 F 8,814 8,236 13/9 11,897 7 11,904 G 4,126 3,858 15/9 6,430 2 6,432 H 382 315 18/9 630 18 648
Total 271,263 214,547 195,531 496 196,027
Less: Allowance for non-collection of 0.9% 1,760 1,760
Council Taxbase 194,267
* MOD (Ministry of Defence)
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Fire Fighters’ Pension Fund Account
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Fire Fighters’ Pension Fund Account
The funding arrangements for the fire fighters’ pension scheme changed on 1 April 2006. Before April 2006, the employer did not make contributions into a fund based upon a percentage of pay. The employer was responsible for its own fire fighters on a pay-as-you- go basis.
Under the new arrangements, Cornwall Council no longer meets the cost of pensions directly, instead paying its contributions into a fund. The fund will also receive contributions from employees and transfers from other pension funds. It will also pay out pensions to retired fire fighters and to other pension funds if a scheme member transfers out. The fund has no investment assets and is balanced to zero each year either by the receipt of a top-up grant from the Ministry of Housing, Communities and Local Government, or by paying the surplus over to the government.
Employees and employer’s contribution levels are based on percentages of pensionable pay set nationally by the Ministry of Housing, Communities and Local Government and subject to triennial revaluation by the Government’s Actuary Department.
Fund Account 2019/20 2018/19 £m £m Contributions receivable: Fire authority: Contributions in relation to pensionable pay (3.086) (1.538) Other - (0.027) Firefighters contributions (1.359) (1.319) Transfers in from other authorities (0.185) (0.013)
Benefits payable: Pensions 4.921 4.943 Commutations and lump sum retirement benefits 1.111 0.716
Payments to and on account of leavers: Refunds of contributions 0.029 0.027
Net amount payable for the year 1.431 2.789
Top-up grant payable by the Government (1.431) (2.789)
Total - -
Net Assets Statement 31 March 31 March 2020 2019 £m £m Current Assets Top-up receivable from the Government 0.376 0.922
Current Liabilities Amount owing to the General Fund (0.376) (0.922)
Total - -
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The accounting policies followed are those set out in the main Statement of Accounting Policies.
This Net Assets Statement does not include liabilities to pay pensions and other benefits after the Balance Sheet date.
Further information on Pension Scheme Assets and Liabilities can be found in note 39 in the main financial statements.
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Pension Fund Accounts
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Cornwall Local Government Pension Scheme Accounts
Fund Account
2019-20 2018-19
Dealings with members, employers and £m £m £m £m Notes others directly involved in the Fund Contributions 89.956 91.561 P7 Transfers In from Other Pension Funds 8.868 3.559 P7
Total Contributions 98.824 95.120
Benefits Payable (77.105) (75.132) P7 Payments to and on account of leavers (3.324) (3.210) P7
Total Payments (80.429) (78.342)
Net Additions from Dealings with Members 18.395 16.778
Management Expenses (19.435) (17.359) P8
Net Additions including Fund Management Expenses (1.040) (0.581) Returns on Investments Investment Income 24.238 24.569 P9 Taxes on Income (0.059) (0.071) P9 Profit and Loss on Disposal of Investments and Changes in Market Value of Investments (39.009) 107.947 P10
Net Returns on Investment (14.830) 132.445
Net Increase / (Decrease) in the Net Assets Available for Benefits During the Year (15.870) 131.864
Opening Net Assets of the Scheme 1,929.970 1,798.106
Closing Net Assets of the Scheme at 31 March 1,914.100 1,929.970
Net Assets Statement
31 March 31 March 2020 2019
£m £m Notes
Long Term Investments 0.427 0.395 P10 Investment Assets 1,904.989 1,920.475 P10 Investment Liabilities - -
Total Net Investments 1,905.416 1,920.870
Long Term Assets 3.595 4.029 P16 Current Assets 9.280 9.120 P16 Current Liabilities (4.191) (4.049) P16
Net Assets of the Scheme as at 31 March 1,914.100 1,929.970
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These accounts summarise the transactions of the Fund during the year, both for benefits and investments, and show the position of the Fund on 31 March 2020. They provide information about the financial position, performance and financial adaptability of the Fund and show how we have managed the Fund and what assets were in the Fund at the period end. Liabilities to pay pensions and other benefits in the future are not included but are dealt with in the Actuarial data included in Notes P14 and P15.
Notes to the Pension Scheme Accounts
Note Description of the Fund P1
The Cornwall Pension Fund “the Fund” is a Local Government Pension Scheme (LGPS).
General Local Government Pension Schemes are required to be funded and the Fund is required to be sufficient to meet the estimated future pension entitlements of current and past employees. It is actuarially re-valued every three years to establish the contributions to be made by the employing authorities to achieve this objective. Transfers into or out of the Fund are sums received from, or paid to, other pension schemes. These relate to new and former members’ periods of pensionable employment, where transferable.
After meeting pension payments and other benefits, the balance of the Pension Fund is invested in a range of investments. The Fund is governed by the Public Service Pensions Act 2013 and is administered in accordance with the following secondary legislation:
The LGPS Regulations 2013 (as amended) The LGPS (Transitional Provisions, Savings and Amendment) Regulations 2014 (as amended) The LGPS (Management and Investment of Funds) Regulations 2016
The Pensions Committee is responsible for all matters relating to the Pension Fund. The membership includes two member-nominated representatives and two representatives of the employers in the scheme. The Pensions Committee has approved a scheme of delegation to the Section 151 Officer. Whereas the Pensions Committee approves all policies, the Section 151 Officer is empowered to invest monies of the Pension Fund. The Pensions Committee receives investment advice from the Fund’s investment consultant, JLT (part of Mercer, a Marsh & McLennan Company), and also receives guidance from an independent advisor who helps ensure good governance.
The Pensions Board carries out an oversight function to ensure such decisions are properly compliant with regulations, guidance and internal policies. An Investment Strategy Statement, setting out how the Fund’s investments are managed, can be viewed on the Pension Fund website at www.cornwallpensionfund.org.uk or in the Pension Fund Annual Report.
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Membership
All employees (except teachers and fire fighters who have their own schemes) are entitled to join the scheme. Individuals have the right to seek alternative pension arrangements if they so wish. On 31 March 2020 there were 156 employer records in the Fund with active members (156 in the previous year).
The table below shows a breakdown of the membership.
2016 2017 2018 2019 2020 Contributors Cornwall Council 8,780 7,426 7,021 6,810 6,881 Academies 4,237 5,542 6,732 7,386 7,709 Other Bodies 4,787 4,247 4,081 3,888 3,816
Total Number of Contributors 17,804 17,215 17,834 18,084 18,406
Pensioners Receiving Benefits 12,213 12,906 13,602 14,460 15,329 Deferred Benefits 19,239 20,306 21,014 21,060 20,785
Total Number of Pensioners 31,452 33,212 34,616 35,520 36,114
Funding
Benefits are funded by contributions and investment earning. Contributions are made by active members of the Fund in accordance with the Local Government Pension Scheme Regulations 2013. There are two sections in the scheme, the main section and the 50/50 section. The main section contributions range from 5.5% to 12.5% of pensionable pay for the year ending 31 March 2020. The 50/50 section allows members of the scheme to elect to accrue a lower personal benefit by paying half contributions. Employer contributions are set during the triennial actuarial funding valuation, the actuary determines the appropriate level of employer contributions for each employer and these can be found on the Rates and Adjustments Certificate. The last such valuation was at 31 March 2019, which revealed that the Fund’s assets, were valued at £1.926 million and were sufficient to meet 90% of the liabilities (i.e. the present value of promised retirement benefits) accrued up to that date. The resulting deficit at the 2019 valuation was £207 million. The next valuation will be carried out as at 31 March 2022.
Benefits
Prior to 01 April 2014, pension benefits under the LGPS were based on final pensionable pay and length of pensionable service.
From 01 April 2014, the scheme became a career average scheme, whereby members accrue benefits based on their pensionable pay in that year at an accrual rate of 1/49th. Accrued pension is reviewed annually, in line with the Consumer Prices Index.
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Basis of Preparation Note P2 These accounts summarise the Fund’s transactions for 2019-20 and its position at the year ending 31 March 2020. They have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2019-20 (the code), based on International Financial Reporting Standards (IFRS) as published by the Chartered Institute of Public Finance and Accountancy (CIPFA). Paragraph 3.3.1.2 of the Code requires disclosure of any accounting standards issued but not yet adopted. No such accounting standards have been identified for 2019/20.
The Fund’s Administering Authority is Cornwall Council and the Council’s professional staff who prepared these accounts, followed the same accounting policies, principles and practices that have been adopted for the Council’s own Statement of Accounts for 2019-20.
The accounts have been prepared on a going concern basis.
Note Accounting Policies P3
Fund Account – Revenue Recognition and Expense Items
Contributions These are included on an accruals basis, where these amounts have been determined on the closure of accounts.
Employee contribution rates are set in accordance with LGPS regulations, using common percentage rates for all LGPS schemes which rise according to pensionable pay. Employer contributions are set at the percentage rate recommended by the fund actuary for the period to which they relate.
These accruals do not include the Fund’s liabilities to pay pensions and other benefits, in the future, to all the present contributors to the Fund. These liabilities are taken account of in the periodic actuarial valuations of the Fund and are reflected in the levels of employers’ contributions determined at these valuations. Lump sum benefits are accrued at year end.
Employer deficit contributions are accounted for on the due dates on which they are payable, under the schedule of contributions set by the scheme actuary or on receipt, if earlier than the due date. Any amount due in the year but unpaid will be classed as a current financial asset. Amounts not due until future years are classed as long term financial assets.
Investment Income and Expenses Investment income for pooled funds is held back within the pooled funds and reinvested, this value is reflected in the unit price. Changes in the net market value of investments are recognised as income and comprise all realised and unrealised profits/losses during the year.
Interest income is recognised in the fund account as it accrues, and dividend income is recognised on the date the shares are quoted ex-dividend. Any amounts not received by the end of the reporting period are accrued for.
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Benefits Payable Pensions and lump-sum benefits payable include all amounts known to be due as at the end of the financial year. Any amounts due but unpaid are disclosed in the net assets statement as current liabilities.
Transfer Values to/from Other Funds Transfer Values represent amounts received and paid during the period for individual members who have either joined or left Cornwall Pension Fund during the financial year. Individual transfers in/out are accounted for on a received or paid basis during the year and are calculated in accordance with the LGPS Regulations. Block transfers would be accrued, if they straddled the year end.
Pension Fund Management Expenses Pension Fund Management Expenses have been prepared in accordance with the CIPFA guidance, Accounting for Local Government Pension Scheme Management Expenses (2016), and as such have been split into administrative expenses, oversight and governance costs and investment management expenses. All items of expenditure are charged to the Fund on an accruals basis.
Administrative Expenses The staff costs of the pension administration team are charged direct to the Fund, as is the associated management, accommodation and other overheads which are apportioned to this function.
Oversight and Governance Costs These include the staff costs of the investments team, advisors to the fund and other services which help the Fund provide effective oversight and governance. The associated management, accommodation and other overheads which are apportioned to this function are also charged to the Fund.
Investment Management Expenses Investment Management Expenses comprise of expenses which are incurred in relation to the management of pension fund assets. Where an investment manager’s fee note has not been received by the reporting period end date, an estimate based upon the market value of the mandate at the end of the reporting period has been used.
Management fees are agreed in the respective mandates governing the manager’s appointments and are based on the market value of these investments under their management and therefore increase or reduce as the value of these investments change. In addition, some of the Fund’s investments have an element of their fee which is performance related.
Taxation For taxation purposes, the Fund is a registered public service scheme under section 1(1) of Schedule 36 of the Finance Act 2004 and as such is exempt from UK income tax on interest received and from capital gains tax on the proceeds of investments sold. As Cornwall Council is the administering authority for the Fund, VAT input tax is recoverable on all Fund activities, including expenditure on investment expenses.
Income from overseas investments suffers withholding tax in the country of origin, unless exemption is permitted. Irrecoverable tax is accounted for as a fund expense as it arises.
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Net Assets Statement
Financial Assets Financial assets are included in the net assets statement on a fair value basis at the reporting date. A financial asset is recognised in the net assets statement on the date the fund becomes party to the contractual acquisition of the asset and any gains or losses arising from changes in the fair value are recognised in the fund account.
The values of investments included in the net assets statement have been determined at fair value in accordance with the requirements of the Code and IFRS13. For the purposes of disclosing levels of fair value hierarchy, the Fund has been minded to take consideration of the classification guidelines recommended in Practical Guidance on Investment Disclosures (PRAG/Investment Association, 2016).
Cornwall Council and the other 9 shareholders each holds a 10% share in Brunel Pension Partnership Ltd (Company number 10429110). As such, no fund is deemed to have a significant influence and this long term investment is accounted for at fair value. The asset was initially measured at cost and is subsequently revalued for any impairment.
The accounts for the year ended 31 March 2020 use the valuations for the Fund’s assets based on the figures provided by the Fund’s custodian, State Street.
Foreign Currency Transactions Dividends, interest, purchases and sales of investments in foreign currencies have been accounted for at the spot market rates at the date of transaction
Investments held in foreign currencies are converted at the closing rates of exchange, as at the financial year-end date.
Cash and Cash Equivalents Cash comprises cash in hand (Bank) and demand deposits (MMFs), which also includes amounts held by the custodian.
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to minimum risk of changes in value.
Additional Voluntary Contributions: Cornwall Pension Fund provides an AVC scheme for its contributors, the assets of which are invested separately from Cornwall Pension Fund. AVC’s are paid to the AVC provider by employers and are specifically for providing additional benefits for individual contributors. Each AVC contributor receives an annual statement showing the amount held in their account and movements in the year.
The Fund has no involvement in the management of these assets and, for this reason, they are not included in Cornwall Pension Fund’s financial statements in accordance with the LGPS (Management and Investment of Funds) Regulations 2016 section 4(2)(b) but are disclosed as a note. Further details are provided in Note P17.
The Actuarial Present Value of Promised Retirement Benefits The Actuarial Present Value of Promised Retirement Benefits is disclosed and based on the requirements of IAS 19 Post-Employment Benefits and relevant actuarial standards. As
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permitted under the Code, Cornwall Pension Fund has included a note disclosing the actuarial present value of retirement benefits (Notes P14 and P15).
Under the Pension Fund Regulations, employers’ contribution rates are set to enable the Fund to meet, eventually, 100% of its overall liabilities to pay benefits for both local authorities and other bodies (see Note P14).
Contingent assets and contingent liabilities A contingent asset arises where an event has taken place giving rise to a possible asset whose existence will only be confirmed or otherwise by the occurrence of future events.
A contingent liability arises where an event has taken place prior to the year-end giving rise to a possible financial obligation whose existence will only be confirmed or otherwise by the occurrence of future events. Contingent liabilities can also arise in circumstances where a provision would be made, except that it is not possible at the balance sheet date to measure the value of the financial obligation reliably.
Contingent assets and liabilities are not recognised in the net asset statement but are disclosed by way of narrative in the notes.
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. 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.
During the reporting period there were no prior period adjustments.
Note Critical Judgments in Applying Accounting Policies P4 Pension Fund Liability The pension fund liability is calculated every three years by the appointed actuary, with annual updates in the intervening years. The methodology used is in line with accepted guidelines and in accordance with IAS 19. Assumptions underpinning the valuations are agreed with the actuary and are explained in Notes P14 and P15. The estimate of fund liability is subject to significant variances based on changes to the underlying assumptions. These actuarial revaluations are used to set future contribution rates and underpin the Fund’s most significant investment management policies, for example in terms of the balance.
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Note Assumptions Made About the Future and Other Major Sources of Estimation P5 Uncertainty
These financial statements contain estimated figures that are based on assumptions and judgements made by our investment managers about the future or that are otherwise uncertain. These estimates and assumptions affect the amounts reported for the assets and liabilities at balance sheet date and the amounts reported for revenues and expenses during the year. Estimates are made taking into account historical experience, current trends and other relevant factors. However, the nature of estimation means that actual outcomes could differ from the assumptions and estimates.
The items in the Net Assets Statement at 31 March 2020, for which there is a significant risk of material adjustment in the forthcoming year, are as shown below:
Item Uncertainties Effect if actual results differ from assumptions Actuarial present Estimation of the net liability to pay pensions The effects on the net pension liability value of promised depends on a number of complex judgements of changes in the individual retirement benefits relating to the discount rate used, the rate at which assumptions can be measured. A 0.5% salaries are projected to increase, changes in decrease in the real discount rate retirement ages, mortality rates and expected assumption would increase the pension returns on pension fund assets. liability by £285m. A 0.5% rise in the salary increase rate would increase the A firm of consulting actuaries, Hymans Robertson, is liability by £28m. A 0.5% increase in engaged to provide the fund with expert advice assumed pension increase rate would about the assumptions to be applied. increase the liability by £254m. A 1- year increase in assumed life expectancy would increase the liability by 3-5%.
More details on the Actuary’s assumptions and projections are shown in Notes P14 and P15. Private Equities, These investments are not publicly listed and as The total private equity, infrastructure, Infrastructure, such there is a degree of estimation involved in property limited partnerships and Property Limited their valuation. Private Debt investments in the Partnerships and See Note P11, Fair Value - Basis of Valuation for financial statements are £250.669m. Private Debt further detail There is a risk that these investments may be under - or over - stated in the accounts due to estimation uncertainties. See Note P11 for further details.. Pooled Property There are uncertainties in the financial markets The total Pooled Property Funds are Funds caused by the current Coronavirus pandemic. £135.8m, which includes the Property Market activity is being impacted in all sectors and, Limited Partnerships (see above and as at the valuation date, it is not considered that Note P11 for estimation uncertainty valuers can rely upon previous comparable market note on the Property Limited evidence to fully inform opinions of value. Due to Partnerships due to them not being these uncertainties, there is a risk that the publicly listed). estimated values may be under or overstated. Having engaged with the fund The current response to COVID-19 means that managers on the predicted outcome of valuers are faced with an unprecedented set of COVID-19 on these estimated circumstances on which to base a judgement. valuations, there is a risk that the Valuations are therefore reported on the basis of actual values are lower than was ‘material valuation uncertainty’ as set out in VPGA estimated at year-end, this could result 10 of the RICS Valuation – Global Standards. in a fall of valuations, estimated Consequently, less certainty – and a higher degree between 0-10% of the reported value,
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of caution – should be attached to the valuations which is between £0-£13.6m of the than would normally be the case. above.
Note Events after the Reporting Date P6 These are events, both favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are 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 (adjusting events after the reporting period), and b) Those that are indicative of conditions that arose after the reporting period (non- adjusting events after the reporting period).
Non-adjusting event – COVID-19
The outbreak of COVID-19, declared by the World Health Organisation as a “Global Pandemic” on the 11th March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries. Market activity is being impacted in all sectors by the efforts and restrictions being made to reduce the spread of the virus.
There have been a number of material factors which make it difficult to quantify what the outcome could be on financial markets; How long will the pandemic last? Will there be a second flare-up? How deep will its economic impacts be? There has been unprecedented government support through stimulus policies including support via the furlough scheme, central banks have reacted by immediately reducing the base rate and have embarked on substantial asset purchase programs. Both the short and long-term implications of the shut- down and the affect it will have on companies remain uncertain and longer-term performance will ultimately be impacted by how long the recovery takes.
For a pension scheme, a non-adjusting event could be the significant decline in the value of investments. As a result of Covid-19, the future investment values may be more volatile, at least over the short to medium term, until a vaccine or other successful cure is found for Covid-19. However, to date, although there has been significant variation to individual fund values (both upwards and downwards), as at the end of September 2020 the investments are valued overall at a higher value (£2,124m) than at 31st March 2020 (£1,914m).
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Note P7 Analysis of Total Contributions and Benefits
The total contributions receivable and benefits payable during the year ending 31 March were as shown below:
Cornwall Scheduled Designatory Admitted Council Bodies Bodies Bodies 2020 2019 £m £m £m £m £m £m Contributions Receivable Employers' normal 25.625 19.154 4.491 2.844 52.114 51.096 Employers' fixed deficit 10.645 5.312 2.562 1.174 19.693 22.929 From Employees 9.175 6.376 1.681 0.908 18.140 17.526 (normal and additional) Transfers In Individual transfers 7.012 1.486 0.331 0.039 8.868 3.559 Other Income 0.002 0.005 0.002 - 0.009 0.010
Total Income 52.459 32.333 9.067 4.965 98.824 95.120
Benefits Payable Pensions (49.592) (6.534) (2.477) (4.286) (62.889) (59.586) Lump Sums (7.594) (2.622) (1.453) (0.978) (12.647) (13.574) Death Benefits (0.664) (0.379) (0.146) (0.168) (1.357) (1.808) Taxation where lifetime or (0.174) - (0.038) - (0.212) (0.164) annual allowance exceeded Payments on Account of Leavers Refunds of Contributions (0.165) (0.175) (0.009) (0.008) (0.357) (0.344) Transfers Out Individual transfers (1.864) (0.719) (0.057) (0.327) (2.967) (2.866)
Total Expenditure (60.053) (10.429) (4.180) (5.767) (80.429) (78.342)
Taxation arising on benefits paid or payable is in respect of members whose benefits exceeded the life time or annual allowance and who elected to take lower benefits from the Fund in exchange for the Fund settling their tax liability.
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Note Management Expenses P8 For the years ended 31 March, the analysis of management expenditure was as follows:
2020 2019 £m £m Management Expenses Administrative Costs 0.968 0.964 Investment Management Expenses Management Fees 11.077 9.730 Performance Fees 0.873 0.356 Transaction Costs 3.164 2.779 Other Costs1 2.404 2.737 Custody Fees 0.018 0.046 Oversight and Governance Costs 0.931 0.747
Total Investment and Administration Expenses 19.435 17.359
1 Other Costs are investment management expenses incurred which do not fall into the other subheadings
In addition to these costs, indirect costs are incurred through the bid-offer spread on investments sales and purchases. These are reflected in the costs of investment acquisitions and in proceeds from the sales of investments (see Note P10).
Included in Oversight and Governance Costs is £0.025m for the year to 31 March 2020 (£0.020m for the year to 31 March 2019) which relates to the external audit of the Pension Fund accounts.
Note Investment Income P9
The income paid back to the Fund generated by the Fund’s investments, net of tax, amounted to £24.179m. Other income is generated by the Fund’s investments but the holdings are invested in accumulation shares, which are held for capital growth. The income is held back and reflected in the unit price. Investment income for the year ended 31 March was received from the following sectors:
2020 2019 £m £m
Pooled Investment Vehicles Private equities, infrastructure and private debt 7.826 4.327 Pooled Property Funds 4.930 4.700 Unit Trust Bonds 0.858 - Gain on foreign currency transactions when trading1 10.347 15.473 Interest on cash deposits 0.277 0.062 Other - 0.007
Gross Investment Income 24.238 24.569
Irrecoverable Witholding Tax (0.059) (0.071)
Net Investment Income 24.179 24.498
1 This gain resulted from the large change in exchange rates, from when the investment was originally purchased to when it was sold
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Note Investments P10
31 March 31 March 2020 2019
£m £m Notes
Long Term Investments Brunel Pension Partnership Ltd 0.427 0.395 Investment Assets Pooled Investments 1,744.713 1,766.079 Pooled Property Investments 135.835 144.931 Cash Deposits 20.758 9.307 P13 Other Investment Balances 3.683 0.158
Net Investment Assets 1,905.416 1,920.870
The following note shows the pooled investments split between UK and Overseas at 31 March. The vast majority of these funds are denominated in sterling, for a breakdown of those which are not in sterling, see Foreign Currency Risk (contained in Note P13).
The pooled funds denominated in sterling will on a day to day basis be subject to foreign currency risk (due to underlying holdings in other markets), which is taken into account with the sterling unit pricing of these pooled funds as at 31 March. The managers of the pooled funds have the ability to manage this exposure by using forward exchange contracts or hedging the sterling value of investments that are priced in other currencies, if they deem this risk material.
31 March 31 March 2020 2019 Investment Assets £m £m
Pooled Investment Vehicles Managed Funds UK Pooled Funds 688.817 677.745 Overseas Pooled Funds 904.198 978.137 UK Pooled Property 34.186 37.631 Overseas Pooled Property 5.425 5.527 UK Unit Trusts Pooled Property 96.224 101.773 Insurance Policies UK Insurance Policies 19.367 20.881 Overseas Insurance Policies 132.331 89.316 1,880.548 1,911.010
Cash Deposits 20.758 9.307 Investment Income Due and tax receivable 0.072 0.158 Amounts Receivable from Sales 3.611 - 24.441 9.465
Net Investment Assets of the Scheme as at 31 March 1,904.989 1,920.475
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The following note shows the reconciliation of movements in investments for the year ending 31st March 2020:
Profit / Loss Value and Change Value 1 April Purchases Sales in Market 31 March 2019 at cost Proceeds Value 2020 £m £m £m £m £m Long Term Investments Brunel Pensions Partnership Ltd 0.395 - - 0.032 0.427 Investment Assets Pooled Investment Vehicles Pooled Equity Funds 633.841 166.732 (196.985) (30.288) 573.300 Pooled Property Funds 144.931 1.879 (7.444) (3.531) 135.835 Other Pooled Investments 1,132.238 764.641 (720.244) (5.222) 1,171.413
1,911.405 933.252 (924.673) (39.009) 1,880.975
Other adjustments for revaluation - - Cash Deposits 9.307 20.758 Other Investment Balances 0.158 3.683
Net Investment Assets 1,920.870 (39.009) 1,905.416
The comparative data for the previous year are as follows:
Profit / Loss Value and Change Value 1 April Purchases Sales in Market 31 March 2018 at cost Proceeds Value 2019 £m £m £m £m £m Long Term Investments Brunel Pensions Partnership Ltd 0.840 - - (0.445) 0.395 Investment Assets
Pooled Investment Vehicles Pooled Equity Funds 575.709 223.552 (199.982) 34.562 633.841 Pooled Property Funds 132.667 8.659 (4.812) 8.417 144.931 Other Pooled Investments 1,070.988 286.508 (290.682) 65.424 1,132.238
1,780.204 518.719 (495.476) 107.958 1,911.405
Other adjustments for revaluation - (0.011) - Cash Deposits 7.787 9.307 Other Investment Balances 0.100 0.158
Net Investment Assets 1,788.091 107.947 1,920.870
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The fund managers’ portfolios were valued as follows:
31 March 2020 31 March 2019 % of % of £m Total £m Total Fund Manager Investments managed by Brunel Pension Partnership Brunel Infrastructure Portfolio 11.274 0.5% 4.706 0.2% Brunel Emerging Market Equities4 138.728 7.3% - 0.0% Brunel Liability Driven Investment2 (BlackRock) 378.296 19.9% - 0.0% Total Investments managed by Brunel Pension Partnership 528.298 27.7% 4.706 0.2%
Investments managed outside of Brunel Pension Partnership Aberdeen Standard Investments1 (Property, Private Equity 68.845 3.6% 120.610 6.3% & Frontier Markets) AXA Investment Managers2 (Liability Driven Investment) - 0.0% 362.119 18.9% Arcmont Asset Management3 (Private Debt) 36.294 1.9% 26.703 1.4% Capital International4 (Emerging Market Equities) - 0.0% 115.534 6.0% Environmental Technology Fund (Private Equity) 0.312 0.0% 0.975 0.1% Golub (Private Debt) 35.284 1.9% 20.145 1.0% Federated Hermes5 (Infrastructure) 59.715 3.1% 42.124 2.2% HSBC (Frontier Market Equities) 9.397 0.5% 48.559 2.5% Infracapital Partners (Infrastructure) 35.778 1.9% 16.478 0.9% Insight Investment Management6 (Absolute Return Bonds & 80.026 4.2% 139.899 7.3% Multi Asset Credit) Internally Managed Property Funds (Property) 80.801 4.2% 83.459 4.3% Invesco Perpetual (Diversified Growth Fund) 201.113 10.6% 217.640 11.3% Man Institutional Solutions (Hedge Fund) 123.498 6.5% 130.041 6.8% M & G UK Financing Fund7 (Private Debt) - 0.0% 0.332 0.0% Newton Investment Management (Global Equities) 425.175 22.3% 427.860 22.3% Wilshire Associates (Private Equity) 44.314 2.3% 43.629 2.3% Legal & General Investment Management (Insurance Fund) 151.698 8.0% 110.197 5.7% Total Investments managed by Cornwall Pension Fund 1,352.250 71.0% 1,906.304 99.3%
Total Investments with external managers 1,880.548 98.7% 1,911.010 99.5%
Accruals and Cash Deposits 24.441 1.3% 9.465 0.5%
Total Investment Assets 1,904.989 100.0% 1,920.475 100%
1 The Aberdeen Frontier Opportunities Fund sold down during the 2019-20 financial year, due to Cornwall Pension Fund no longer having a direct allocation to frontier market equities 2 As part of LGPS Pooling, the Funds Liability Driven Investment was transitioned from AXA to Brunel during the 2019-20 financial year 3 Arcmont Asset Management became an independent private debt business, following the completion of its separation from BlueBay Asset Management in November 2019 4 As part of LGPS Pooling, the Fund’s investment with Capital International Emerging Markets was transitioned to the Brunel Emerging Markets portfolio during the 2019-20 financial year 5 Previously Hermes Investment Management – In February 2020, Federated Investors Inc. and Hermes Investment Management formally announced the rebranding of the two companies into Federated Hermes, Inc. 6 The Absolute Return Bonds holding with Insight Investment Management sold down during the 2019-20 financial year 7 M & G UK Financing Fund successfully wound down during the year, as the final assets in the fund unwound
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The following holdings each represent more than 5% of the net assets of the Fund:
31 March 2020 31 March 2019
£m % of Total £m % of Total
Newton Global Equity X Shares Fund 425.175 22.3% 427.860 22.3% Brunel Liability Driven Investment (BlackRock) 378.296 19.9% - - Invesco Balanced Risk 8 Accumulation Shares 201.113 10.6% 217.640 11.3% Legal & General Investment Management (Insurance Fund Policy 37084) 151.698 8.0% 110.197 5.7% Brunel Emerging Market Equities 138.728 7.3% - - Man Institutional Solutions - Cornwall Hedge Fund Strategy 123.498 6.5% 130.041 6.8% AXA IM Smart Matching Solutions Fund A1 - - 362.119 18.9% Capital International Emerging Markets (Growth Fund)2 - - 115.534 6.0%
1 As part of LGPS Pooling, the Fund’s Liability Driven Investment was transitioned from AXA to Brunel during the 2019-20 financial year 2 As part of LGPS Pooling, the Fund’s investment with Capital International Emerging Markets was transitioned to the Brunel Emerging Market Equities portfolio during the 2019-20 financial year
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Note Fair Value – Basis of Valuation P11 The basis of valuation of each class of investment asset is set out below.
Valuation Observable and Key sensitivities affecting the Description of asset hierarchy Basis of valuation unobservable inputs valuations provided
Diversified Growth Funds Level 2 Valued using vendor pricing and OTC pricing Evaluated price feeds Not Required models
Pooled Equity Funds Level 2 Closing bid price where bid and offer prices NAV-based pricing set Not Required are published. Closing single price where on a forward pricing single price published basis Multi Asset Credit Level 2 Average of broker price feeds Evaluated price feeds Not Required
Liability Driven Investment Level 2 Valued using vendor pricing and OTC pricing Evaluated price feeds, Not Required models OTC Modelling and economics of Swap Property Unit Trusts (UK) Level 2 Closing bid price where bid and offer prices NAV-based pricing set Refer to Note P5 - Pooled are published on a forward pricing Property Funds regarding Closing single price where single price basis commetary on the impact of published COVID-19 on valuations Hedge Funds Level 2 Closing bid price where bid and offer prices NAV-based pricing set Not Required are published on a forward pricing Closing single price where single price basis published Insurance Policies Level 2 Closing bid price where bid and offer prices Evaluated price feeds Not Required are published
Private Debt Level 3 Fair value derived from the amortised cost Initial recognition cost, Valuations could be affected by measurement Principal repayments, material events occurring between effective interest method, the date of the financial Impairment reductions statements provided and the pension fund's own reporting date, as the fund is exposed to credit risk and asset determined to be uncollectible will need to be written off and by any differences between the audited and unaudited accounts. Property Limited Partnerships Level 3 Valued at fair value at the year-end using a NPV of projected cash Valuations could be affected by number of different models that relect the flows, internally- material events occurring between general partner's determination of generated pricing models the date of the financial assumptions and inputs that market utilising NAV statements provided and the participants might reasonably use in valuing methodologies, pension fund's own reporting date, the securities underlying property by changes to expected valuations, transactions cashflows, and by any differences observable in the between audited and unaudited marketplace and accounts. reported NAV as provided by the investee
Infrastructure Funds1 Level 3 Direct investments: Independent valuation Future free cash flows Valuations could be affected by performed using discounted cash flow from underlying material events occurring after the methodology in accordance with international investments preparation of the independent private equity valuation guidelines Cost of capital of reports, and by changes to underlying investments expected cash flows. Private Equities Level 3 Comparable valuation of similar companies in EBITDA multiple Valuations could be affected by accordance with International Private Equity Revenue multiple material events occurring between and Venture Capital Valuation Guidelines Discount for lack of the date of the financial marketability statements provided and the Control premium pension fund's own reporting date, by changes to expected cashflows, and by any differences between audited and unaudited accounts. 1 Infracapital, one of the Fund’s Infrastructure managers has been able to quantify the potential impact of COVID-19 on its investments and so has made negative adjustments to their 31st March 2020 valuations using a COVID-19 red, amber and green analysis as the basis for their reductions
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Sensitivity of assets valued at level 3
Having analysed historical data and current market trends, and consulted with independent advisors, the Fund has determined that the valuation methods described above are likely to be accurate to within the following ranges and has set out below the consequent potential impact on the closing value of investments held at 31 March 2020.
Assessed valuation Value at 31 Value on Value on range (+/-) March 2020 increase decrease £m £m £m
Private Debt 5 71.578 75.157 67.999 Property Limited Partnerships 10 13.887 15.276 12.498 Private Equities 15 58.437 67.202 49.671 Infrastructure Funds 10 106.767 117.444 96.090
Total 250.669 275.079 226.258
The comparative data for the previous year are as follows:
Assessed valuation Value at 31 Value on Value on range (+/-) March 2019 increase decrease £m £m £m
Private Debt 5 47.180 49.539 44.821 Property Limited Partnerships 10 16.385 18.024 14.747 Private Equities 15 61.854 71.132 52.576 Infrastructure Funds 10 63.308 69.639 56.977
Total 188.727 208.334 169.121
Fair Value Hierarchy
The Fund is required to classify its investments using a fair value hierarchy that reflects the subjectivity of the inputs used in making an assessment of fair value. Fair value is the value at which the investments could be realised within a reasonable timeframe. This hierarchy is not a measure of investment risk but a reflection of the ability to value the investments at fair value. The fair value hierarchy has the following levels:
• Level 1 – Unadjusted, quoted prices in an active market for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
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Listed investments are shown at bid prices. The bid value of the investment is based on the bid market quotation of the relevant stock exchange.
• Level 2 – Inputs, other than quoted prices under Level 1, that are observable for the asset or liability, either directly or indirectly. For example, where an instrument is traded in a market that is not considered to be active, or where valuation techniques are used to determine fair value and where these techniques use inputs that are based significantly on observable market data.
• Level 3 – These are financial instruments where at least one input that could have a significant effect on the valuation is not based on observable market data, an example of these instruments is unquoted equities.
The valuation relies on the reporting entity’s own assumptions concerning the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. This is done with reference to the International Private Equity and Venture Capital Valuation Guidelines, which follow the principles of IFRS and US GAAP.
Valuations for the Fund’s private equities are usually undertaken at the end of December and cash flow adjustments are used to roll forward valuations to 31 March.
COVID Valuation Impact See Notes P5 and P6 regarding commentary on the impact of COVID-19 on valuations.
The following table sets out the Fund's financial assets and liabilities measured at fair value according to the fair value hierarchy at 31 March 2020:
Quoted Market Using Observable With Significant Price Inputs Unobservable Inputs
Investment Assets Level 1 Level 2 Level 3 Total as at 31 March 2020 £m £m £m £m
Financial Assets at Fair Value Through Profit and Loss - 1,629.879 250.669 1,880.548 Other Investment Assets 24.441 - - 24.441
Total Investment Assets 24.441 1,629.879 250.669 1,904.989
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The comparative table for 31 March 2019 is shown below:
Quoted Market Using Observable With Significant Price Inputs Unobservable Inputs
Investment Assets Level 1 Level 2 Level 3 Total as at 31 March 2019 £m £m £m £m
Financial Assets at Fair Value Through Profit and Loss - 1,722.283 188.727 1,911.010 Other Investment Assets 9.465 - - 9.465
Total Investment Assets 9.465 1,722.283 188.727 1,920.475
Reconciliation of Fair Value Measurements within level 3
Infrastructure Property Limited Private Equities Funds Private Debt Partnerships Total value £m £m £m £m £m
Market value April 2019 61.854 63.308 47.180 16.385 188.727
Transfers into Level 3 - - - - -
Transfers out of Level 3 - - - - -
Purchases during the year 1.788 44.691 32.874 1.879 81.232 Sales during the year (12.355) (4.269) (9.581) (2.627) (28.831)
Unrealised gains/losses (0.520) 2.980 1.097 (1.750) 1.807
Realised gains/losses 7.670 0.057 0.008 - 7.735
Market value 31 March 2020 58.437 106.767 71.578 13.887 250.669
The comparative table for 31 March 2019 is shown below:
Infrastructure Property Limited Private Equities Funds Private Debt Partnerships Total value £m £m £m £m £m
Market value April 2018 56.214 61.099 18.517 7.024 142.854
Transfers into Level 3 - - - - -
Transfers out of Level 3 - - - - -
Purchases during the year 4.037 5.358 33.201 8.659 51.255 Sales during the year (10.654) (1.335) (6.191) (0.375) (18.555)
Unrealised gains/losses 6.746 (2.442) 1.531 1.076 6.911
Realised gains/losses 5.511 0.628 0.122 0.001 6.262
Market value 31 March 2019 61.854 63.308 47.180 16.385 188.727
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Note Financial Instruments P12 Classification of Financial Instruments
31 March 31 March 2020 2019 £m £m Financial Assets Fair value through profit or loss Pooled Investments 1,744.713 1,766.079 Pooled Property Investments 135.835 144.931 Long Term Investments 0.427 0.395 Assets at amortised cost Cash 21.912 10.330 Other Investment Balances 3.683 0.158 Debtors 11.721 12.126
Total Financial Assets 1,918.291 1,934.019
Financial Liabilities Measured at amortised cost Creditors (4.191) (4.049) Total Financial Liabilities (4.191) (4.049)
Grand Total 1,914.100 1,929.970
Net Gains and Losses on Financial Instruments
31 March 2020 31 March 2019 £m £m
Financial Assets Fair Value Through Profit and Loss (39.009) 107.947 Loans and Receivables - -
Total (39.009) 107.947
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Note P13 Nature and Extent of Risks Arising from Financial Instruments
The Cornwall Council Pension Fund's objective is to generate positive investment returns for a given level of risk. Therefore, the Fund holds financial instruments such as equities, bonds, and cash and cash equivalents in a number of different investment vehicles. In addition, debtors and creditors arise as a result of its operations. The value of these financial instruments in the financial statements approximates to their fair value.
The main risks from the Fund's holding of financial instruments are market risk, credit risk and liquidity risk. Market risk includes price risk, interest rate risk and foreign currency risk.
The Fund's investments are managed on behalf of the Fund by the appointed fund managers. Each fund manager is required to invest the assets managed by them in accordance with the terms of their investment guidelines or pooled fund prospectus. The Pensions Committee has determined that the investment management structure is appropriate and is in accordance with its investment strategy. The Committee regularly monitors each manager, and considers and takes advice on the nature of the investments made and associated risks.
The Fund's investments are held by State Street Bank and Trust Company, who act as custodian on behalf of the Fund, or with the custodian appointed by the pooled investment vehicle.
Because the Fund adopts a long-term investment strategy, the high level risks described below will not alter significantly during the year unless there are significant strategic or tactical changes in the portfolio.
Market Risk
Market risk represents the risk that the fair value of a financial instrument will fluctuate because of changes in market prices, interest rates or currencies. The Fund is exposed through its investments in equities, bonds and investment funds, to all these market risks. The aim of the investment strategy is to manage and control market risk within acceptable parameters, while optimising the return from the investment portfolio.
In general, market risk is managed through the diversification of the investments held by asset class, investment mandate guidelines and fund managers. The risk arising from exposure to specific markets is limited by the strategic asset allocation, which is regularly monitored by the Committee.
Market Price Risk
Market price risk represents the risk that the value of a financial instrument will fluctuate caused by factors other than interest rate or foreign currency movements, whether those changes are caused by factors specific to the individual instrument, its issuer or factors affecting the market in general e.g. COVID 19 and geopolitical trade tensions.
Market price risk arises from uncertainty about the future value of the financial instruments that the Fund holds. All investments present a risk of loss of capital; the maximum risk being determined by the fair value of the financial instruments. The fund managers mitigate this
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risk through diversification, in line with their own investment strategies and mandate guidelines.
Market Price Risk - Sensitivity Analysis
The sensitivity of the Fund's investments to changes in market prices has been analysed using the volatility of return experienced in each asset class on a three year average basis, as observed and provided by PIRC during the year to 31 March 2020. The volatility data is broadly consistent with a one-standard deviation movement in the value of the assets. The analysis assumes that all other variables remain constant.
Movements in market prices would have increased or decreased the net assets, at 31 March 2020, by the amounts shown below:
Value on Value on Value Volatility of Increase Decrease As at 31 March 2020 £m Return % £m £m
Global Equities 573.300 10.92% 635.906 510.694 Property 135.835 2.60% 139.372 132.298 Bonds 80.026 7.45% 85.988 74.064 Other pooled investment vehicles and private equities 1,091.387 12.75% 1,230.539 952.235
Total1 1,880.548 7.80% 2,027.202 1,733.894
1 The percentage change for total assets includes the impact of correlation across asset classes. Therefore, the values on increase and decrease do not add to the totals.
The comparative data for the previous year are as follows:
Value on Value on Value Volatility of Increase Decrease As at 31 March 2019 £m Return % £m £m
Global Equities 633.841 9.35% 693.115 574.567 Property 144.931 2.41% 148.421 141.441 Bonds 139.899 6.36% 148.795 131.004 Other pooled investment vehicles and private equities 992.339 17.50% 1,165.999 818.680
Total1 1,911.010 6.55% 2,036.134 1,785.886
1 The percentage change for total assets includes the impact of correlation across asset classes. Therefore, the values on increase and decrease do not add to the totals
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Interest Rate Risk
The Fund recognises that interest rates can vary and can affect both income to the Fund and the carrying value of fund assets, both of which affect the value of the net assets available to pay benefits.
The Liability Driven Investment is used as a hedge to reduce risk.
The analysis that follows assumes that all other variables remain constant and shows the effect of a +/- 1% change in interest rates.
Value on Value on Potential Interest Rate Interest Rate Interest Rate Risk as at 31 March 2020 Value movement Decrease Increase 1% change in interest rates £m £m £m £m
Liability Driven Investment 378.296 162.783 541.079 215.513
Total 378.296 162.783 541.079 215.513
The comparative data for the previous year are as follows:
Value on Value on Potential Interest Rate Interest Rate Interest Rate Risk as at 31 March 2019 Value movement Decrease Increase 1% change in interest rates £m £m £m £m
Liability Driven Investment 362.119 142.187 504.306 219.932
Total 362.119 142.187 504.306 219.932
Foreign Currency Risk Comparators Foreign currency risk represents the risk that the fair value of financial instruments when expressed in sterling, the Fund’s base currency, will fluctuate because of changes in foreign exchange rates. The Fund is exposed to currency risk on investments denominated in a currency other than sterling. For a sterling based investor, when sterling weakens, the sterling value of foreign currency denominated investments rises. As sterling strengthens, the sterling value of foreign currency denominated investment falls.
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Foreign Currency Risk - Sensitivity Analysis
The following table analyses the Fund’s currency exposure as at 31 March 2020 as observed and provided by PIRC. PIRC analysed historical data and considered the potential volatility associated with foreign exchange rate movements to be 7.35% (as measured by one standard deviation).
The below table reports foreign currency sensitivity only for the pooled funds denominated in a currency other than sterling, for the pooled funds which are denominated in sterling at the 31 March, the Fund is of the opinion that these represent a fair valuation of the pooled funds in sterling, when taken in conjunction with the market price risk sensitivity analysis.
The pooled funds denominated in sterling will on a day to day basis be subject to foreign currency risk (due to underlying holdings in other markets – see Note P10), which is taken into account with the sterling unit pricing of these pooled funds as at 31 March. The managers of the pooled funds have the ability to manage this exposure by using forward exchange contracts or hedging the sterling value of investments that are priced in other currencies, if they deem this risk material.
The analysis assumes that all other variables, in particular interest rates, remain constant:
Potential Value on Value on Overseas Assets as at 31 March 2020 Value Percentage Increase Decrease £m Change £m £m
Overseas Equities1 - - - - Cash 1.264 7.35% 1.357 1.171 Property 5.425 7.35% 5.824 5.026 Alternatives 101.801 7.35% 109.286 94.316
Total Overseas Assets 108.490 7.35% 116.467 100.513
1 The Overseas Equities which were denominated in a currency other than sterling (USD), were sold down in year as part of the transition from the Capital Emerging Markets Equities holding
The comparative data for the previous year are as follows:
Potential Value on Value on Overseas Assets as at 31 March 2019 Value Percentage Increase Decrease £m Change £m £m
Overseas Equities 115.534 9.10% 126.033 105.034 Cash 2.279 9.10% 2.487 2.073 Property 5.527 9.10% 6.029 5.024 Alternatives 85.730 9.10% 93.521 77.939
Total Overseas Assets 209.070 9.10% 228.070 190.070
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Credit Risk
Credit risk represents the risk that the counterparty to a financial instrument will fail to meet an obligation and cause the Fund to incur a financial loss. This is often referred to as counterparty risk.
The Fund is exposed to credit risk through its underlying investments (including cash balances) and the transactions it undertakes to manage its investments. The careful selection and monitoring of counterparties (including brokers, custodian and investment managers) minimises the credit risk that may occur through the failure to settle transactions in a timely manner. The Fund's contractual exposure to credit risk is represented by the net payment or receipt that remains outstanding and the cost of replacing the position in the event of a counterparty default. Bankruptcy or insolvency of the Custodian may affect the Fund's access to its assets. However, all assets held by the Custodian are ring-fenced as client assets and therefore cannot be claimed by creditors of the Custodian. The Fund manages its risk by monitoring the credit quality and financial position of the Custodian.
The Fund does not hold any fixed interest securities directly and the manager of the Multi- Asset Credit funds is responsible for managing credit risk. The market prices of the bonds incorporate an assessment of credit quality in their valuation, which reflects the probability of default (the yield of a bond will include a premium that will compensate for the risk of default). The impacts of COVID on the probability of default will have been included in the market prices at 31st March 2020.
Another source of credit risk is the cash balances held to meet operational requirements or by the managers at their discretion. Internally held cash is managed in line with Cornwall Pension Fund’s Cash Management Strategy. The Fund invests surplus cash with the Custodian in diversified, money market funds. (See table below for breakdown of this).
Liquidity Risk
Cash and cash equivalents At 31 March At 31 March 2020 2019 Rating £m £m Money Market Funds Aberdeen Standard Liquidity Fund AAA 12.933 4.832 State Street Global Advisors (SSGA) AAA 6.116 4.293 Bank Natwest Plc A+ 1.154 1.023 State Street Bank & Trust Company AA+ 1.709 0.181 Total cash and cash equivalents 21.912 10.329
Liquidity risk represents the risk that the Fund will not be able to meet its financial obligations as they fall due. A substantial portion of the Fund's investments consist of readily-realisable securities (in particular equities and bonds). However, the main liability of the Fund is the benefits payable, which fall due over a long period and the investment strategy reflects the long term nature of these liabilities. Therefore the Fund is able to
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manage the liquidity risk that arises from its investments in less liquid asset classes which are subject to longer redemption periods and cannot be considered as liquid as the other investments. The Fund maintains a cash balance to meet working requirements.
The majority of the Fund’s invested assets could be realised within a three month period. The exceptions to this would be private equities, infrastructure, private debt and property limited partnerships. At 31 March 2020, these amounted to £250.669m, which represented 13.2% of the Fund’s investment assets (at 31 March 2019, these amounted to £188.727m, which represented 9.8% of the Fund’s investment assets).
Note P14 Actuarial Statement for 2019-20 (This note has been prepared by the Fund’s Actuary, Hymans Robertson)
This statement has been prepared in accordance with Regulation 57(1)(d) of the Local Government Pension Scheme Regulations 2013. It has been prepared at the request of the Administering Authority of the Fund for the purpose of complying with the aforementioned regulation.
Description of Funding Policy The funding policy is set out in the Administering Authority’s Funding Strategy Statement (FSS), dated April 2020. In summary, the key funding principles are as follows:
• to ensure the long-term solvency of the Fund using a prudent long term view. This will ensure that sufficient funds are available to meet all members’/dependants’ benefits as they fall due for payment;
• to ensure that employer contribution rates are reasonably stable where appropriate;
• to minimise the long-term cash contributions which employers need to pay to the Fund by recognising the link between assets and liabilities and adopting an investment strategy which balances risk and return (this will also minimise the costs to be borne by Council Tax payers);
• to reflect the different characteristics of different employers in determining contribution rates. This involves the Fund having a clear and transparent funding strategy to demonstrate how each employer can best meet its own liabilities over future years; and
• to use reasonable measures to reduce the risk to other employers and ultimately to the Council Tax payer from an employer defaulting on its pension obligations. The FSS sets out how the Administering Authority seeks to balance the conflicting aims of securing the solvency of the Fund and keeping employer contributions stable. For employers whose covenant was considered by the Administering Authority to be sufficiently strong, contributions have been stabilised to have a sufficiently high likelihood of achieving the funding target over 20 years. Asset-liability modelling has been carried out which demonstrate that if these contribution rates are paid and future contribution changes are constrained as set out in the FSS, there is still around a 70% likelihood that the Fund will achieve the funding target over 20 years.
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Funding Position as at the last formal funding valuation The most recent actuarial valuation carried out under Regulation 62 of the Local Government Pension Scheme Regulations 2013 was as at 31 March 2019. This valuation revealed that the Fund’s assets, which at 31 March 2019 were valued at £1,926 million, were sufficient to meet 90% of the liabilities (i.e. the present value of promised retirement benefits) accrued up to that date. The resulting deficit at the 2019 valuation was £207 million.
Each employer had contribution requirements set at the valuation, with the aim of achieving full funding within a time horizon and probability measure as per the FSS. Individual employers’ contributions for the period 1 April 2020 to 31 March 2023 were set in accordance with the Fund’s funding policy as set out in its FSS.
The below table shows the funding level has changed between valuations. There has been a reduction in the funding deficit from £486m to £207m, with the investments having returned 26.9% over the 3 year period compared with the expected returns of 12.2%
Valuation Date 31 March 2016 31 March 2019 Past Service Liabilities (£m) (£m) Employees 696 717 Deferred Pensioners 399 447 Pensioners 866 970 Total Liabilities 1,961 2,133 Assets 1,475 1,926 Surplus / (Deficit) (486) (207) Funding Level 75% 90%
Principal Actuarial Assumptions and Method used to value the liabilities Full details of the methods and assumptions used are described in the 2019 valuation report.
Method The liabilities were assessed using an accrued benefits method which takes into account pensionable membership up to the valuation date; and makes an allowance for expected future salary growth to retirement or expected earlier date of leaving pensionable membership.
Assumptions A market-related approach was taken to valuing the liabilities, for consistency with the valuation of the Fund assets at their market value.
The key financial assumptions adopted for the 2019 valuation were as follows:
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Financial Assumptions 31 March 2019 % p.a.
Discount rate 4.1% Salary increase assumption 2.3% Benefit increase assumption (CPI) 2.3%
The key demographic assumption was the allowance made for longevity. The life expectancy assumptions are based on the Fund's VitaCurves with improvements in line with the CMI 2018 model, an allowance for smoothing of recent mortality experience a long term rate of 1.25% p.a. Based on these assumptions, the average future life expectancies at age 65 are as follows:
Males Females
Current Pensioners 21.4 years 23.6 years Future Pensioners 1 22.3 years 25.1 years
1 Future pensioners are assumed to be aged 45 at the 2019 valuation
Copies of the 2019 valuation report and Funding Strategy Statement are available on request from Cornwall Council, the Administering Authority to the Fund.
Experience over the period since March 2019 Markets were disrupted by COVID 19 which resulted in difficult market conditions towards the end of the financial year. As a result, the funding level of the Fund as at 31 March 2020 has reduced versus that reported in the previous formal valuation.
The next actuarial valuation will be carried out based on the data as at 31 March 2022. The Funding Strategy Statement will also be reviewed at that time.
Julie West FFA Fellow of the Institute and Faculty of Actuaries For and on behalf of Hymans Robertson LLP 23 April 2020
Note Actuarial present value of Promised Retirement Benefits P15 (This note was prepared by the Fund’s Actuary, Hymans Robertson)
CIPFA's Code of Practice on Local Authority Accounting 2019/20 requires Administering Authorities of LGPS funds that prepare pension fund accounts to disclose what IAS26 refers to as the actuarial present value of promised retirement benefits. I have been instructed by the Administering Authority to provide the necessary information for the Cornwall Pension Fund (“the Fund”).
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The actuarial present value of promised retirement benefits is to be calculated similarly to the Defined Benefit Obligation under IAS19. There are three options for its disclosure in pension fund accounts: showing the figure in the Net Assets Statement, in which case it requires the statement to disclose the resulting surplus or deficit; as a note to the accounts; or by reference to this information in an accompanying actuarial report. If an actuarial valuation has not been prepared at the date of the financial statements, IAS26 requires the most recent valuation to be used as a base and the date of the valuation disclosed. The valuation should be carried out using assumptions in line with IAS19 and not the Pension Fund’s funding assumptions.
I have been instructed by the Administering Authority to provide the necessary information for the Cornwall Pension Fund, which is in the remainder of this note.
Balance sheet
Year ended 31 March 2020 31 March 2019 £m £m Active members 1,144 1,662 Deferred members 639 670 Pensioners 1,063 952 Present value of Promised Retirement Benefits 2,846 3,284
The promised retirement benefits at 31 March 2020 have been projected using a roll forward approximation from the latest formal funding valuation as at 31 March 2019. The approximation involved in the roll forward model means that the split of benefits between the three classes of member may not be reliable. However, I am satisfied that the total figure is a reasonable estimate of the actuarial present value of benefit promises.
Note that there is no allowance in the above figures at 31 March 2020 for the “McCloud ruling”, i.e. an estimate of the potential increase in past service benefits arising from this case affecting public service pension schemes. Due to the adoption of CPI as the Fund’s salary increase assumption, we expect the impact of the McCloud judgements to have a negligible impact on the assessment of the Fund’s liabilities.
The figures include both vested and non-vested benefits, although the latter is assumed to have a negligible value. Further, I have not made any allowance for unfunded benefits.
It should be noted the above figures are appropriate for the Administering Authority only for preparation of the Pension Fund accounts. They should not be used for any other purpose (i.e. comparing against liability measures on a funding basis or a cessation basis).
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Assumptions The assumptions used are those adopted for the Administering Authority’s IAS19 report and are different as at 31 March 2020 and 31 March 2019. I estimate that the impact of the change in financial assumptions to 31 March 2020 is to decrease the actuarial present value by £290m. I estimate that the impact from of the change in the demographic and longevity assumptions is to decrease the actuarial present value by £107m. Financial assumptions My recommended financial assumptions are summarised below:
Year ended 31 March 2020 31 March 2019 % p.a. % p.a. Pensions Increase Rate 1.9% 2.5% Salary Increase Rate 1.9% 2.6% Discount Rate 2.3% 2.4%
Longevity assumption Life expectancy is based on the Fund’s VitaCurves with improvements in line with the CMI 2018 model, an allowance for smoothing of recent mortality experience and a long term rate of 1.25% p.a. Based on these assumptions, the average future life expectancies at age 65 are summarised below:
Males Females
Current Pensioners 21.4 years 23.6 years Future Pensioners 1 22.3 years 25.1 years
1 Future pensioners are assumed to be aged 45 at the 2019 valuation
Please note that the longevity assumptions have changed since the previous IAS26 disclosure for the Fund.
Commutation assumptions An allowance is included for future retirements to elect to take 40% of the maximum additional tax-free cash up to HMRC limits for pre-April 2008 service and 70% of the maximum tax-free cash for post-April 2008 service.
Julie West FFA Fellow of the Institute and Faculty of Actuaries For and on behalf of Hymans Robertson LLP 30 April 2020
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Note P16 Current Assets and Liabilities
31 March 31 March 2020 2019 £m £m Current Assets Administration income receivable 0.443 0.329 Employees Contributions receivable 1.927 1.930 Employers Contributions receivable 5.459 5.384 Pension strain income receivable 0.297 0.454 Cash Balances 1.154 1.023
Total Current Assets 9.280 9.120
Current Liabilities Administration expenses payable (2.689) (3.117) Pension lump sums payable (1.502) (0.932)
Total Current Liabilities (4.191) (4.049)
Total Current Assets and Liabilities 5.089 5.071
Long Term Debtors
31 March 31 March 2020 2019 £m £m Long Term Debtors Reimbursement of Lifetime Allowance Tax Charges 0.244 0.198 Cessation Payment Due 3.351 3.831
Total Long Term Debtors 3.595 4.029
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Note P17 Additional Voluntary Contributions (AVC)
Value Value at 31 March 2020 31 March 2019 £m £m AVC Scheme Standard Life 2.149 2.094 Utmost1 0.411 0.442 Total 2.560 2.536 Changes During the Year Contributions 0.288 0.213 Paid Out - 0.186 (0.216) Change in Market Value - 0.077 0.078
1 AVC provider transferred from Equitable Life to Utmost in year
Note Related Party Transactions P18
Cornwall Council is the administering authority of the Fund. The majority of investments are managed by external fund managers, although during the year a small proportion was held as cash and controlled in nominated money market accounts for cash flow management purposes, see Note P13 for details. Transactions with the Fund in respect of employees in the Scheme are shown in Note P7.
Included in Management Expenses (see Note P8) are charges amounting to £1.205m incurred for the internal costs of providing these services during the year to 31 March 2020 (£1.178m for the year to 31 March 2019). For the year to 31 March 2020 this is composed of £0.968m Administrative Costs and £0.237m Oversight and Governance Costs (£0.964m Administrative Costs and £0.214m Oversight and Governance Costs for the year to 31 March 2019).
Senior officers of the Pension Fund are members of the Fund as employee contributors. Following the local elections in May 2017, Cornwall Council Councillors are no longer eligible for active membership of the Pension Fund therefore, as at 31 March 2020, there were two Councillors serving on the Pensions Committee who were pensioners of the Fund and one employee and employer representative who were also pensioners of the Fund, along with one employer representative who was active in the Fund.
The Council made payments to each Cornwall Council elected Member serving on the Pensions Committee, in accordance with the Council’s Member’s Allowances Scheme. These payments were met by Cornwall Council and declared in their statutory accounts.
Brunel Pension Partnership Ltd (Company number 10429110) Brunel Pensions Partnership Ltd (Brunel) was formed on the 14th October 2016 and will oversee the investment of pension fund assets for the Avon, Buckinghamshire, Cornwall, Devon, Dorset, Environment Agency, Gloucestershire, Oxfordshire, Somerset, and Wiltshire Funds.
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Each of the 10 local authorities, including Cornwall Council, own 10% of Brunel. For the year ended 31st March 2020, Brunel’s service charge to the Cornwall Pension Fund totalled £1.052m (this includes £85,000 true up between the partner funds from previous years).
Key Management Personnel
The key management personnel of the Fund are the Section 151 Officer, the Head of Pensions, Treasury & Technical and the Pensions Committee. The table below shows the benefits they receive. This is not the total remuneration these posts receive, but is a notional amount based on their time allocated to the pension fund.
2020 2019 £m £m
Short-term benefits 0.081 0.074 Post-employment benefits 0.007 0.007
Total 0.088 0.081
Note Contractual Commitments and Contingent Liabilities P19
Outstanding capital commitments (investments) at the prevailing exchange rate on the day at 31 March 2020 were £142.653m (£213.903m at 31 March 2019).
These commitments relate to outstanding call payments due to the Fund’s partnerships for private equities, private debt, infrastructure and property. The amounts called by these partnerships are irregular in both size and timing over a period of between four and six years from the date of each original commitment.
Thirty admitted body employer contracts in the Cornwall Pension Fund hold insurance bonds to guard against the possibility of being unable to meet their pension obligations. These bonds are drawn in favour of the Pension Fund and payment will only be triggered in the event of employer default. No such defaults have occurred in 2019/20 or 2018/19.
Note Contingent Asset P20
Cornwall Pension Fund has ongoing claims against some European countries for tax withheld on foreign income dividends. KPMG, who submitted these claims in 2007, are still pursuing these claims on behalf of the Fund.
These claims are made on the basis that, within the European Union, all member states should enjoy the same tax status. Resident investors should not be classed differently to non-residents. Court cases such as those known as ‘Manninen’ and ‘Fokus’ have added to the strength of the arguments. The value of these claims is in excess of £250,000.
Also in 2007, claims were made against the HM Revenue and Customs for potential tax recovery in respect of manufactured dividends on equity stock lent out through the stock lending programme. Further claims were registered in the High Court in 2009-10 and again
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in 2012-13. These claims, to date, have a value in excess of £1.6m. According to our tax advisers, KPMG, recent developments offer some optimism on the success of these claims. In 2019 further action was taken to protect these claims with the UK set to leave the European Union.
All these claims noted above are being pursued through group action along with other pension funds. No accruals have been included in the accounts for these tax claims because outcomes are uncertain, although the amounts are significant. KPMG were contacted for an update in March 2020 and these claims are still ongoing.
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Glossary
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Glossary
This section helps explains some of the more technical terms used in the Statement of Accounts.
Accounting Policies The policies, concepts and conventions used in the preparation of the accounts.
Accruals Sums included in the accounts to cover income and expenditure attributable to the accounting period, for which payment has not been received or made by 31st March.
Assets Held for Sale These are long-term assets which are surplus to the Council’s operational needs and are being actively marketed for sale.
Capital Expenditure Expenditure on the acquisition of a long-term asset or expenditure which adds to and not merely maintains the value on an existing long-term asset.
Capital Financing Costs The costs of financing long-term assets, such as the interest costs of external loans and monies used to repay debt.
Capital Receipts Income received from the sale of long-term assets.
Contingent Asset A contingent asset is a possible asset which could arise following the occurrence of a future event outside the Council’s control.
Contingent Liability A contingent liability is a possible liability which could arise following the occurrence of a future event outside the Council’s control or is a present obligation where it is not possible to measure the outcome with sufficient reliability.
Council Tax Precept A property based tax that is set and administered by the Council, alongside the share of Council Tax levied by the Devon and Cornwall Police Authority and other Town and Parish Councils in Cornwall.
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Creditors Amounts owed by the Council for goods received or services provided, but for which payment has not been made by the 31st March.
Curtailment Within the defined benefit schemes impacting on the financial results of the Council, curtailment will arise if an event occurs reducing the expected future service of employees. Normally, this arises from redundancy or early retirement or if there is an amendment to terms impacting on current employees.
Debtors Debtors represent amounts due to the Council which are unpaid at 31st March.
Defined Benefit Scheme Defined benefit pension schemes prescribe the amounts members will receive as a pension regardless of contributions and investment performance. Employers are obliged to fund any shortfalls.
Depreciation Depreciation is the fall in value of an asset, as recorded in the financial records, due to wear and tear, age and obsolescence.
Finance Leases This is where the eventual benefit of the asset will pass from the leasing company to the Council. Annual payments are a combination of interest and the purchase of the asset.
IFRS International Financial Reporting Standards.
Imprest Account Petty Cash Accounts used for small items of expenditure.
Inventory Previously referred to as ‘stock’.
LOBO - Lender Option Borrower Option A financial instrument which is typically very long-term - for example, 40 to 60 years. The initial interest rate is fixed, but the lender has the option to nominate a revised rate at periodic reset dates. The reset dates are nominated at the time the loan is taken out. The
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borrower has the ‘option’ to either accept the new imposed fixed rate or repay the loan facility.
Long-Term Assets Long-term assets are tangible assets intended to be used for several years.
Minimum Revenue Provision (MRP) The amount set aside to repay external debt.
National Non-Domestic Rates A tax collected locally by the Council from commercial undertakings.
Net Interest on the Net Defined Benefit Liability Net interest expense for the Council – the change during the period in the net defined liability/(asset) that arises from the passage of time.
Operational Assets These are long-term assets held by the Council required to support the provision of services.
Operating Leases This is where the rewards and risks of ownership of the asset remain with the leasing company and the annual rental is charged directly to the CIES.
Past Service Costs Where pension scheme members receive enhanced or new benefits, the increase in the present value of future liabilities will be accounted for as past service costs.
Provisions These are sums set aside to meet liabilities or losses that are likely to be or will be incurred, but the dates on which they will arise are not fully known at the date that the Statement of Accounts is approved.
Remeasurement of the Net Defined Benefit Liability Employees of the Council are members of defined benefit pension schemes. Actuarial gains and losses arise because events have not coincided with actuarial assumptions made in the previous valuation or because the actuarial assumptions have changed.
Reserves Amounts set aside to meet the cost of specific future expenditure.
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Revenue Contribution to Capital Expenditure The amount of capital expenditure financed directly from the annual revenue budget.
Revenue Expenditure Funded From Capital Under Statute (REFCUS) Capital expenditure for which no tangible long-term asset exists therefore is transferred to revenue.
Support Services These are services provided by the central departments of the Council in respect of finance, human resources, legal, administration and property.
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Other Versions of our Accounts
This document sets out Cornwall Council’s final Statement of Accounts in the full detail and in the formats required by law and by the Code of Practice on Local Authority Accounting, which we follow. If you need this version produced in a different format, for example, in large type or in a language other than English, please contact us using the details given below. Members of the public have a statutory right to inspect the accounts before the audit is completed. For the 2019/20 accounts the inspection period is 3 August 2020 to 14 September 2020. These dates were advertised as required on the Council’s website from the week commencing 13th July 2020.
Feedback
We are constantly looking for ways to improve our publications and would welcome any feedback you may wish to provide. Please contact us with any comments or suggestions:
Email: [email protected] Telephone: 01872 323372
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