MILTON KEYNES COUNCIL
STATEMENT OF ACCOUNTS
For the year ended 31st March 2007
CONTENTS
Page
Foreword by the Head of Finance ...... 2
Auditor’s Report...... 13
Statement of Accounting Policies ...... 17
Revenue Account and supporting notes ...... 109
Collection Fund and supporting notes ...... 116
Glossary ...... 120
1 FOREWORD BY THE CHIEF FINANCE OFFICER
Foreword by the Head of Finance 1. INTRODUCTION
The Accounts of the Council have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom, published by the Chartered Institute of Public Finance and Accountancy (CIPFA).
This Statement includes details of the accounting principles in accordance with which the Council has prepared the financial statements and balance sheet. There are sections in the Statement showing details of the Council’s revenue expenditure, including sections on the Housing Revenue Account (HRA) and the Collection Fund, as well as the Income and Expenditure Account. These accounts are then incorporated into the Balance Sheet of the Council, which, together with its associated notes, reflects the Council’s financial position as at 31st March 2007.
2. GENERAL FUND
Given the level of Government support, and consistent with a reasonable level of council tax, the net revenue expenditure limit for 2006/07 set by the Council was £277,030,000. This was significantly less than the Council’s projected need to spend. Measures to reduce expenditure through service efficiencies and savings targets were therefore introduced.
Refinement to the budget during the year and the allocation of targets for further savings resulted in the formulation of a Latest Approved Budget. The outturn for 2006/2007 against this budget is set out in the Table below with comments set out in the following paragraphs. The summary financial position in relation to the other major funds of the Council are set out in the subsequent sections of this Foreword. Further details can be found in the body of the Statement of Accounts.
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The table below shows how actual spending compared with the Latest Approved Budget:
2006/07 Latest Movement 2006/07 Approved Actual Budget £'000 £'000 £'000 General Fund Balance B/fwd at 1st April 2006 14,001 0 14,001 Contribution to/(from) General Fund Balance (922) 3,321 2,399 13,079 3,321 16,400
Movement £'000 Analysis of Movement on General Fund Balance: Learning and Development deficit (679) Environment surplus 253 Neighbourhood Services surplus 684 Chief Executives surplus 150 Debt Financing surplus 2,304 2,712 Deferred Charges Written Off in Year 109 Transfer to Giles Brook Repairs Reserve (750) Transfer from Debt Financing Equalisation Reserve 910 Unused Contingent Budgets 340 3,321
Net expenditure for the year was £2,712,000 under the Latest Approved Budget.
The table above details the underspends by Directorate, and these are further analysed below where exceeding £200,000.
Learning and Development
Learning and Development’s overspend of £679,000 is mainly due to:
a. Commissioning £1,278,000 – Primarily comprising overspends on Children’s Social Care Placements £1,613,000, partially offset by various positive variances, the largest of which is additional Children’s Services Grant (£313,000). b. Sure Start (£1,059,000) – Mainly comprising underspends on payments to private and voluntary nursery providers due to lower- than-anticipated child numbers (£385,000), plus Surestart Grant from earlier years (£260,000). c. Education Grant Funding £622,000 – Shortfall of £213,000 in DSG allocation, plus £406,000 of DSG surplus transferred out of the General Fund. d. Schools Management £333,000 – Mainly due to the shortfall against the income target for charging costs of services to schools. e. Children’s Social Care £319,000 – Largely due to the provision for agency costs, £208,000.
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f. Support Services (£315,000) – Largely arising through (£204,000) of Alternative Education contingency not being required in 2006/07. g. Inclusion (£313,000) – Due to a number of factors, the largest of which is recoveries from other LEAs in respect of Special Schools. h. School Planning and Resources (£235,000) – Mainly comprising savings in home to school transport (£153,000) and client services (£55,000).
Environment
Environment’s underspend of £253,000 is mainly due to:
a. Architecture MK £75,000 – In general terms, the overspend is due to fee income not meeting expectations, additional expenditure and over-reliance on overtime and agency and consultancy costs to manage the uneven pressures of an escalating School Build Programme and, as a consequence of the focus being on the School Build Programme, less capacity to obtain funding from external projects. b. Passenger Transport £353,000 – Consisting of an £247,000 overspend arising from the implementation of Concessionary Fare legislation; Community Transport £45,000 and miscellaneous other overspends £65,000; partially offset by (£26,000) of savings on bus subsidies. c. Highway Network (£261,000) – Mainly due to surplus income (£352,000) in respect of development schemes, partially offset by various smaller underspends. d. A number of smaller but significant underspends in categories such as Landscape Services (£181,000), Street Lighting (£142,000) and Safer Communities Unit (£131,000).
Neighbourhood Services
Neighbourhood Services’ underspend of (£684,000) is mainly due to:
a. Physical Disability (£269,000) – Mainly due to a (£171,000) underspend in Homecare, due to activity remaining at 2005/06 levels rather than increasing. There are also underspends on Humanitarian Payments (£56,000) and Assessment & Care Management (£54,000). b. A number of smaller but significant underspends in categories such as Older People (£186,000) and Mental Health (£106,000).
4 FOREWORD BY THE CHIEF FINANCE OFFICER
Chief Executives
The Chief Executive’s Office underspend of (£150,000) is mainly due to:
a. Internal Audit £353,000 – Primarily consisting of £383,000 additional charge from HBS, triggered by volumetrics changes, partially offset by net other underspends of (£30,000).
b. Partnership Delivery £310,000 - Comprising under recovery of the Procurement Savings target £658,000 and increased HBS superannuation charges £165,000, which are partially offset by increased income of (£410,000) in respect of temporary staff and staff advertising.
c. Strategic Finance (£300,000) – Mainly due to a (£250,000) write- back from the bad debt provision, due to previous over-provision and salary underspends of (£54,000).
d. Housing Benefits & Council Tax £132,000 – Chief variances include rent rebate and rent allowance overspends totalling £554,000 due to a combination of lower recovery rates than budgeted and more payments made, £322,000 of other overspends across several categories, less improvements in the recovery of benefit overpayments (£439,000) and higher-than-budgeted Council Tax collection rates (£305,000).
e. A number of smaller but significant underspends in categories such as Externally Provided Services [mainly external audit fees] (£129,000), IT Recharges (£107,000), Social Inclusion [mainly employee cost savings] (£74,000), Policy & Performance [predominantly Improvement Team savings] (£68,000), Human Resources (£67,000), Democratic Services Office [largely salary savings] (£62,000) and a (£60,000) underspend on employees due to previous over-accrual for pension payments to Buckinghamshire County Council.
Debt Financing
Debt Financing achieved a surplus of (£2,304,000), which was mainly due to:
a. Interest income (£2,918,000) - Due to higher cash balances and interest rates. The main factors giving rise to the higher level of cash balances were the slippage in the 2006/7 Capital Programme and the earlier-than-anticipated receipt of Targeted Income Support income in the year. b. Developer Contributions £376,000 – Being increased interest payable on s106 receipts due to higher cash balances and interest rates.
5 FOREWORD BY THE CHIEF FINANCE OFFICER
c. Housing Revenue Account payments £368,000 – Increased interest payable to the HRA due to higher HRA cash balances and interest rates. d. Statutory charge to General Fund (£279,000) - Lower repayments of principal (MRP) due to slippage in the 2006/07 Capital Programme. e. Magistrates Courts Service £234,000 – Repayment of all of MKC’s share of historical debt in respect of Magistrates Courts. f. Partial offset in respect of an increased contribution to the Debt Equalisation Reserve to cover known liabilities.
The General Fund will also benefit further from a £910,000 reduction in the Debt Financing Equalisation Reserve, which was in place to counter the potential write-off of premiums arising on debt restructuring. Draft guidance received from CIPFA in 2006/07 proposes to mitigate the financial pressures arising thereby enabling the release of £910,000 to the General Fund.
The net position in terms of General Fund Reserves at 31 March 2007 was therefore £3,321,000 more than assumed in the Latest Approved Budget. Variations between latest projected outturns and latest approved budgets are monitored on a monthly basis and are reported to Members throughout the year. Further information on the overall financial performance of the Council in 2006/07 is disclosed in the Income and Expenditure Account and the notes to the Core Financial Statements.
3. HOUSING REVENUE ACCOUNT
The original budget for the year showed a £913,000 deficit. This net budget remained unchanged during the year. The actual outturn was a deficit of £164,000 which represents a variance of (£749,000) against the net budget.
The main elements of the variance between revised budget and actual outturn were:
a. Transfer to Capital
A transfer to capital of £1,580,000 was made, to fund gas boiler replacements, additional disabled adaptations and a shortfall in other capital resources.
b. General Management Costs
This service area showed a (£1,026,000) surplus comprising a number of underspends including (£246,000) insurance saving, (£237,000) reduced professional fees, (£209,000) recharge saving, (£153,000) salaries, (£143,000) underspend on legal charges and the release of (£299,000) contingency, partially offset by £800,000 additional costs in respect of refurbishment costs at Denbigh. These additional Denbigh
6 FOREWORD BY THE CHIEF FINANCE OFFICER
costs, incurred to enable co-location of the repairs team and repairs contractors, are expected to be offset in future years by efficiency savings.
c. Interest Receivable
Interest income is (£519,000) better than forecast due to higher balances and higher-than-budgeted interest rate.
d. Special Services
Special Services underspend of (£394,000) comprised a number of variances, chief among which were a (£240,000) saving on electricity costs, partially offset by an overspend of £130,000 on gas costs, and a (£105,000) underspend on Eurobins due to the service not being fully implemented in 2006/07.
e. Repairs and Maintenance
Repairs expenditure was (£392,000) lower than budget as the cost of implementing a new partnering contract from April 2006 was not as high as the contingency fund set aside for it.
f. HRA Subsidy
HRA subsidy cost was greater than budget by £230,000 because of increased reimbursement for higher borrowing charges, arising from higher interest rates than had been budgeted.
g. Capital Financing Costs
Debt charges net of mortgagor’s interest were (£215,000) lower than budget, due to the application of higher-than-budgeted interest rates.
The outturn monitoring data reports that the HRA is showing an overall surplus of (£5,211,000) as at 31st March 2007.
4. CAPITAL EXPENDITURE
The Council’s total capital expenditure for 2006/07 including amounts accrued for works completed but not paid for at 31st March 2007 was £65,640,000 (£89,549,000 2005/06). The amount funded through grants was £12,370,000 (£29,281,000 2005/06). The balance of £52,270,000 (£60,268,000 2005/06) was funded from the Major Repairs Reserve, Capital Reserves, Capital Receipts, supported and unsupported borrowing and Revenue and Third Party Contributions.
The significant reduction in Capital Expenditure is largely explained by the fact that there were two particularly large-value Education and Leisure schemes in 2005/06. The land purchase for Hazeley School and the
7 FOREWORD BY THE CHIEF FINANCE OFFICER
construction of Oakgrove School received funding contributions of £13,584,000 and £4,753,000 respectively from English Partnerships, which also explains the reduction in the amount funded through grants.
Further details in respect of the above figures are disclosed in note 23 to the Core Financial Statements on page 73.
5. COLLECTION FUND
The Collection Fund is a statutory fund, which shows the transactions relating to Council Tax, Non-Domestic Rates and residual Community Charge and illustrates the way in which these have been distributed to preceptors and the General Fund.
The income to the fund is the amount collectable from Council Tax and Non-Domestic Rate payers. Expenditure from the fund comprises payments in respect of precepts raised by Thames Valley Police Authority, the Buckinghamshire and Milton Keynes Fire Authority, by Milton Keynes Council for its own General Fund requirements and Parish/Town Council requirements, and payment to the Government for Non-Domestic Rates collected.
It was estimated that the fund would have a deficit of £100,000 at 31st March 2007. However due in part to a lower level of write-offs than estimated, the deficit balance was only £11,000.
A summary of the Collection Fund Account can be found on Page 117.
6. BORROWING FACILITIES
During 2006/2007 the Council borrowed £15,000,000 from the Public Works Loan Board to fund expenditure on capital projects in 2006/07 and 2007/08. At the end of the financial year the Council had outstanding long-term borrowing in respect of the funding of capital projects of £281,204,000. Further details of the composition of this sum can be found in the notes to the Core Financial Statements on pages 76 to 77 (note 29).
It was not necessary, during the year, for the Council to borrow temporary funds for cash flow purposes. Consequently, there were no temporary loans outstanding at 31st March 2007, although at this date, the Council had £105,205,000 invested with various financial institutions.
8 FOREWORD BY THE CHIEF FINANCE OFFICER
7. PROCUREMENT OF SERVICES
The Council entered into a long term (twelve years) contract with Hyder Business Services (HBS) with effect from 1st January 2004 to provide a wide range of functions across eighteen service streams including Finance, Human Resources, IT, Revenues and Benefits. The Council has retained a client/core team for these functions and a team has been created to monitor the overall performance of the contract.
8. SIGNIFICANT CHANGE IN ACCOUNTING POLICY
The Statement of Recommended Practice 2006 required that the way in which local authorities report the year end financial statements be changed to an approach more in line with Generally Accepted Accounting Practice in the United Kingdom (UK GAAP). These changes affect the way in which the Statement of Accounts is set out, and the way in which the main financial statements are presented.
The substantive changes introduced to the financial statements as a result of SORP 2006 are as follows:
1. The removal of the requirement to make a capital financing charge, therefore notional interest is no longer chargeable to revenue activity. This change, along with the requirement for depreciation to be charged directly to revenue service areas, has resulted in the removal of the Asset Management Revenue Account. 2. The replacement of the Consolidated Revenue Account and Statement of Movement on Reserves with an Income and Expenditure Account and a Statement of Total Recognised Gains and Losses. 3. Changes to the format of the Housing Revenue Account to bring it into line with the new Income and Expenditure format. 4. A requirement to group the core financial statements together (Income and Expenditure Account, Statement of Movement on General Fund Balance, Statement of Total Recognised Gains and Losses, Balance Sheet and Cash Flow Statement), followed by the notes to the core statements. 5. The Housing Revenue Account and Collection Fund are considered as supplementary financial statements, to follow the notes to the core financial statements.
The most significant change in presentation is the transition from Consolidated Revenue Account to Income and Expenditure Account and Statement of Movement in the General Fund Balance. The transition between the 2005/06 published accounts and the new requirements is summarised as follows:
9 FOREWORD BY THE CHIEF FINANCE OFFICER
Gov Original Reversal HRA to Notional Grants Other Revised 2005/06 of AMRA HRA I&E Interest Deferred Adj's 2005/06 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Central Services to the Public 1,198 0 0 (22) (1) 0 1,175 Cultural Environmental and Planning Services 41,299 0 0 (1,957) (108) 0 39,234 Education Services 143,949 0 0 (9,639) (138) 0 134,172 Highways, Roads and Transport Services 10,011 0 0 (2,986) (69) 0 6,956 Local Authority Housing (New) 0 0 (6,793) 0 0 0 (6,793) Other Housing Services 4,807 0 0 (51) (5) 0 4,751 Social Services 55,440 0 0 (442) (34) 0 54,964 Court Services 331000 00331 Corporate & Democratic Core 4,480 0 0 (3) 0 0 4,477 Non-Distributable Costs (4,866)000 00(4,866) Net Cost of General Fund Services 256,649 0 (6,793) (15,100) (355) 0 234,401
Housing Revenue Account 24,319 0 (24,319) 0 0 0 0
Net Cost of Services 280,968 0 (31,112) (15,100) (355) 0 234,401 Net Surplus on Trading Operations (868) 0 0 (300) 0 0 (1,168) Loss on Fixed Asset Disposals (New) 0 0 0 0 0 7,614 7,614 Interest & Investment Income - General Fund 10,223 2,157 0 0 0 (12,380) 0 Interest & Investment Income - HRA 3,871 0 (3,871) 0 0 0 0 Transfer from Asset Management Revenue Account (General Fund) (4,716)4,7160000 0 Transfer from Asset Management Revenue Account (Housing Revenue Account) (31,026) 0 31,026 0 0 0 0 Interest Payable and Similar Charges (New) 0 0 0 0 0 12,892 12,892 Interest and Investment Income (New) 0 0 0 0 0 (4,062) (4,062) Contribution of Housing Capital Receipts to Government Pool 2,115 0 0 0 0 0 2,115 Parish Precepts & Levies 3,778 0 0 0 0 0 3,778 Pension Interest Cost & Expected Return on Pension Asset 4,777 0 0 0 0 0 4,777 Net Operating Expenditure 269,122 6,873 (3,957) (15,400) (355) 4,064 260,347 Appropriations (11,695) 3,440 (2,836) 0 0 11,091 0 Sources Of Finance (262,557) 0 0 0 0 0 (262,557) Appropriation to LMS Reserve 206 0 0 0 0 (206) 0 (Surplus)/Deficit on General Fund as at 31st March 2006 (4,924) 10,313 (6,793) (15,400) (355) 14,949 (2,210) Amounts Transferred to the Statement of Movement on General Fund Balance: Amounts included in the Income & Expenditure Account but required by statute to be excluded when determining the Movement on the General Fund Balance for the year 0 0 (577) 0 0 (26,422) (26,999) Amounts not included in the Income & Expenditure Account but required to be included by statute when determining the Movement on the General Fund Balance for the year 0 0 440 0 0 14,352 14,792 Transfers to or from the General Fund Balance that are required to be taken into account when determining the Movement on the General Fund Balance for the year 0 0 6,886 0 0 2,356 9,242 Net additionalPlease amount refer required to the to Glossary be credited on page 120 for details of the abbreviations. to the General Fund Balance for the year 0 0 6,749 0 0 (9,714) (2,965)
10 FOREWORD BY THE CHIEF FINANCE OFFICER
9. DEDICATED SCHOOLS GRANT
For 2006/2007, the arrangements for Government support for the funding of schools changed. Previously, funds were provided as part of the Council’s overall Revenue Support Grant. In 2006/2007, the Council has received a specific grant – the Dedicated Schools Grant. £128,460,000 has therefore been credited against the Education service outturn in the Income and Expenditure Account that would previously have been treated as part of the Revenue Support Grant within income. The difference between the 2006/2007 figures and the comparative figures for 2005/2006 for these two lines is substantially explained by this change.
10. RETIREMENT BENEFITS
The Council is required to comply with the requirements of Financial Reporting Standard (FRS) 17. The purpose of this is to ensure that the accounts show the operating costs of providing retirement benefits to the Council’s employees in the accounting periods to which the benefits are earned by them, to ensure that the related finance costs and changes in the values of assets and liabilities are recognised in the accounting period in which they arise.
The Council and its staff are members of the Buckinghamshire County Council Pension Fund and their actuary has provided all of the relevant information to enable the Council to reflect this accounting requirement.
The service costs in the Income and Expenditure account are increased but this is mirrored by a compensating entry in the Statement of Movement on the General Fund Balance. There is no impact on the Budget Requirement or levels of Council Tax.
The Accounts show a pension liability of £113.259m, which is equivalent to 1393% of the Council’s General Fund Reserve. In practice the deficit will be funded through reassessment of employers contributions as a result of the three-yearly fund valuations by the actuary.
11. FINANCIAL STATEMENTS
The financial performance for 2006/07 for the activities undertaken by the Council is set out in the Core Financial Statements on pages 45-50. The statements consist of the following:
a) Statement of Accounting Policies Details the legislation and principles on which the Statement of Accounts has been prepared;
b) Statement of Internal Control Details the manner in which the Council addresses the risks inherent within its operation;
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c) Core Financial Statements • The Council’s Income and Expenditure Account covering income and expenditure on all services; • The Statement of Movement on the General Fund Balance which shows amounts additional to the surplus or deficit on the Income and Expenditure Account that are required by statute and non-statutory proper practices to be debited or credited to the General Fund for the year; • The Statement of Total Recognised Gains and Losses which brings together all of the gains and losses of the Council for the year and shows the aggregate increase in its net worth; • The Balance Sheet which sets out the financial position of the Council as at 31st March 2007, and; • The Cash Flow Statement, which summarises the total movement of the Council’s funds.
d) Notes to the Core Financial Statements Notes to support the core financial statements, providing greater detail on specific areas, as required by the Statement of Recommended Practice 2006;
e) Supplementary Financial Statements • The Housing Revenue Income and Expenditure Account which provides details of income and expenditure on Council housing and the change to the fund balance at the end of the year; • The Collection Fund Account which details income and expenditure in respect of Council Tax and Non-Domestic Rates and the change to the fund balance at the year end;
12. DATE OF ISSUE
Events after the balance sheet date are reflected up to the date when the Statement of Accounts was authorised for issue by the Council’s Chief Finance Officer. The date of issue is deemed to be the day before the Accounts were made available for public inspection, namely Friday 29th June 2007.
Sunil Modaley Chief Finance Officer
12 STATEMENT OF AUDITORS OPINION
Auditor’s Report Independent auditor’s report to the Members of Milton Keynes Council
Opinion on the financial statements I have audited the financial statements of Milton Keynes Council for the year ended 31 March 2007 under the Audit Commission Act 1998, which comprise the Explanatory Foreword, Income and Expenditure Account, Statement of the Movement on the General Fund Balance, the Balance Sheet, the Statement of Total Recognised Gains and Losses, the Cash Flow Statement, the Housing Revenue Account, the Collection Fund, and the related notes. These financial statements have been prepared under the accounting policies set out within them.
This report is made solely to Milton Keynes Council in accordance with Part II of the Audit Commission Act 1998 and for no other purpose, as set out in paragraph 36 of the Statement of Responsibilities of Auditors and of Audited Bodies prepared by the Audit Commission.
Respective responsibilities of the Chief Finance Officer and auditors The Chief Finance Officer’s responsibilities for preparing the financial statements in accordance with applicable laws and regulations and the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2006 are set out in the Statement of Responsibilities.
My responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
I report to you my opinion as to whether the financial statements present fairly the financial position of the Authority in accordance with applicable laws and regulations and the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2006.
I review whether the statement on internal control reflects compliance with CIPFA’s guidance ’The statement on internal control in local government: meeting the requirements of the Accounts and Audit Regulations 2003’ issued in April 2004. I report if it does not comply with proper practices specified by CIPFA or if the statement is misleading or inconsistent with other information I am aware of from my audit of the financial statements. I am not required to consider, nor have I considered, whether the statement on internal control covers all risks and controls. I am also not required to form an opinion on the effectiveness of the Authority’s corporate governance procedures or its risk and control procedures
13 STATEMENT OF AUDITORS OPINION
Basis of audit opinion I conducted my audit in accordance with the Audit Commission Act 1998, the Code of Audit Practice issued by the Audit Commission and International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Authority in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Authority’s circumstances, consistently applied and adequately disclosed.
I planned and performed my audit so as to obtain all the information and explanations which I considered necessary in order to provide me with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming my opinion I also evaluated the overall adequacy of the presentation of information in the financial statements.
Opinion In my opinion the financial statements present fairly, in accordance with applicable laws and regulations and the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2006, the financial position of the Authority as at 31 March 2007 and its income and expenditure for the year then ended.
A P Burns
District Auditor Unit 5 ISIS Business Centre Horspath Road Cowley, OX4 2RD
27 September 2007
14 STATEMENT OF AUDITORS OPINION
Conclusion on arrangements for securing economy, efficiency and effectiveness in the use of resources
Authority’s Responsibilities The authority is responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources, to ensure proper stewardship and governance, and to regularly review the adequacy and effectiveness of these arrangements.
Under the Local Government Act 1999, the Authority is required to prepare and publish a best value performance plan summarising the authority’s assessment of its performance and position in relation to its statutory duty to make arrangements to ensure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness.
Auditor’s Responsibilities I am required by the Audit Commission Act 1998 to be satisfied that proper arrangements have been made by the authority for securing economy, efficiency and effectiveness in its use of resources. The Code of Audit Practice issued by the Audit Commission requires me to report to you my conclusion in relation to proper arrangements, having regard to relevant criteria specified by the Audit Commission for principal local authorities. I report if significant matters have come to my attention which prevent me from concluding that the authority has made such proper arrangements. I am not required to consider, nor have I considered, whether all aspects of the authority’s arrangements for securing economy, efficiency and effectiveness in its use of resources are operating effectively.
Conclusion I have undertaken my audit in accordance with the Code of Audit Practice and having regard to the criteria for principal local authorities specified by the Audit Commission and published in December 2006, I am not yet satisfied that, in all significant respects, Milton Keynes Council made proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March 2007. This is due to work in progress relating to reviews of the school build programme and consideration about how significant the issues are and which criteria might be most affected.
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Best Value Performance Plan I am required by section 7 of the Local Government Act 1999 to carry out an audit of the authority’s best value performance plan and issue a report:
1. certifying that I/we have done so; 2. stating whether I/we believe that the plan has been prepared and published in accordance with statutory requirements set out in section 6 of the Local Government Act 1999 and statutory guidance; and 3. where relevant, making any recommendations under section 7 of the Local Government Act 1999.
I issued my statutory report on the audit of the Authority’s best value performance plan for the financial year 2006/07 in December 2006. I did not identify any matters to be reported to the Authority and did not make any recommendations on procedures in relation to the plan.
Certificate The audit cannot be formally concluded and an audit certificate issued until I have completed my consideration of matters brought to my attention by local authority electors about the Council's school build programme. I am satisfied that the issues which are the subject of the correspondence will not have a material effect on the statement of accounts.
16 STATEMENT OF ACCOUNTING POLICIES
Statement of Accounting Policies 1. GENERAL PRINCIPLES
This Statement of Accounts has been prepared in accordance with the Best Value Accounting Code of Practice on Local Authority Accounting (BVACOP) and the Statement of Recommended Practice: Code of Practice on Local Authority Accounting in the United Kingdom (SORP), which are published by the Chartered Institute of Public Finance and Accountancy. The current BVACOP and SORP apply to Statements of Accounts prepared with effect from 1st April 2006.
2. INTANGIBLE FIXED ASSETS
The Council’s Intangible Fixed Assets consist mainly of purchased software licences and custom built software prepared for use for a period of at least one year.
All Intangible Fixed Assets are included at historic cost and amortised, on a straight line basis, over their economic lives from the year following acquisition. The economic lives are reviewed at the end of each reporting period and revised if necessary.
3. TANGIBLE FIXED ASSETS
All expenditure on the following has been capitalised on an accruals basis:
a. Acquisition, reclamation, enhancement or laying out of land;
b. Acquisition, construction, preparation, enhancement or replacement of roads, buildings and other structures;
c. Acquisition, installation or replacement of movable or immovable plant, machinery, apparatus, vehicles and vessels.
Expenditure that may be properly capitalised, but which does not represent expenditure on the Council’s tangible fixed assets, are included as deferred charges (See Accounting Policy 5).
Operational assets have been included in the Balance Sheet at net current replacement cost derived from existing use value or the depreciated replacement cost. Non-operational assets have been included in the Balance Sheet at depreciated replacement cost or open market value. Council dwellings have been valued on the basis of existing use - social housing - in accordance with the Department of Transport, London and the Regions Guidance on Stock Valuation and the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards.
17 STATEMENT OF ACCOUNTING POLICIES
Other housing properties are classified as Other Land and Buildings or Non-operational Assets as appropriate.
When assets are sold or disposed of, the usable amounts of the capital receipts are held in a Usable Capital Receipts Reserve until utilised to finance further capital expenditure or to repay debt. The usable part of Housing capital receipts is net of claw back payments to English Partnerships on ex Milton Keynes Development Corporation properties and net of amounts subject to pooling arrangements under the Local Government Act 2003.
4. DEPRECIATION
Depreciation is provided in accordance with the following policy on all fixed assets where, at the time of acquisition or revaluation, a finite useful life can be determined:
a. Newly acquired assets are depreciated from the year following acquisition. Assets in the course of construction are not depreciated until they are brought into use.
b. In accordance with the SORP 2006, all operational buildings are depreciated.
c. Depreciation is calculated by allocating the costs (or re-valued amounts), less the estimated residual value of the relevant assets, on a straight line basis over their useful economic lives. This is deemed to be the most appropriate method given the nature of the assets held by the Council.
d. The bases for calculating the lives of different classes of assets at acquisition are as follows:
Operational Buildings 60 years life from the completion date.
Vehicles, Plant and Varies from 3 to 40 years according to the Equipment estimated life of each asset.
Infrastructure 40 years in respect of highways, 20 years for other assets.
Non-operational Not depreciated. buildings Land Not depreciated.
e. The useful lives of assets are reviewed regularly. Where necessary, the life of an asset is revised and the carrying amount of the asset is then depreciated over the remaining useful life.
18 STATEMENT OF ACCOUNTING POLICIES
f. Council dwellings – the average life of all council dwellings in 2006/2007 has been estimated at 45 years from 1st April 2006 and the depreciation charge has been calculated on this basis.
5. DEFERRED CHARGES
Deferred Charges represent expenditure that may properly be capitalised, but which does not represent expenditure on the Council’s Tangible Fixed Assets because the Council does not control the economic benefits arising from the expenditure. In such cases, 100% of the deferred charges are amortised to revenue in the year in which they are recognised. Types of deferred charges include improvement grants to owner-occupiers to improve the quality of the housing stock in the area.
Expenditure on software licences is recognised as expenditure on Intangible Fixed Assets in accordance with SORP 2006.
6. RELATIONSHIPS WITH COMPANIES
Information previously disclosed in this section is now disclosed in note 42 to the core financial statements under the heading “Investments in Companies”. Further significant relationships with a companies are disclosed in note 30 under the heading “Long Term Contracts”.
7. CHARGING FOR THE USE OF CAPITAL ASSETS
General Fund service revenue accounts, central support services and trading accounts are charged with depreciation and where required, any related impairment loss (due to a clear consumption of economic benefits) for all fixed assets used in the provision of services.
The charge made to the Housing Revenue Account is calculated in accordance with the Item 8 Credit and Item 8 Debit (General) Determination 2006/2007.
External interest payable is charged to Net Operating Costs section of the Income and Expenditure Account on page 45.
8. REDEMPTION OF DEBT
a. Minimum Revenue Provision (MRP) In accordance with the Local Government Act 2003, the Council is required to set aside a minimum revenue provision for the repayment of debt. This represents 4% of the adjusted General Fund Capital Financing Requirement at the end of the preceding year. An
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adjustment is made through the Capital Financing Account in respect of any under or over provision for depreciation.
The MRP calculation also provides for: i) the repayment of capitalisation directions issued by the Secretary of State in respect of expenditure incurred at Local Government Reorganisation ii) an adjustment in respect of commuted payments made to or for the benefit of the Council in 1992-1993.
b. Additional Debt Redemption In accordance with the Local Government Act 2003, the Council may also choose to further redeem its outstanding loan debt by means of: i) additional revenue contributions ii) use of capital receipts iii) use of the Major Repairs Allowance
c. Debt Restructuring The Council has, on occasions when satisfactory market conditions prevail, restructured certain long term loans with the Public Works Loan Board. This results in either a premium being paid or a discount received and these are written down in accordance with current legislation (currently the Local Authorities (Capital Finance and Accounting) (Amendment) (England) Regulations 2007 (Statutory Instrument 2007 No. 573)).
9. INVESTMENTS
All of the Council’s investments are deposited with banks and building societies and are accounted for at their nominal value. Investments are regulated by the Code of Practice for Treasury Management in the Public Sector and the Office of the Deputy Prime Minister Guidance on Local Authority Investments issued in March 2004.
10. INTEREST
Interest payable on external borrowings and interest income is accounted for in the accounts on an accruals basis.
11. PROVISIONS
Provisions are amounts set aside for losses or liabilities that are likely or certain to be incurred, but where the Council is uncertain as to the precise amounts required or dates on which the liabilities will arise. Details of all material provisions can be found in the notes to the core
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financial statements (see note 31, page 78). Provisions are required to be recognised when:
a. The local authority has a present obligation as a result of a past event;
b. It is probable that a transfer of economic benefits will be required to settle the obligation; and
c. A reliable estimate can be made of the amount of the obligation.
When expenditure is incurred to which the provision relates, it is charged directly to the provision. Provisions are reviewed at each Balance Sheet date and adjusted to reflect the current best estimate of the liability.
12. RESERVES
Amounts set aside for purposes falling outside the definition of provisions are classified as reserves. The Council has established a number of reserves to fund possible future expenditure. The nature of these reserves is set out in the notes to the core financial statements (see note 33, Page 82).
Capital reserves are not available for revenue purposes, and are accounted for separately. The Council maintains the following capital reserves, some of which can only be used for specific statutory purposes and, in accordance with SORP 2006, have been re- designated as accounts:
a. Major Repairs Reserve – Note 5 to the Housing Revenue Account on page 112.
b. Capital Financing Account – Note 33a to the Notes to Core Financial Statements on page 83.
c. Third Party and Revenue Contribution Capital Reserve – Note 33b to the Notes to Core Financial Statements on page 83.
d. Fixed Asset Restatement Account – Note 33c to the Notes to Core Financial Statements on page 84.
e. Usable Capital Receipts Reserve – Note 33d to the Notes to Core Financial Statements on page 84.
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13. INTERNAL INSURANCE ARRANGEMENTS
The Council’s insurance arrangements involve both internal and external cover. Internal cover is provided by way of an Earmarked Reserve for all claims notified to the Council by 31st March each year (the amount provided for those claims being based on advice from the Council’s Insurers). Some risks are not fully funded, with losses up to a specified amount being met from revenue as they arise. To obtain insurance cover in the most cost effective manner, the Council has chosen to carry excesses in respect of claims made under liability and material damage insurances. A reserve has been set up from the Council’s internal funds to cover uninsured risks. This reserve has been based on the total potential liability that could accrue up to 31 March 2007.
External cover is provided by way of premiums paid to the Council’s Insurers. The nature of risks covered by the internal arrangements is shown below.
Risk Maximum Cover per Claim Employers Liability £50,000 - Amounts in excess of this are covered externally. Third Party £50,000 - Amounts in excess of this are covered externally. Fire Damage £50,000 - Amounts in excess of this are covered externally. Loss of School Contents £50,000 - Amounts in excess of this are covered externally. Cash Loss The first £100 is met by the department concerned - amounts in excess of this are covered externally. Loss of Computers The first £100 is met by the department concerned - amounts in excess of this are covered externally.
14. LEASES
The Council as a Lessee: Lease agreements that transfer substantially all the risks and rewards of ownership of an asset to the Council are treated as finance leases. Assets acquired under finance leases are accounted for as Tangible Fixed Assets and the capital elements of the leasing commitments are shown as obligations under finance leases. The finance element of the rentals is charged to revenue over the term of the lease and the assets depreciated over the shorter of the lease terms or the useful economic lives of the assets.
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All other leases are treated as operating leases and the annual rentals payable are charged to revenue on a straight-line basis over the lease term.
The Council as a Lessor: Assets held for use in operating leases are recorded as Tangible Fixed Assets and depreciated over their useful lives. The rentals receivable from these leases are credited to revenue over the life of the lease.
15. GOVERNMENT GRANTS AND CONTRIBUTIONS
Government grants are accounted for on an accruals basis, and income has been credited to the appropriate revenue account. Grants and contributions used either wholly or in part to acquire fixed assets are credited to the Government Grants Deferred Account and written off to the relevant service over the useful life of the asset.
16. CAPITAL RECEIPTS
Receipts from the sale of assets are recorded in the accounts in accordance with normal accounting practice.
Under new regulations introduced from April 2004 the Council is required to pay a percentage of receipts from the sale of housing land to the Department for Communities and Local Government in accordance with the governments pooling arrangements. This percentage equates to 75% for dwellings (including sale of council houses) and 50% of any other interest in housing land.
The small number of de-minimis capital receipts received in year – i.e. with an individual value of less than £10,000 – have been treated as capital receipts in the accounts.
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17. WORK IN PROGRESS, STOCKS AND STORES
a. Work in Progress
Certain repair works undertaken by the Council are rechargeable to private concerns and individuals. Incomplete works and works not yet recharged are accounted for at cost.
b. Stocks and Stores
Stocks held by the Council’s catering organisation, the main Council Stores and the Transport division (Fuel) are included in the Balance Sheet at cost of purchase prices. This is not in accordance with the requirements of the Code of Practice but the differences are not considered material.
18. PENSIONS
The Council pays contributions to the Buckinghamshire County Council Pension Fund (BCCPF) and to the Teachers’ Pension Fund in respect of its employees. The accounting policies of the schemes are in accordance with the appropriate provisions of SORP 2006.
The future liabilities of the BCCPF are assessed in accordance with the advice of a professionally qualified actuary, and the last formal actuarial review was carried out as at 31 March 2004. The employer’s contribution rate will increase to 330% of the employees’ rate with effect from 1st April 2007. The Annual Report of the BCCPF is available from the Head of Finance, Buckinghamshire County Council, County Hall, Aylesbury. Details of the Council’s contributions and other information can be found in the Note 38 to the Core Financial Statements on page 92.
The Council has been required to account for its notional share of the BCCPF’s assets and liabilities in accordance with the requirements of Financial Reporting Standard 17 (FRS17) - Retirement Benefits since 2003/2004. Previous policy was to recognise liabilities in relation to retirement benefits only when employer’s contributions became payable to the relevant pension fund or payments fell due to pensioners for which the Council was directly responsible. Current policy better reflects the Council’s commitment in the long term to increase contributions to make up any shortfall in attributable net assets in BCCPF. The amount to be met from Government grant and local taxation remains the same but the costs disclosed for individual services are adjusted to replace employer’s contributions by current service costs. More information is disclosed in the Notes to the core financial statements and Notes to the Housing Revenue Account.
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In assessing liabilities for retirement benefits at 31 March 2006 for the 2005/2006 Statement of Accounts, the actuary was required by SORP 2005 to use a discount rate of 1.8% real (4.9% actual). For the 2006/2007 Statement of Accounts, a rate based on the current rate of return on a high-quality corporate bond of equivalent currency and term to scheme liabilities was required to be used. The actuary has advised that a rate of 2.0% real (5.4% actual) is appropriate. Application of this rate is the main factor leading to a decrease in liabilities measured at today’s prices of £11,133,000, adjusted for by an increase in actuarial losses recognised for the year in the Statement of Total Recognised Gains and Losses on page 48. Liabilities at 31st March 2007 were £335,301,000.
The value of assets held at 31st March 2007 was £222,042,000, which is an increase of £28,375,000 against the previous year (£193,667,000 2005/06).
19. DEBTORS AND CREDITORS
a. All revenue and capital transactions are recorded in the accounts on an accruals basis. Payment of wages to weekly paid employees is included in the accounts on the basis of a 52-week year, except in the case of Homecare staff where wages have been accrued. This accounting treatment, other than in respect of Homecare staff, is not in accordance with the Code of Practice, although any difference is not considered material. Similarly, issues from the Council’s stores and all other internal recharging systems have been treated in the same way.
b. All sums due to the Council are accounted for when they are due. The debtors appearing on the balance sheet represent sums due to the Council that had not been received by the year-end.
20. OVERHEADS
The Government requires local authorities to achieve and demonstrate Best Value in their operations. One of the aims of this requirement is to improve consistency and comparability between reporting bodies. To achieve this, the BVACOP requires that all Support Services costs are fully allocated either to service users or to the Corporate and Democratic Core on the most appropriate basis. Similarly the cost of service management has been apportioned to those accounts representing the services managed.
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The basis of allocations and apportionment of Support Services is as detailed below. The remaining areas were calculated on a time recording basis.
a. Human Resources Pro rata to number of staff.
b. Payroll Per payslip.
c. Administrative Buildings Pro rata to number of staff.
d. Computer Services Pro rata to number of PC’s for Information Technology Hardware.
By system for other Information Technology areas.
e. Payments and Income Per transaction.
21. BAD DEBT PROVISIONS
In 2006/2007, a prudent provision has been made for bad debts in respect of the General Fund, the Collection Fund and the Housing Revenue Account. The adequacy of these provisions is reviewed annually.
22. IMPAIRMENT
The carrying values of fixed assets are reviewed for impairment when there is an indication that the assets might be impaired. Any provision for impairment is charged against revenue in the year.
23. GROUP ACCOUNTS
The Council has no sufficiently significant interests in subsidiary or associated companies that give rise to the need to prepare accounts on a group basis. Group Accounts as required under SORP 2006, and in accordance with Financial Reporting Standard 2 - Accounting for Subsidiary Undertakings and Financial Reporting Standard 9 - Associates and Joint Ventures, are therefore not necessary.
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1. THE COUNCIL’S RESPONSIBILITIES
The Council is required:
a) 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 Council, that officer is the Chief Finance Officer; b) to manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets; c) to approve a statement of accounts.
On behalf of the Council:
Mayor Michael Barry Chairman of the Council
2. THE RESPONSIBILITIES OF THE CHIEF FINANCE OFFICER
The Chief Finance Officer is responsible for the preparation of the Council’s Statement of Accounts in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2005 (“the Code of Practice”).
In preparing this Statement of Accounts, the Chief Finance Officer has:
a) selected suitable accounting policies and then applied them consistently; b) made judgements and estimates that were reasonable and prudent, unless considered immaterial or otherwise stated in this Statement; c) complied with the Code of Practice.
The Chief Finance Officer has also:
a) maintained proper accounting records which were kept up to date; b) taken reasonable steps for the prevention and detection of fraud and other irregularities.
The Statement of Accounts presents fairly the financial position of the Council at the accounting date and its income and expenditure for the year ended 31st March 2007.
Sunil Modaley Chief Finance Officer Date
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1 STANDARDS OF GOVERNANCE
1.1 The Council expects all of its Members, officers and contractors to adhere to the highest standards of public service with particular reference to the formally adopted Codes of Conduct and policies of the Council as well as the applicable statutory requirements.
2 RESPONSIBILITIES
2.1 Milton Keynes Council is responsible for ensuring that its business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively. The Council has a duty under the Local Government Act 1999 to make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to value for money.
2.2 In discharging this overall responsibility, the Council (elected Members and officers) is responsible for ensuring there is a sound system of internal control which facilitates the effective exercise of the Council’s functions and which includes arrangements for the management of risk.
3 PURPOSE OF THE SYSTEM OF INTERNAL CONTROL
3.1 The system of internal control is designed to manage risk to a reasonable level rather than to eliminate all risk of failure to achieve policies, aims and objectives. It can therefore only provide reasonable and not absolute assurance. The system of internal control is based on an ongoing process designed to:
3.1.1 Identify and prioritise the risks to the achievement of the Council’s policies, aims and objectives; 3.1.2 Evaluate the likelihood of those risks being realised; 3.1.3 Assess the impact should they be realised; and 3.1.4 Manage risks efficiently, effectively and economically.
3.2 The system of internal control has been in place for the year ended 31st March 2007 and up to the date of approval of the annual accounts. With the exception of those significant internal control issues referred to in section 6, the system of internal control accords with proper practice. The CIPFA Code of Practice for Internal Audit 2006 requires the Head of Internal Audit to provide an opinion on the overall adequacy and effectiveness of the Councils internal control environment. This is given in full in the Annual Audit Report 2006/07 but in summary this states that in respect of those systems that refer to, or are substantially related to, internal financial control, that the controls operated by management are adequate.
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4 THE INTERNAL CONTROL ENVIRONMENT
4.1 As stated in the 2005/06 Statement of Internal Control (SIC), the review of MKC processes using the CIPFA/SOLACE best practice system of internal control was completed by Internal Audit during 2005/06. The recommendations were agreed and submitted to the Corporate Leadership Team (CLT) and Heads of Service. It was submitted to the Council’s Corporate Policy Development Committee for comment on 26th January 2006 and was also considered by the Council’s Audit Committee on 4th October 2006.
4.2 The scheduled follow up self assessment in 2006/07 found:
4.2.1 That almost all the recommendations made and agreed in 2005/06 have been implemented. The remaining recommendations have all been programmed to action. 4.2.2 The 2006 score of 74% had increased to 83% compliance for 2007. 4.2.3 The 9% increase in score is likely to rise further once the effect of implemented recommendations is evident
4.3 The CIPFA / SOLACE “Corporate Governance in Local Authorities” framework recommends that compliance is measured using a scoring system but it does not advocate a specific method. Attempts to compare scores and scoring systems in use elsewhere have not identified a common scheme nor comparable scores that can be used to contextualise the MKC score.
4.4 2007/08 anticipates new national guidance for governance standards and this will be evaluated and accommodated when known.
4.5 The policy and procedural guidance to support the Council’s governance includes:
a. Council Constitution; b. Codes of Conduct for Members and officers; c. Financial Regulations and other Procedure Rules; d. Scheme of Delegation; e. Registers of Interests; f. Specific corporate policies, for example Confidential Reporting Policy, Anti-Fraud and Prosecution Policy; g. Medium Term Service Planning and organisational priorities.
4.6 The external inspections undertaken throughout the Council during 2005/06 and 2006/07 have independently confirmed that the Council’s governance arrangements are sound and have assessed the Council as “Good” using the Comprehensive Performance Assessment criteria.
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4.7 Specifically:
4.7.1 Measures to establish and monitor the Council’s organisational objectives
The Council has established a set of corporate priorities and objectives that are published within the Council Plan, cast over three years and will be monitored four times a year by Cabinet and CLT. The actions that support these priorities are reviewed and refreshed annually by the CLT sponsor, lead officer and Cabinet Portfolio holder to ensure they are delivering effectively against objectives. The council has developed its performance management arrangements to reflect these objectives and priorities and is reviewing the performance management framework to support this (see paragraph 4.7.7).
The Council launched the ChangingMK improvement programme during 2003/04 to communicate and implement the Council’s Vision and Corporate Objectives and to drive forward specific improvement projects. This programme was completed in December 2005. The principles and learning from this improvement programme have been developed and phase 2 of ChangingMK is focused on the delivery of the Council Priorities and retains the following areas of focus:
a. The corporate vision and values adopted in 2003 b. The continued focus on internal communications, based around the corporate priorities c. Developing Medium Term Planning d. Improving Performance Management Arrangements e. Continued development of the People Management Strategy f. AccessMK g. Systems Thinking Reviews h. Efficiency and VFM
The projects are kept under ongoing review to ensure objectives are reviewed and progress towards achieving them is monitored. CLT receive regular reports on this in addition to the reporting through the formal Council Committees in those specific areas prioritised through the vision and objectives and reflected in the Council Plan.
4.7.2 Facilitation of policy and decision making
The Council operates a Leader and Cabinet model of policy and decision-making. A Forward Plan of decisions to be taken by the Cabinet or individual Cabinet Members is published monthly. There were eight Overview and Scrutiny bodies in 2006/07
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dealing with Policy Development, Performance Review, Executive Scrutiny Health Scrutiny and External Scrutiny. The Agendas and Minutes of these bodies demonstrate the process to properly control the development and adoption of policy and decision- making.
A formal Scheme of Delegation is in place to govern the operational decisions in line with agreed policy. A group of Members met in 2006 to review the Scheme of Delegation, and to advise the Leader of the Council on potential changes in the light of the new political balance of the Council. The group agreed that no changes were needed to the Scheme of Delegation, but that the role of the Council Meeting in considering policies should be reviewed alongside a review of the conduct of the Council Meeting generally.
4.7.3 Ensuring compliance with policies, procedures, laws and regulations
The Council’s Legal and Internal Audit Services maintain an ongoing review of such matters. Including:
4.7.3.1 All Committee reports/decisions must be approved by both the Head of Legal and the Head of Finance;
4.7.3.2 Legal Services have identified an Internet resource (Lawtel), which is available to all managers to maintain ongoing up to date knowledge of legal requirements. Lawtel training has been provided. Legal Services are available to all managers for advice and support. Alongside this, the Legal Service seeks to operate a pro-active service supported by a maintained law library covering all aspects of local authority and relevant other law.
4.7.3.3 Internal Audit has revised its planning of work for 2007/08 to more flexibly reflect the risk profiles and priorities of the Council. In accordance with professional guidance a fixed plan is not maintained but a rolling programme of work is agreed with key stakeholders which evolves throughout the year. Again in accordance with best practice the Audit service assesses the scope and nature of all Council activities to identify areas of audit. For 2007/08 these include:
a. Key fundamental audits have been agreed with the Audit Commission representing the Council key
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financial systems. These will continue to be audited annually.
b. Corporate objectives / priorities have been assigned a proportion of Audit resource and Directors have agreed a schedule of work that should see all 10 priorities audited throughout 2007/08.
c. The intelligence from the Risk Management service / Risk Register is assigned a proportion of Audit resource that should see the top 6 risk areas audited during 2007/08.
d. The resources required to meet DfES requirements for Schools audit have been built into the plan including the additional burden of FMSIS audit being rolled out in 2007/08 and coming years.
4.7.3.4 Key Policies and procedures continued to be reviewed and revised as necessary throughout 2006/07 including:
a. Financial Regulations b. Anti- Fraud and Corruption c. Whistleblowing d. Risk Management e. Scheme of Delegation
4.7.3.5 The Council is also audited by the Audit Commission, which specifically reviews the adequacy of Corporate Governance arrangements. This is conducted through the Use of Resources assessment that feeds into the Comprehensive Performance Assessment (CPA) process. The Council has action plans in place to address required improvements identified through the Use of Resources.
4.7.3.6 The Council is subject to formal inspection in many areas by external bodies. These include the Audit Commission, Commission for Social Care Inspection, Housing Inspectorate, Ofsted, and Benefits Fraud Inspectorate (BFI). Such inspections are reported to Cabinet and Overview and Scrutiny Committees as appropriate. A summary of these external inspections and access to the full reports is reported to the Council’s Audit Committee.
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4.7.3.7 The Council also operates a formal training programme (including Financial Regulations and Control and Corporate Induction) to support staff in ensuring that the Council’s services comply with this area. The various specialist services are responsible for ensuring specific technical knowledge in those service areas.
4.7.4 Risk Management
The Council continued to evolve its approach to Risk Management in 2006/07 and the Risk Management Annual Report supports the SIC. The Risk Register is a dynamic information database that changes as risks change. Workshops are held with individual services to assess and revise risk scores and management actions as well as training offered to any area /service.
The process and assessment of risk has evolved during 2006/07 to better reflect management action in the management of risk through the revision of scores (as they are revisited) to assess both the:
a. Gross Risk – that level of risk the service manages due to the nature of the service b. Residual Risk – that reduced score after considering risk management action in place i.e. showing how the exposure of the Council is reduced by management’s actions and providing a basis to illustrate the uncontrollable risks where appropriate.
The Risk Register has been mapped to the Council’s Priorities to show the corporate messages and themes arising within individual services that help ensure achievement of the Council’s objectives.
The Risk Management service has also improved the Council’s business continuity arrangements and processes to meet the requirements of the Civil Contingencies Act through:
a. The creation of the Business Resilience Forum (to facilitate the development of businesses to be better able to survive business continuity threats), b. The creation of the Schools Business Resilience Forum including an exercise testing arrangements to meet pressures arising from a Pandemic Flu incident, c. The development of extensive intelligence within individual services (through periodic exercise modules) to provide the basis for every service to meet business continuity threats, d. The production of the draft Corporate Core Business Continuity Plan.
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This work is not a project with an end date but a constantly rolling programme of work to maintain the Council’s ability to identify, assess and mitigate key risks that may affect the achievement of key Council services, objectives and priorities.
The Insurance and Risk service is delivered through a small team of 3 staff. Thus risks must be owned by relevant managers / key stakeholders with risk management embedded into daily operational activities. Regular 1:2:1 meetings are planned throughout 2007/08 for Directors and DMT’s where appropriate to provide advice on departmental focus and progress for the effective risk and business continuity development within those areas.
It is also planned to develop and implement a database that allows those individuals responsible for risks within their area to access and update the risk register information and provide a better basis for strategic and corporate review of the intelligence available throughout the Council.
4.7.5 The processes to ensure value for money and continuous improvement are achieved including Best Value
In addition to those measures already outlined the Council’s financial pressures and its active desire to continually improve, have produced an active environment to constantly review and search for value for money (VFM) savings and efficiencies. The medium term planning process covering 2005-2008 developed this VFM culture further by targeting specific efficiency proposals. Services are required to produce options each year to ensure continuous improvement. CLT has also commissioned a series of cross cutting efficiency reviews (eg Organisation Design Project) that will contribute significantly to improved performance and reduced costs. This process has been refined for the 2006-2009 medium term planning process, which has been further streamlined with the budget, so that the targeting of efficiency and VFM savings proposals is driven by the Council’s priorities. All these processes seek to address Best Value issues and have contributed to our success in more than meeting our Gershon targets.
The Council’s approach to systems thinking is maturing and leading to significant improvements and savings. The work on systems thinking by the team within the Environment Directorate has not only led to greater efficiencies, but has also now established a self financing team that will undertake further reviews across the directorate.
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The medium term planning process is an integral part of the budget and service planning process. There is a system of budget and service scrutiny through challenge meetings, the Policy Development committees and public consultation.
Further, a separate Internal Audit programme includes consideration of VFM improvements utilising systems thinking methodology within every service audited. These audits identify “waste” activity within service processes to help the service managers improve performance.
4.7.6 The proper financial management and reporting of the Council’s affairs
The senior management reorganisation during 2004/05 replaced the Chief Officer Board structure with a Corporate Leadership Team (CLT) that meets weekly. This comprises the Chief Executive as Head of Paid Service, the Assistant Chief Executive (Governance and Finance), the Assistant Chief Executive (Strategy and Performance), the Corporate Director Neighbourhood Services, the Corporate Director Environment, the Corporate Director Learning and Development and the Director of Public Health. Whilst not part of the inner core of the CLT, the S151 Officer and Monitoring Officer are part of the weekly meetings.
CLT monitors and reviews Council activity to ensure compliance with Governance, Legal and Financial requirements. In addition, all formal reports and associated proposed activities are reviewed as part of the adopted management procedures to test for compliance in these areas.
4.7.7 The performance management arrangements
The Council has continued to make progress in developing its approach to performance management and service improvement. Key features include:
a. Further development of medium term planning; b. Mainstreaming cross cutting issues such as equalities as part of service planning; c. Working to integrate issues such as workforce planning into the medium term service planning process; d. Involving CLT in wide ranging reviews of the performance of individual services; e. Undertaking challenge sessions comprising Cabinet Members, CLT members and Service Managers to review the performance of specific projects or issues; f. Using Systems Thinking as a tool to undertake fundamental service reviews;
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g. Targeting training and support for all managers and staff; h. Developing new Information Technology systems to monitor performance; i. Raising awareness regarding the importance of performance management; j. Enhancing the role of Overview and Scrutiny in examining performance issues; and k. Improved reporting and monitoring arrangements for CLT, reviewing performance against council priorities.
In 2007/08 the Performance Management Framework will be reviewed to reflect these improvements, include new arrangements for ensuring Data Quality and map out developments for the next three years.
5 REVIEW OF EFFECTIVENESS
5.1 The Council has responsibility for conducting, at least annually, a review of the effectiveness of the system of internal control. That review is informed by:
a. The work of Internal Audit; b. The work of External Audit and other review agencies; and c. Senior managers (including Corporate Directors, Heads of Service and Third Tier Managers) throughout the Council.
5.2 Specifically:
5.2.1 The Council maintains the strategic systems of control through the formal review and adoption of the Council’s Constitution. The Council, in accordance with the Local Government Act 2000 has a formal scheme of delegation in place for all decisions.
5.2.2 The Cabinet is the executive decision making body at member level, taking all decisions except those properly delegated in accordance with the Constitution or those decisions reserved by legislation for others, for example Development Control. Reports on Corporate Governance arrangements requiring action are submitted to the Cabinet or to the Audit Committee.
5.2.3 Revised overview and scrutiny arrangements were implemented in 2004/05 to reflect more effective and robust arrangements in scrutinising corporate governance arrangements, services and decisions made throughout the Council. Following the CPA report in 2006, a further review of the Overview & Scrutiny process has been launched with support from the Audit Commission.
The Council’s Audit Committee created at the start of 2006/07 operated throughout the year in accordance with the CIPFA best
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practice on Local Council Audit Committees. Formal training was provided to members and will be revised / repeated for 2007/08.
5.2.4 Internal Audit is provided through the Head of Audit and Risk Management (HARM) with a team of 17 officers. Following the formal recommendations of the Audit Commission, Internal Audit resources are protected from being diverted to adhoc work to the detriment of the planned work through corporate agreement that any significant fraud or consultancy work (in excess of five days) is paid for internally by the commissioning service. This enables external resources to be procured to complete the plan.
Full details of this service area are given in the Annual Audit Report 2006/07 and this report is submitted to Councillors with the SIC.
Adhoc, unplanned pressures on Audit resources continued during 2006/07 as in previous years. This did affect the completion of the Audit Plan but in every case risk assessment work was completed to ensure high priority work was not ignored. Audit reports are published in accordance with a policy / protocol agreed previously and on the whole that work verified that the systems of control in place throughout the Council were adequately protecting the Council’s interests.
Additionally the Audit service undertook a Systems or Lean Intervention during 2006/07 which did require audit resource to gather information initially. The results of intervention knowledge are still being rolled into the whole audit service but the service revised its processes and measures during 2006/07 to better reflect a defined service purpose in line with customer need and professional requirements. Feedback throughout the 2nd half of 2006/07 indicated that the new method is providing a more responsive and helpful service in assessing the adequacy of control, reducing bureaucracy and improving services to the public.
The Lean intervention continues during 2007/08 and whilst it is necessary to periodically re-assess service knowledge the programme of improvement is achieved through prototyping new ways of improved working using real work.
Audit strategy, plans and resourcing will be reported to the Audit Committee as well as regular reports highlighting progress by management in implementing agreed recommendations and matters of serious concern. This includes:
a. Every Audit Report is published following agreement with the relevant client,
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. b. The revised Audit Plan is prepared in consultation with all key stakeholders including Cabinet members, Audit Committee and senior officers. The scope of work on the plan is agreed with senior officers to provide assurance to the Council in accordance with the Accounts and Audit Regulations 2006 and to meet the s151 responsibilities; and,
c. An Annual Report for consideration by the Council’s Audit Committee. This contains the Head of Audit and Risk Management’s professional and formal opinion on the adequacy of the Council’s systems of internal control.
5.2.5 The Prevention of Fraud and Corruption The Council maintains an Anti-Fraud and Corruption Policy together with a formal Whistleblowing policy. Reporting to the Head of Audit & Risk Management the Corporate Anti Fraud Unit investigate suspected benefit and other frauds committed against the Council.
A summary of corporate fraud referrals is provided in the Annual Audit Report submitted with the SIC to Members.
The service maintains staff professionally qualified in fraud investigation which the BFI complemented in its most recent report. Changes to the sanction income regime in 2006/07 will also enable the service to focus on targeted areas of fraud as opposed to being encouraged by DWP incentives towards income generating cases. As stated in last years SIC the service maintains a comprehensive Policy and Procedures manual based on best practice including the adoption of a revised Anti-Fraud and Corruption Policy to include formal publicity considerations;
As well as reactive fraud investigations the service also undertook several anti fraud projects including:
a. Development of Fraud Awareness publicity b. Promotion of the external FraudWatch service c. Liaison with Police on specific criminal investigations d. Postal Votes system / data review e. Proactive Anti fraud projects
The service investigated all allegations of fraud and corruption and these have resulted in appropriate action being taken to protect the Council’s interests, including the successful prosecution of a number of cases through criminal proceedings.
38 STATEMENT OF INTERNAL CONTROL
As part of Workforce Efficiencies targets applicable throughout the Council a vacant Assistant Fraud Officer post was deleted from the 2007/08 budget profile. This relies upon the development of trained and competent investigations officers within every Directorate. A programme of training is being developed for 2007/08 by Human Resources to provide certified investigators in accordance with HR policy.
6 SIGNIFICANT INTERNAL CONTROL ISSUES
6.1 Milton Keynes Council is successfully implementing good corporate governance arrangements to identify and address control weaknesses throughout its operations. The Annual Risk Management and Audit reports seek to provide assurance that the Council’s services and their control are kept under constant review and all areas are subject to continual improvements wherever possible.
6.2 Given the nature of Council services, it must be recognised that the Council cannot control and/or eliminate all risk. The Risk Register provides evidence across the Council regarding how Risk Management is being embedded throughout services including;
6.2.1 Throughout 2006/07 quarterly reports were submitted to CLT and the Audit Committee regarding the risk register and risk management.
6.2.2 The Risk service is delivered through a team of 3 staff who also are responsible for Council insurances. Requests for risk workshops / assistance continued to place pressure on the services resources but are illustrative of services accepting ownership of risks.
6.2.3 Much work has been done throughout the year to embed risk management throughout the Council. This is illustrated by the issues listed in Annex A, which have been identified (together with appropriate actions) through a proactive risk management process.
6.3 The 2005/06 SIC identified areas of risk considered to meet the SIC definitions for significant weakness. A review of progress during 2006/07 confirmed some areas were fully addressed and progress was being made in others. Annex A sets out those areas where work remains ongoing to address issues considered to meet the SIC definitions of a significant weakness.
6.4 The 2005/06 SIC also highlighted areas identified by Internal Audit that would meet the SIC definitions of a significant weakness. Follow up found that with one exception (reported below) actions were progressing as agreed.
39 STATEMENT OF INTERNAL CONTROL
Salaries and Wages A confidential issue is reported to the Audit Committee that cannot be detailed within the SIC. A fundamental weakness in control has been identified that needs to be addressed as soon as possible. Action agreed : The HR Client Officer is discussing with HBS the most practicable solution to this control weakness. It is not possible to resolve this immediately. A manual interim solution is currently in place. The status of this remains largely unchanged since the last audit. Payroll operates a manual interim system of checking signatures on claims and refers back to line managers for any that are not recognised.
6.5 In respect of 2006/07 key audit issues arising are highlighted within the Annual Audit Report (section 4.3) submitted in support of the SIC. Of those issues highlighted within the report the following meet the requirements for inclusion within the SIC itself. All issues reported in section 4.3 of the Annual Audit Report
6.5.1 School Planning and Resources The actual costs of school builds are significantly in excess of the budgeted costs, raising concerns in respect of how the budgets are determined. There is also concern in respect of deadlines not being achieved on many occasions. Audit are currently undertaking further work in this area.
6.5.2 Houses in Multiple Occupation There is currently no incentive to apply for planning permission. A high percentage of planning applications are being refused requiring the HMO’s to reduce the number of lettable rooms to 4. This reduces the quantity of affordable housing, increases rents and also undermines the licensing legislation, which applies to properties with more than 4 lettable rooms. The licence cost is significantly higher than in other nearby Local Authorities. The Housing Health and Safety Rating Systems (HHSRS) inspections and enforcement regime can still be carried out although there are limited staff resources to do so. The Committees and services involved with HMO’s across the Council are aware of the need to work together to present a consistent and co-ordinated approach.
40 STATEMENT OF INTERNAL CONTROL
7 CONCLUSION
7.1 We (see below) have been advised on the implications of the review of the effectiveness of the system of internal control and a plan to address weaknesses and ensure continuous improvement of the system is in place.
7.2 The Council is committed to delivering high quality services, which focus on the needs of individuals in Milton Keynes. It welcomes feedback on how it is achieving against that aim and wishes to involve people in improving services further.
Isobel McCall Leader of the Council
John Best Chief Executive
Sunil Modaley Chief Finance Officer
41 STATEMENT OF INTERNAL CONTROL
The progress of agreed actions highlighted within the previous SiC was reviewed during 2006/7. The table below highlights those areas where the actions agreed have not yet been fully implemented, although it should be noted most issues by their nature are long term. Additionally those areas identified during 2006/7 are also shown
2006/7 SiC Items Issue Agreed Action 2007 Review Five Strategic Risk Areas. In Business Continuity the work schedule These issues are all long term, ongoing risk management areas IT has been agreed and the Services are where work has progressed during the year to identify and manage CPA being approached to design their own those risks. Partnerships Plans. This will continue during 06/07. The Specifically : Business Continuity other risk areas will be reviewed, the risks IT: The intelligence within the Council to enable Council services to Growth analysed and mitigation methods be able to rely upon IT systems where either the service or IT is employed as appropriate. The residual subject to business interruption has been actively worked on to risks will be advised and agreed by CLT prioritise and identify corporate themes and virtualisation solutions. and Cabinet. The need for Information Technology to meet and deliver Council objectives has been recognised and is being developed with regard to demonstrable risk management and work has been prioritised throughout 2007/8 to address this. Business Continuity: Whilst work remains ongoing to further develop this area the intelligence for this area is greatly improved through most services engagement with the BC exercise programme and the production of a draft corporate BC plan. Additionally the Schools BC Resilience forum and the external business communities BC Resilience forum formed and met during 2006/7 including the consideration of a test exercise involving pandemic flu. The limited resource does limit the level of support that can be provided to services in this area and via a growth bid for the 2008/9 budget MKC will need to agree further funding if services are to be fully supported in meeting BC requirements of the Civil Contingencies Act and service priorities.
CPA: Much work in this area has produced an increased corporate score taking the Council to a “Good” rating. Further work has been programmed in 2007/8 to address further improvement particularly
42 STATEMENT OF INTERNAL CONTROL
2006/7 SiC Items Issue Agreed Action 2007 Review within Use of Resources. Partnerships: Information remains outstanding for the management of risk for some partnerships although the largest have improved risk management information eg PPP and Waste. CLT agreed a working definition for strategic partnerships to focus work in 2007/8 for Lead Officers for document existing risk management arrangements and ensure it is embedded within these areas Growth: The management of risk within this area continues to provide challenges. The agreement of the Tariff, other projects (eg Waste) and MKP funding arrangements continue to develop the Councils intelligence and risk management intelligence for this area.
Estates/Architecture MK. A complex set of A comprehensive system of succession Ill health issues that have occurred in the last twelve months have circumstances has combined to create internal planning to be established highlighted issues surrounding the Sections inability to employ the Work pressures, resulting in stress, illness and calibre of staff at the next level, who have the ability to “step up”. Also resignations. the even flow of work into and within AMK remains an ongoing challenge. This area needs to be followed up, but the inability of the Risk Section to allocate any resource to assist in this project has hampered progress. The issue also highlights the importance of corporate succession planning. School build. Correct information for pupil Carry out additional work to review during The Council restructured resources to better meet these pressures numbers in existing areas. Introducing the 06/07 during 2006/7 and brought together a Programme Management managing change and diversity into school Board to ensure key stakeholders are involved in the management of ownership. risks. The Councils Framework Agreement for school build was introduced during 2006/7 that seeks to address the high levels of uncertainty around the constant pressures of time, cost and quality for every large capital project such a new school build. Milton Keynes Recycling Facility. Lack of Ensure sprinkler system installed at The Sprinkler system is now operational. However, there is no written sprinkler system installation. earliest opportunity. Business Continuity Plan, the mutual agreement with Peterborough is only on a very informal level As a matter of urgency existing unwritten Plans should be defined and tested. Building Closures. No contingency plans for Carry out full review and assign risk owner The evolution of BC intelligence throughout 2006/7 provided a basis the short or long term closure of a council during early 06/07. Plans to be drafted that such plans must be derived from the service BC work being office. Difficulty to agree where responsibility during 06/07. collated to identify key priorities that would inform such a plan. This is
43 STATEMENT OF INTERNAL CONTROL
2006/7 SiC Items Issue Agreed Action 2007 Review lies. being programmed for further development throughout 2007/8. In the meantime a core business continuity plan is being drafted to include the enforced closure of Civic, Saxon, Lloyds and 599 buildings. The plans will have significant implications for resources to be allocated against that eventuality. 2006/7 Issue Agreed Action Finance. The Head of Finance (Councils section 151 A programme of risk management has been agreed with the ACE (G&F) who also takes the section 151 officer) left the Council in late 2006/7 and responsibilities until permanent arrangements have been agreed. The opportunity is taken to assess the longer shortly thereafter 4 of the finance team term structural needs of the Finance service whilst functions are being prioritised for temporary cover. The (including 3 qualified Accountants) have also Councils financial pressures remain and suggest that new arrangements need to be implemented to address this. resigned. Risk Management The Annual Risk Management Report The Chief Executive and CLT acknowledged that throughout 2007/8 the organisation needed to ensure that highlighted that the key challenges for 2007/8 officers and members are progressing key risk management issues thoroughly and effectively. The Risk service are : will be reporting throughout the year and escalating any lack of progress in key areas to the highest levels within • obtaining greater leadership through CLT, the Council including the Audit Committee. Directors and DMT’s for the regular management of risks • agreeing a corporate balance between the defined corporate service levels and resources that supports services and senior officers / members in this area The Audit Committee’s consideration of risk management concluded that this represented a significant weakness if not addressed.
44 CORE FINANCIAL STATEMENTS
1. INCOME AND EXPENDITURE ACCOUNT
This account summarises the resources that have been applied and generated in providing services and managing the Council during the last year. It includes all day-to-day expenses on an accruals basis, as well as transactions measuring the value of fixed assets actually consumed and real value of retirement benefits earned by employees in the year.
2005/06 2006/07 2006/07 2006/07 Net Exp Inc Net £'000 £'000 £'000 £'000 1,175 Central Services to the Public 13,874 (12,429) 1,445 39,234 Cultural, Environmental & Planning Services 50,892 (7,592) 43,300 134,173 Education Services 364,245 (359,520) 4,725 6,955 Highways, Roads & Transport Services 20,997 (10,963) 10,034 (6,793) Local Authority Housing 40,970 (45,374) (4,404) 4,751 Housing Services 64,393 (56,138) 8,255 54,964 Social Services 93,092 (28,563) 64,529 331 Court & Probation Services 321 0 321 4,477 Corporate & Democratic Core 5,695 (76) 5,619 (4,866) Non-Distributed Costs 1,033 0 1,033 234,401 Net Cost of Services 655,512 (520,655) 134,857
7,614 Loss on Disposal of Fixed Assets 9,188 3,422 Parish Council Precepts 3,700 (1,168) Net Surplus on Trading Operations (1,063) 12,892 Interest Payable and Similar Charges 15,471 2,115 Contribution to Housing Capital Receipts 3,334 (4,062) Interest and Investment Income (8,978) Pensions Interest Cost and Expected Return on 4,777 Pension Assets 3,046 356 Levies 363 260,347 Net Operating Expenditure 159,918 (74,162) Demand on Collection Fund (78,235) (116,508) General Government Grants (16,269) (71,887) Non-Domestic Rate Re-Distributable (59,247) (2,210) (Surplus)/Deficit for the Year 6,167
45 CORE FINANCIAL STATEMENTS
2. STATEMENT OF MOVEMENT ON THE GENERAL FUND BALANCE
The Income and Expenditure Account on page 45 shows the Council’s actual financial performance for the year, measured in terms of the resources consumed and generated over the last twelve months. However, the authority is required to raise council tax on a different accounting basis, the main differences being:
Capital investment is accounted for as it is financed, rather than when the fixed assets are consumed; Retirement benefits are charged as amounts become payable to pension funds and pensioners, rather than as future benefits are earned.
The General Fund Balance shows whether the Council has over or under spent against the council tax that it raised for the year, taking into account the use of reserves built up in the past and contributions to reserves earmarked for future expenditure.
The amounts in addition to the Income and Expenditure Account surplus or deficit for the year that are required by statute and non-statutory proper practices to be charged or credited to the General Fund in determining the movement on the General Fund Balance for the year are as follows:
2005/06 2006/07 £'000 £'000
(2,210) (Surplus)/Deficit for the year on the Income & Expenditure Account 6,167 Net additional amount required by statute and non-statutory proper practices to be debited or credited to the General Fund Balance for (2,965) the year (6,777) (5,175) Increase in General Fund Balance for the year (610) (18,050) General Fund Balance brought forward (23,225) (23,225) General Fund Balance carried forward (23,835)
Amount of General Fund Balance held by schools under Local (9,224) Management Schemes (7,435) Amount of General Fund Balance generally available for new (14,001) expenditure (16,400) (23,225) (23,835)
46 CORE FINANCIAL STATEMENTS
3. STATUTORY AND NON-STATUTORY ADJUSTMENTS TO THE INCOME AND EXPENDITURE ACCOUNT
The table below provides a breakdown of the amounts additional to the surplus or deficit on the income & expenditure account that are required by statute and non-statutory proper practices to be debited or credited to the general fund for the year:
2005/06 2006/07 £'000 £'000 (9,111) Depreciation and Impairment of Fixed Assets (11,085) 12,755 Government Grants Deferred Amortisation 33,737 Write downs of deferred charges to be financed from capital (11,913) resources (16,544) (7,614) Net loss on sale of fixed assets (9,188) Net charges made for retirement benefits in accordance with (11,116) FRS17 (18,518) Amounts included in the Income & Expenditure Account but required by statute to be excluded when determining the (26,999) Movement on the General Fund Balance for the year (21,598) 3,663 Minimum Revenue Provision for capital financing 4,942
1,290 Capital expenditure charged in year to the General Fund Balance 1,171 Transfer from Usable Capital Receipts to meet payments to the (2,115) Housing Capital Receipts Pool (3,334)
Employers Contributions payable to the Bucks County Council 11,954 Pension Fund and retirement benefits payable direct to pensioners 13,456
Amounts not included in the Income & Expenditure Account but required to be included by statute when determining the 14,792 Movement on the General Fund Balance for the year 16,235 6,886 Housing Revenue Account Balance 4,544 1,959 In Year Write Down of Prepayment re LGR Transferred Debt 1,959 24 Voluntary Revenue Provision for capital financing 0 373 Net transfer to or from earmarked reserves (7,917) Transfers to or from the General Fund Balance that are required to be taken into account when determining the 9,242 Movement on the General Fund Balance for the year (1,414) Net additional amount required to be credited to the General (2,965) Fund Balance for the year (6,777)
47 CORE FINANCIAL STATEMENTS
4. STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
This statement brings together all of the gains and losses of the Council for the year and shows the aggregate increase in its net worth. In addition to the surplus generated on the Income and Expenditure Account, it includes gains and losses relating to the revaluation of fixed assets and re-measurement of the net liability to cover the cost of retirement benefits.
2005/06 2006/07 £'000 £'000
(2,210) Deficit for the year on the Income and Expenditure Account 6,167 44,094 Surplus arising on revaluation of fixed assets (18,350) 1,629 Actuarial (Gains)/losses on pension fund assets (15,489) (162) (Gain)/Loss on Collection Fund (729) 335 Other Gains and Losses (131) 43,686 Total Recognised (Gain)/Loss for the year (28,532)
The table below shows a reconciliation between the Movement in Reserves and the adjusted Movement in Net Worth.
2005/06 £'000 Net Worth at 31st March 2005 930,502 Net Worth at 31st March 2006 880,291 Movement in Net Worth 50,211 Section 106 adjustment 2005/06 (6,525) Adjusted Net Worth 43,686
2006/07 £'000 Net Worth at 31st March 2006 880,291 Net Worth at 31st March 2007 915,348 Movement in Net Worth (35,057) Section 106 adjustment 2006/07 6,525 Adjusted Net Worth (28,532)
48 CORE FINANCIAL STATEMENTS
5) BALANCE SHEET
This account shows the Council’s final position as at 31st March 2007. 2005/06 2006/07 Note £'000 £'000 0 Intangible Assets 759 15 Tangible Fixed Assets Operational Assets: 680,322 Council Dwellings 700,444 402,128 Other Land and Buildings 387,810 3,568 Vehicles, Plant and Equipment 6,363 59,051 Infrastructure Assets 61,795 136 Community Assets 111 Non-Operational Assets: 42,199 Fixed Assets in Use/Investment Properties 44,267 5,559 Fixed Assets Under Construction 26,561 1,192,963 Total Fixed Assets 1,228,110 16 50 Long-Term Investments 6,050 369 Long-Term Debtors 376 1,946 Deferred Premiums on Early Repayment of Debt 1,669 1,195,328 Total Long-Term Assets 1,236,205 Current Assets 404 Stocks and Work in Progress 254 26 92,835 Debtors (including Payments in Advance) 89,191 27a (9,216) Less : Provision for Bad Debts (9,786) 27b 98,450 Investments 99,205 1,479 Cash and Bank 907 183,952 179,771 1,379,280 Total Assets 1,415,976 Current Liabilities (66,543) Creditors (including Income in Advance) (75,928) 28 (9,468) Bank Overdraft (10,510) (76,011) (86,438) 107,941 Total Net Current Assets 93,334 1,303,269 Total Assets less Current Liabilities 1,329,538 (266,204) Long-Term Borrowing (281,204) 29 (169) Deferred Liabilities (39) (2,814) Capital Grants Unapplied (7,828) (370) Deferred Discount on Early Repayment of Debt (303) (1,549) Provisions (2,047) 31 (27,480) Government Grants Deferred & Third Party Contributions (9,510) (124,392) Liability Related Defined Benefit Pension Scheme (113,259) 880,291 Total Assets less Liabilities 915,348 Represented by: 818,164 Fixed Asset Restatement Reserve 815,690 33c 136,679 Capital Financing Account 158,254 33a 395 Capital Reserves 1,728 33b 5,243 Usable Capital Receipts Reserve 7,122 33d 177 Deferred Capital Receipts 135 (124,392) Pension Reserve (113,259) 33e 13,578 Earmarked Reserves 12,354 Balances: 14,001 General Fund and Non-Earmarked Reserves 16,400 33 (738) Collection Fund Residual Balance - Milton Keynes Council (9) 5,375 Housing Revenue Account 5,211 11,809 LMS/Foundation Schools Reserve 11,722 33v 880,291 Total Net Worth 915,348
49 CORE FINANCIAL STATEMENTS
6. CASH FLOW STATEMENT
2005/06 2006/07 £'000 £'000 £'000 £'000 REVENUE ACTIVITIES Cash Outflows 198,595 Cash paid to and on behalf of Employees 211,174 252,294 Other Operating Cash Payments 234,043 24,230 Housing Benefit paid out 32,281 16,283 Precepts Paid 17,592 111,896 603,298 NNDR Payments to National Pool 122,999 618,089 Cash Inflows (42,267) Rents (after rebates) (20,152) (78,645) Council Tax Receipts (82,039) (110,615) NNDR Receipts (123,652) (71,885) NNDR Receipts from National Pool (59,247) (2,882) Net Adjusting Receipts in respect of NNDR Pool (2,803) (113,898) Revenue Support Grant (11,446) (3,000) Targeted Support Grant (3,500) (59,459) DWP Grants for Benefits (62,686) (79,113) Other Government Grants (192,531) (47,102) Cash Received for Goods and Services (29,720) (17,036) (625,902) Other Operating Cash Receipts (61,197) (648,973) (22,604) Revenue Activities (30,884) RETURNS ON INVESTMENTS & SERVICING OF FINANCE Cash Outflows 12,897 Interest paid 16,254 20 12,917 Interest element of Finance Lease rental payments 15 16,269 Cash Inflows (5,465) Interest received (7,515) 7,452 Returns on Investments & Servicing of Finance 8,754 CAPITAL ACTIVITIES Cash Outflows 76,994 Purchase of Fixed Assets 49,092 0 Purchase of Long-Term Investment 6,000 2,115 Payment to the Capital Receipts Pool 3,334 11,156 90,265 Other Capital Cash Payments 18,347 76,773 Cash Inflows (1,275) Sale of Fixed Assets (6,942) (32,858) Capital Grants received (25,652) (10,528) (44,661) Other Capital Cash Receipts (6,320) (38,914) 45,604 Capital Activities 37,859 MANAGEMENT OF LIQUID RESOURCES 51,245 Net increase/decrease in short term deposits 755 51,245 Management of Liquid Resources 755 81,697 Net cash inflow/outflow before financing 16,484 FINANCING Cash Outflows 0 Repayments of amounts borrowed 0 197 197 Capital element of Finance Lease rental payments 130 130 Cash Inflows (85,000) New Loans raised (15,000) (84,803) Financing (14,870) (3,106) Net Decrease/(Increase) in Cash 1,614
50 NOTES TO CORE FINANCIAL STATEMENTS
1) TRADING SERVICES
2005/06 2006/07 2006/07 2006/07 (Surplus)/ Expenditure Income (Surplus)/ Deficit Deficit £'000 £'000 £'000 £'000 22 a)Bletchley Market 0 0 0 (255) b) Commercial Properties 480 (797) (317) (305) c) Architecture MK 3,878 (4,078) (200) (65) d) Building 430 (462) (32) 177 e) Catering 1,781 (1,403) 378 (141) f) Transport Fleet 2,171 (2,530) (359) (23) g) Emberton Park 289 (279) 10 0 h) Stores 399 (399) 0 (173) i) Highways 5,617 (5,764) (147) (64) j) Vehicle Maintenance 340 (337) 3 (270) k) Landscape 2,522 (2,660) (138) (11) l) Play Areas 104 (115) (11) (60) m) Broadband 16 (266) (250)
(1,168) Total 18,027 (19,090) (1,063)
a. Bletchley Market
The Council had a retail off-street market undertaking at Bletchley. During 2005/06, a decision was made by the Council to transfer the market to the local Town Council from 1st April 2006, in order to secure the market’s future.
b. Commercial Properties
The Council received a number of commercial properties in June 1992, following the wind-up of the Development Corporation. The income from these properties is used to offset the net expenditure on “Community Related Assets” transferred to the Council from the Corporation at the same time.
The surplus in 2006/2007 is £317,000 (£255,000 surplus in 2005/2006). The movement to a surplus position is attributable to the removal of notional interest from the Trading Account for reporting purposes, as required by the CIPFA Statement of Recommended Practice 2006.
c. Architecture MK
Architecture MK works within the Council providing a professional multi-disciplinary service designing new schools and other buildings as part of the capital programme, as well as providing a maintenance service for corporate buildings. Architecture MK also carries out work for outside bodies providing an income to the Council. The turnover for 2006/2007 was £4,078,000, which resulted in a surplus to the General
51 NOTES TO CORE FINANCIAL STATEMENTS
Fund of £200,000. This compares with 2005/2006 where a turnover of £4,043,000 resulted in a surplus of £305,000 to the General Fund.
A number of factors have contributed to the decrease in surplus, the primary cause being a change in focus from external projects to the escalating school build programme. As a consequence, fee income did not meet expectations. d. Building
Since the cessation of the Building DSO operation on 31st March 2006, a small unit has been retained to undertake small building maintenance works, including the Synergy Depot and key holding services.
This operation forms part of the DSO management and does not operate as a separate trading account. However, for management control reporting purposes it is shown separately with an operational surplus of £32,000 achieved in 2006/07. e. Catering
Catering services continued to be provided for Council staff in the main office buildings of the Civic Offices and Saxon Court. Streetcare also provided a catering service to several schools in the area, as well as operating the schools packed lunch service.
In 2005/06, the catering service made a deficit of £177,000 on a turnover of £1,226,000. In 2006/07 this service continued to be a non- profitable operation and resulted in a large deficit of £378,000 on a turnover of £1,403,000. Such large losses to the General Fund are not sustainable and hence a management decision was made to close down the service, which was supported by the Cabinet.
The closure will be achieved over two stages, with staff catering having ceased on 31st March 2007, and schools catering being closed down on 31st March 2008, at which point the catering service will be put out to competitive tender.
During 2007/08, Streetcare Services is expected to receive financial support from the Learning and Development Directorate, and this will enable the service to achieve a break even position by 31st March 2008. f. Transport Fleet
Streetcare continued to provide a successful Fleet Management Service for the Council. Due to cutbacks in other areas the demand for fleet vehicle rental has dropped. The turnover for 2006/2007 was £2,530,000, which resulted in a surplus to the General Fund of
52 NOTES TO CORE FINANCIAL STATEMENTS
£359,000 (turnover of £2,393,000 and a surplus of £141,000 in 2005/06). g. Emberton Park
Streetcare continued to manage the operation of Emberton Park. The turnover for 2006/2007 was £279,000 (£252,000 for 2005/2006), which resulted in a deficit to the General Fund of £10,000 (£23,000 surplus for 2005/2006). h. Stores
The stores area provides a wide range of materials for all the trading activities within Streetcare. It also provides a service for all other areas of Milton Keynes Council on a commercial basis. In 2006/07, the turnover was £399,000 (£311,000 turnover in 2005/2006), resulting in a nil surplus to the General Fund. i. Highways
The Highways DSO work group undertakes a range of highways maintenance and construction activities for a number of areas of the Council, primarily for the Environment directorate, including a 24 hour emergency service and winter gritting, snow clearing etc.
The turnover for 2006/07 was £5,764,000 (£4,679,000 in 2005/06) which resulted in a surplus of £147,000 (£173,000 in 2005/06). j. Vehicle Maintenance
Streetcare operated the vehicle maintenance contract for the Council. The turnover for 2006/2007 was £337,000 (£518,000 in 2005/06), which resulted in a deficit to the General Fund of £3,000 (£64,000 surplus in 2005/06). This drop in surplus is mainly due to the loss of the profitable activity of collection of abandoned vehicles from April 2006. k. Landscape
Streetcare carried out landscape maintenance work for the Council. Additional work was also carried out at schools and for some public bodies in the area. The turnover for 2006/2007 was £2,660,000 (£2,409,000 for 2005/2006), which resulted in a surplus to the General Fund of £138,000 (£270,000 for 2005/2006). 2006/07 is the first year of operation since the DSO won the competitive tender in 2005/06. l. Play Areas
Streetcare carried out maintenance work on play areas within the borough for the Council. The turnover for 2006/2007 was £115,000
53 NOTES TO CORE FINANCIAL STATEMENTS
(£126,000 in 2005/06), which resulted in a surplus to the General Fund of £11,000 (£11,000 in 2005/06). The increased surplus compared to 2005/2006 is attributable to cost efficiency measures introduced.
m. Broadband
This service relates to the provision of broadband services (MKSchools.net) to schools and receives subscription income from schools. The capital costs are funded by schools from Standards Fund monies, which have the option to use MKSchools.net as their provider. Turnover was £266,000, which resulted in a surplus for the year of £250,000 (turnover of £232,000 and a resulting surplus of £60,000 in 2005/06).
2) SECTION 137 EXPENDITURE
Section 137 of the Local Government Act 1972, as amended, empowers local authorities to make contributions to certain charitable funds, not-for- profit bodies providing a public service in the United Kingdom, and mayoral appeals.
In previous years, the Council has disclosed expenditure under Section 137, however, all such amounts are now considered to have been spent under the Well Being Powers created under Part 1 of the Local Government Act 2000, which allows authorities to provide for anything that is considered likely to promote or improve the economic, social or environmental well-being of their area.
3) PUBLICITY
Total expenditure on publicity during 2006/2007 is detailed below:
2005/06 2006/07 £'000 £'000 1,038 Recruitment Advertising 827 5 Statutory and Public Notices 17 0 Housing Stock - Tenant Consultation 0 67 Publishing LiveMK 81 19 Publishing Mk@Work 14 237 Other Advertising and Publicity Expenditure 246 1,366 1,185
Other Advertising and Publicity Expenditure totalling £246,000 was mainly spent on advertising and promotional items relating to planning and transport, highways and traffic and transportation special events along with brochures for Adult Education.
54 NOTES TO CORE FINANCIAL STATEMENTS
4) BUILDING CONTROL TRADING ACCOUNT
Building Regulations Total Charging Account 2006/07 Non- Building Chargeable Chargeable Control 2006/07 2006/07 2006/07 £'000 £'000 £'000 Expenditure Employee Expenses 490 69 559 Premises 0 0 0 Transport 22 3 25 Supplies and Services 75 10 85 Central and Support Service Charges 188 27 215
Total Expenditure 775 109 884 Income
Building Regulation Charges 773 0 773 Miscellaneous Income 0 22 22
Total Income 773 22 795 (Surplus)/Deficit for the year 2 87 89
Three Year Rolling Programme 2004/2005 (14) 106 92 2005/2006 (16) 106 90 2006/2007 2 87 89 Total Surplus (28) 299 271
The Building (Local Authority Charges) Regulations 1998 require an authority to determine a scale of charges such that the income it is reasonably expected will be derived shall not be less than the costs directly or indirectly incurred in performing the Building Regulation functions over a continuous three year period. The amount of income and proper costs related to the Scheme in the financial year 2006/07 together with comparator figures for the previous two years is shown in the table above.
Building Control Scheme and Scale of Charges
In accordance with the Building (Local Authority Charges) Regulations 1998 the Council has determined its Building Control Scheme and Scale of Charges. The Scheme came into operation on 1st April 1999 and incorporates all the relevant principles set out under Regulations 6 to 11. Revisions to the scheme and scale of charges were made and implemented as from 1st April 2005.
55 NOTES TO CORE FINANCIAL STATEMENTS
The Scheme and the Scale of Charges covers the following types of work:
a. Small domestic buildings (houses, bungalows and flats); b. Small domestic extensions, garages and carports; c. All other work.
Milton Keynes Council and all Buckinghamshire District Councils decided to use the same scale of charges, with minor variations based on the model scheme produced by the Local Government Association.
5) AGENCY EXPENDITURE
The Council acts as an agent for English Partnerships in providing Street Lighting. The costs are fully recovered and the net cost to the Council is nil.
2005/06 2006/07 2006/07 Net Sum Expenditure Net Sum Recovered Recovered £'000 £'000 £'000
English Partnerships 21 Street Lighting 19 16 Primary Care Trust 1,297 Care Home Placements 1,577 1,527
1,318 Total 1,596 1,543
Since 2003, the Council has acted as an agent for Milton Keynes Primary Care NHS Trust in respect of the provision of nursing care to residents in care homes and the payment for that care.
56 NOTES TO CORE FINANCIAL STATEMENTS
6) PERMITTED AND SPECIAL PARKING AREA ACCOUNT
The Council was designated a Permitted and Special Parking Area from 25th March 2002, and is required under Section 55 of the Road Traffic Regulation Act 1984 and the Traffic Management Act 2004 to keep an account of income and expenditure relating to these responsibilities.
2005/06 2006/07 £'000 £'000 Expenditure 1,523 Contractors Management Fee 1,477 0 Pay and Display Installation Costs 54 3 Digital Cameras 0 144 Staffing Cost 160 79 Supplies and Services 102 205 Support Costs 357 13 Surveys and Fees 31 43 Decriminalised Costs 40 52 CMK Pay to Park 13 96 Street Lighting 0 9 Highway Management 0 23 Gully Emptying 0 2,190 Total Expenditure 2,234 Income (1,173) Excess Charge/Penalty Charge Notices (961) (651) Business Permits (756) (8) Suspensions (10) (261) Scratch Cards (411) (5,816) Pay and Display Income (6,023) (1) Court Costs Recovered 0 (4) Default Notifications (6) (7,914) Total Income (8,167)
(5,724) Surplus for the year (5,933)
The surplus of £5,933,000 has been fully spent during the year to fund a variety of off-street parking, passenger transport and highway improvement projects. Examples of such projects undertaken include provision and maintenance of off-street car parking (£476,000), residential parking grant (£31,000), passenger transport subsidies, including rural and community transport (£2,847,000), passenger transport subsidy administration (£240,000) concessionary fares (£1,809,000), publicity (£22,000), other passenger transport projects (£74,000), Park and Ride (£77,000) and highway improvement administration (£300,000).
57 NOTES TO CORE FINANCIAL STATEMENTS
7) SUPPLY OF GOODS AND SERVICES TO OTHER LOCAL AUTHORITIES AND BODIES
The Council received income of £1,623,000 in 2006/2007 in respect of the provision of professional services under the Local Government (Goods and Services) Act 1970 (£1,942,000 2005/2006). The income received in 2006/2007 was less than the costs incurred of £1,645,000.
8) POOLED BUDGET SCHEMES ESTABLISHED UNDER THE HEALTH ACT 1999
Section 31 of the Health Act 1999 allows partnership arrangements between NHS bodies, local authorities and other agencies in order to improve and co-ordinate services. A pooled budget is established to which each partner contributes. The aim of the partnership is to provide a service to a target client group and allows the organisations to work in a more unified way.
The Council has entered into three such arrangements with the Milton Keynes Primary Care Trust (PCT).
a. Integrated Community Equipment Service (ICES)
The Integrated Community Equipment pooled budget brings together health and social care equipment for disabled people as a single service, with some efficiency of scale and improved delivery.
The Council’s share of income and expenditure is included within the Income and Expenditure Account. The note below summarises the financial performance of the scheme:
2005/06 Integrated Community Equipment Service (ICES) 2006/07 £'000 £'000 Gross Funding (261) Milton Keynes Council (181) (117) Milton Keynes Primary Care Trust (117)
(378) Total Funding (298)
492 Expenditure 270
492 Total Expenditure 270
114 Net (Surplus)/Deficit (28)
(114) Net Surplus Brought Forward 0
0 Net Surplus Carried Forward (28)
58 NOTES TO CORE FINANCIAL STATEMENTS b. Mental Health
The Mental Health pooled budget supports the integrated mental health service (Council and Primary Care Trust), allowing greater flexibility and economies of scale in funding mental health services.
The Council’s share of income and expenditure is included within the Income and Expenditure Account, whilst the Council’s share of the surplus of £1,009,000 is included in the Balance Sheet (Page 49). The note below summarises the financial performance of the scheme:
2005/06 Mental Health 2006/07 £'000 £'000 Gross Funding (3,196) Milton Keynes Council (3,312) (10,092) Milton Keynes Primary Care Trust (11,544) (11) Miscellaneous 0
(13,299) Total Funding (14,856)
Expenditure 2,601 Commissioning 1,974 10,214 Provider 12,538
12,815 Total Expenditure 14,512
(484) Net Surplus (344)
(181) Net Surplus Brought Forward (665)
(665) Net Surplus Carried Forward (1,009)
59 NOTES TO CORE FINANCIAL STATEMENTS c. Learning Disability
The Learning Disability pooled budget supports the integrated learning disability service (Council and Primary Care Trust), allowing greater flexibility and economies of scale in funding mental health services. Milton Keynes Council is the Lead Partner for the Learning Disability Pool.
The Council’s share of income and expenditure is included within the Income and Expenditure Account, whilst the Council’s share of the total surplus of £234,000 is included in the Balance Sheet (Page 49). The note below summarises the financial performance of the scheme:
2005/06 Learning Disability 2006/07 £'000 £'000 Gross Funding (4,604) Milton Keynes Council (10,396) (1,156) Milton Keynes Primary Care Trust (2,074)
(5,760) Total Funding (12,470)
Expenditure 156 Senior Management 145 674 Team A 684 111 Training & Development, QA & Policy 129 286 Team B 391 0 External Residential Care 3,637 0 Fremantle 1,068 78 Mencap 264 MacIntyre 279 4Group Homes 4 0 Mathieson Road 963 2,025 Internal Day Care 2,146 250 Purchased Day Care 314 128 Thrift Farm 142 170 External Domiciliary 164 107 Direct Payments 116 576 Peripatetic 652 0 External Supported Living 965 206 Psychology & Challenging Behaviour 254 202 Medical Services 202 216 Supported Employment 224 136 Learning Disability Development Fund 225
5,589 Total Expenditure 12,704
(171) Net (Surplus)/Deficit 234
0 Net (Surplus)/Deficit Brought Forward (171)
(171) Net (Surplus)/Deficit Carried Forward 63
60 NOTES TO CORE FINANCIAL STATEMENTS
9) MEMBERS ALLOWANCES
Total Members’ Allowances paid during 2006/2007 were as follows:
2005/06 2006/07 £'000 £'000
465 Basic Allowance 469 174 Special Responsibility Allowance 184
639 TOTAL 653
Details of each Member’s individual payments are published annually.
10) EMOLUMENTS
The Accounts and Audit Regulations 2003 (Regulation 7(2)) require disclosure of officers’ emoluments above a set threshold. The number of employees whose remuneration, excluding pension contributions, was £50,000 or more in bands of £10,000, was:
2005/06 2006/07 2006/07 Number of Number of Number of Employees £ Band Employees Redundancies
111 50,000 - 59,999 139 0 36 60,000 - 69,999 37 0 7 70,000 - 79,999 18 0 6 80,000 - 89,999 5 1 3 90,000 - 99,999 5 0 1 100,000 - 109,999 1 0 0 110,000 - 119,999 0 0 0 120,000 - 129,999 0 0 1 130,000 - 139,999 0 0 0 140,000 - 149,999 1 0 165 206 1
61 NOTES TO CORE FINANCIAL STATEMENTS
11) RELATED PARTY TRANSACTIONS
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 an assessment of 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 has effective control over the general operations of the Council – it is responsible for 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. Details of the transactions with Government departments are set out in the notes to the Cash Flow Statement.
All Members of the Council, Chief Officers and Heads of Service were sent a questionnaire asking them to disclose any transactions with related parties. Material transactions have been identified using both the Related Party Transaction Questionnaires and the Register of Members’ Interests.
A summary of transactions of the Council with organisations declared by the Council’s Members, Chief Officers and Heads of Services is shown in the table below. These transactions relate to payments for works and services, payments of grants and assistance by means of discretionary rate relief.
No of Total Value No. of Members Organisations of Payments /Officers £'000 Involved
Organisations Receiving Payments for Works & Services 39 2,455 41 Organisations Receiving Grants from the Council 27 1,961 25 Organisations Making Payments to the Council 24 (953) 27 Organisations in Receipt of Discretionary Rate Relief 24 91 25 Number of Schools with Council Members as Governors 22 N/a 15
Payments for works and services totalled £2,455,000 in 2006/2007 (£2,657,000 2005/2006). Of this amount £488,000 was paid over to Milton Keynes College. This figure comprises a large number of smaller payments relating to a variety of services, for example course fees and room hire. The Council has appointed a Head of Service as a Governor of
62 NOTES TO CORE FINANCIAL STATEMENTS the College. A further £348,000 was paid over to the Milton Keynes Council of Voluntary Organisations. This figure comprises a large number of smaller payments predominantly relating to the Children’s Fund Mobiliser Unit.
Grants awarded in 2006/2007 totalled £1,961,000 (£1,924,000 2005/2006).
Grants totalling £409,000 (£432,000 2004/2005) were awarded to Woughton Leisure Trust for the provision and management of leisure activities. The Leisure Trust also received £10,000 in discretionary rate relief. Two Councillors are members of Woughton Leisure Trust and of these, one has also been appointed to Woughton Trading Ltd. There were no transactions in 2006/2007 between the Council and the Trading Company.
Grants totalling £450,000 (£596,000 2005/2006) were awarded to the Milton Keynes Theatre and Gallery Company as part of a ten year contractual agreement to fund a programme of works undertaken at the theatre and the gallery.
The Citizens Advice Bureau also received £3,000 in discretionary rate relief.
Two members are on the board of the Shenley Leisure Centre Trust with one also representing the Council on the board of Shenley Leisure Centre Trading Ltd. Transactions between the Council and the Leisure Trust in 2006/2007 totalled £245,000 in grants, £1,000 in works and services and £9,000 in discretionary rate relief. There were no transactions in 2006/2007 between the Council and the Trading Company.
Income received during 2006/07 totalled £953,000. Of this sum, £436,000 was received from Woughton Leisure Trust for the provision of payroll services and various leisure related services (£362,000 2005/2006), and £289,000 was received from Milton Keynes College. £178,000 of this sum is paid in respect of an arrangement between the College and the Adult Education Service, who provide literacy and numeracy training on behalf of the college.
Details of all the transactions summarised in the table are available for inspection on request and are included in the Income and Expenditure Account on page 45. No other material related party transactions have been disclosed.
63 NOTES TO CORE FINANCIAL STATEMENTS
12) EXTERNAL AUDIT COSTS
The total amount paid to the Audit Commission during 2006/2007 is as follows:
2005/06 2006/07 £'000 £'000
382 Fees payable to the Audit Commission with regard to 336 external audit services carried out by the appointed Auditor
108 Fees payable to the Audit Commission in respect of 23 statutory inspection
104 Fees payable to the Audit Commission for the 105 certification of grant claims and returns
594 464
13) LEASES
The Council as a Lessee: The Council uses a number of capital items, principally Information Technology equipment and vehicles financed under the terms of operating leases. The Council also has a number of property operating leases with the significant holdings being for office accommodation in Central Milton Keynes.
The Council has acquired Information Technology, furniture and catering equipment under finance leases. The amounts paid under these arrangements were as follows:
2005/06 2006/07 £'000 £'000
Operating Leases 1,169 Vehicles, Plant and Equipment 950 1,616 Land and Buildings 1,693 Finance Leases* 217 Vehicles, Plant and Equipment 144
3,002 Total 2,787
*The rentals payable under Finance Leases in 2006/07 were split as follows:
i. £15,000 – Relates to finance costs charged to the Income and Expenditure Account; ii. £129,000 – Relates to the capital element of the payment, which reduces the obligation to the Lessor.
64 NOTES TO CORE FINANCIAL STATEMENTS
Outstanding obligations to make payments under finance leases (excluding finance costs) at 31st March 2007 are as follows:
Vehicles, Plant, Furniture and Equipment £'000 Obligations payable in 2007/08 (22) Obligations payable between 2008/09 and 2011/12 (17)
Total Liabilities at 31st March 2007 (39)
The Council was committed at 31st March 2007 to making the following payments under operating leases in 2007/08:
Vehicles, Plant, Other Furniture and Land and Equipment Buildings Total £'000 £'000 £'000
Leases expiring in 2007/08 0 266 266 Leases expiring between 2008/09 675 160 835 and 2011/12 Leases expiring after 2011/12 59 1,217 1,276
Total 734 1,643 2,377
The Council as a Lessor: The Council has granted a number of leases which are accounted for as operating leases. The total amount of rentals receivable in 2006/07 is £2,000,000 (£1,600,000 in 2005/06).
With regard to the Council’s activities as a lessor, the gross value of assets held in operating leases was £63,000,000 with a total accumulated depreciation of £2,600,000 was at 31st March 2007.
14) DEDICATED SCHOOLS GRANT
The Council’s expenditure on schools is funded by grant monies provided by the Department for Education and Skills, 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 restricted range of services provided on an authority-wide basis and for the Individual Schools Budget, which is divided into a budget share for each school. Over and Under spends on the two elements are required to be accounted for separately. The Council is able to supplement the School Budget from its own resource and this year programmed an additional £1,381,000 spending by schools.
65 NOTES TO CORE FINANCIAL STATEMENTS
Details of the deployment of DSG receivable for 2006/2007 are as follows:
Individual Central Schools Expenditure Budgets Total £'000 £'000 £'000 Original Grant allocated to School Budget for the current year in the Coucil's budget 16,064 112,609 128,673 Adjustment to finalised grant allocation (213) 0 (213) DSG receivable for the year 15,851 112,609 128,460 Actual expenditure for the year (15,650) (115,608) (131,258) (Over)/Underspend for the year 201 (2,999) (2,798) Planned top-up funding of ISB from Council resources 345 1,036 1,381 Adjustment to top-up funding from Council resources (140) 0 (140) Use of schools balances brought forward 0 1,963 1,963 DSG (Over)/Underspend carried forward to 2007/2008 406 0 406
66 NOTES TO CORE FINANCIAL STATEMENTS
15) INTANGIBLE FIXED ASSETS
Intangible Assets are recognised in the Council’s Balance Sheet in accordance with Note 2 of the Statement of Accounting Policies.
Purchased Custom Built Software/ Software/ 2005/06 Licences Development 2006/07 £'000 £'000 £'000 £'000
0 Balance at 1 April 2006 0 0 0 1,498 Expenditure in the year 512 250 762 (1,498) Written off to Revenue in the year (2) (1) (3) 0 Balance at 31 March 2007 510 249 759
A deminimus level of £1,000 has been applied to expenditure on Intangible Fixed Assets.
The purchased software/licenses of £510,000 will be amortised over their useful economic lives as identified for each project to which they relate.
The expenditure of £249,000 on custom built software/development has been capitalised under statutory Instrument 3146 (Para 25a) as it relates to projects/programs prepared for use by the Council for a period of at least one year. As the useful economic lives identified for these particular projects are more than one year, they will be amortised over the relevant periods from the year of acquisition.
The amount of £3,000 written off to revenue in year relates to expenditure within a project which has been treated as deminimus or which is not directly linked to software licenses.
67 NOTES TO CORE FINANCIAL STATEMENTS
16) TANGIBLE FIXED ASSETS
OPERATIONAL ASSETS NON OPERATIONAL ASSETS Council OtherVehicle, Plant & EquipmentInfra- Community Surplus Investment Assets Total Dwellings Land & Finance Other structure AssetsProperties Under Buildings Lease Assets Construction £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Gross Book Value brought forward at 31 March 2006 688,633 426,918 562 5,402 71,367 136 2,968 39,231 5,559 1,240,776 PriorYear Adjustment 0 0 0 0 0 0 0 0 2,694 2,694 Revaluations (24,292) 64,973 0 3,441 0 0 5,554 661 0 50,337 Restatements (11,577) (5,823) 0 (102) 0 0 0 (91) 0 (17,593) Additions 11,577 9,868 0 777 4,580 0 0 91 21,441 48,334 Disposals (10,540) 0 0 (1,341) 0 0 (4,278) (364) 0 (16,523) Reclassifications 0 2,638 (134) 134 0 0 362 133 0 (3,133) Other Movements Restatements - Foundation Schools 0 (95,858) 0 0 0 0 0 0 0 (95,858) Trans- LocalGovernment Regulations 0 0 0 0 0 0(25) 0 0 (25) Inflation 55,052 0 0 0 0 0 0 0 0 55,052 Gross Book Value carried forward at 31 March 2007 708,853 402,716 428 8,311 75,947 111 4,606 39,661 26,561 1,267,194
Depreciation and ImpairmentDepreciation b/fwd at 1.4.06 (8,311) (24,790) (314) (2,082) (12,316)0 0 0 0 (47,813) Impairmentb/fwd at 1.4.06 0 0 0 0 0 0 0 0 0 0 Revaluations 8,311 15,939 0 0 0 0 0 0 0 24,250 Restatements 0 9 0 44 0 0 0 0 0 53 Disposals 0 0 0 1,341 0 0 0 0 0 1,341 Reclassifications 0 0 134 (134) 0 0 0 0 0 0 Other Movements Restatements- Foundation Schools 0 2,109 0 0 0 0 0 0 0 2,109 Depreciation Charge for the Year (8,409) (8,173) (157) (747) (1,836)0 0 0 0 (19,322) Impairment Charge for the Year 0 0 0 (461) 0 0 0 0 0 (461) Depreciation carried forward at 31 March 2007 (8,409) (14,906) (337) (2,039) (14,152)0 0 0 0 (39,843)
Net Book Value at 31 March 2007 700,444 387,810 91 6,272 61,795 111 4,606 39,661 26,561 1,227,351
Net Book Value at 31 March 2006 680,322 402,128 248 3,320 59,051 136 2,968 39,231 5,559 1,192,963
68 NOTES TO CORE FINANCIAL STATEMENTS
FIXED ASSET VALUATION
i. The Council has a five year rolling programme for undertaking valuations of its property assets. In the 2006 valuations all those properties not valued within the previous five years plus the schools and excluding Council Dwellings were valued by R J Harris BSc (Est. Man.) FRICS and K Monkton BSc (Hons) MRICS of HBS Business Services Ltd, the appointed external valuers.
The valuation date was 1st April 2006 in accordance with the revised Code of Practice produced by the Charted Institute of Public Finance and Accountancy (CIPFA) on Local Authority Accounting.
The valuations were prepared in accordance with the Appraisal and Valuation Standards of the RICS. In accordance with the relaxations agreed between the RICS and CIPFA, not all properties were inspected. A deminimus level of £10,000 has been used for the purposes of recording the valuations.
Council Dwellings have been valued as at 1st April 2006 by external valuers Countrywide Chartered Surveyors in accordance with DTLR Guidance on Stock Valuation and the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards. The inflation increase in 2006/07 has been estimated on the basis of national and local housing indices.
ii. Plant and machinery is included in the valuation of the building where it forms part of the premises. Specialist plant and equipment such as the processing equipment in the Materials Recycling Centre, which is not specific to the property, has been excluded from the property valuations.
iii. Properties regarded by the Council as operational are valued on the basis of existing use value or, where this cannot be assessed because there was no market for the subject asset, the depreciated replacement cost.
iv. Properties regarded by the Council as non-operational are valued on the basis of market value.
v. Infrastructure assets are valued at historical cost.
vi. Vehicles, plant and equipment are valued at depreciated historical book cost as a proxy for depreciated current value.
vii. Properties regarded by the Council as Community Assets have been included in the balance sheet at their historical cost.
69 NOTES TO CORE FINANCIAL STATEMENTS
viii. Assets which transferred to the Council from the Commission for New Towns are subject to ‘clawback’ on disposal: compensation in respect of transferred asset value. In 2006/2007 the Council paid £6,243,000 in clawback on housing stock sales of £10,540,000. As at 31st March 2007 60.2% of the Council’s housing stock and 2.3% of the non-housing stock are subject to clawback.
ix. None of the properties in the portfolio have been affected by any impairment due to consumption of economic benefits (fire damage, other major physical deterioration or deterioration in the quality of the service provided by the asset) nor has there been a significant decline in their market value.
17) FOUNDATION SCHOOLS ASSET VALUES
Under the Schools Standards and Framework Act 1998, Foundation Schools Assets are vested in the Governing Bodies of the individual foundation schools. Therefore the values for these assets have not been consolidated in the Balance Sheet.
In 2006/2007, a further three schools gained foundation school status and six existing foundation schools were recognised accordingly.
Therefore at 31st March 2007, there were eighteen foundation schools with an estimated fixed asset valuation of £259,314,000 (Nine schools at £93,938,000 as at 31st March 2006).
70 NOTES TO CORE FINANCIAL STATEMENTS
18) FIXED ASSETS HELD BY THE COUNCIL
31 Mar 2006 31 Mar 2007 Number/Length Number/Length 13 Allotments 2 * 712 Bridges 712 34 Car Parks 34 14 Cemeteries 13 * 2 Children's Homes 2 12,851 Council Dwellings 12,735 2,907 Council Dwellings Garages 2,912 69 Community / Children's Centres 73 1Crematoria 1* 12 Day Centres 12 5Day Nurseries 5 104 Education (Schools) 95 ** 9 Education (Other Buildings) 8 6 Elderly Persons Homes 6 4Factories 4 7 Garages 7 23 Ground Leases 24 1 Group Homes 0 2 Traveller Sites 2 3 Helipads 3 8Hostels 9 28 Landscape Site Depots 29 36 Leisure Sites 40 8 Libraries 8 1 Lorry Parks 0 1 Magistrates Court 0 1 Meals on Wheels Kitchen 1 2 Museums 2 5 Neighbourhood Houses 5 38 Offices 34 10 Parks 11 * 1 Plant Nurseries 1 8 Public Conveniences 6 1 Public Houses 1 23 Recreation Grounds 23 * 257km Redways 272.5km 1,173km Roads 1186km 13 Smallholdings / Farms / Agricultural Land 14 107 Shops 112 34 Substation Sites - Electricity 71 1 Theatres 1 8 Vehicles 8 9 Plant 9 5 Waste Recycling / Disposal Sites 6 1 Waste Transfer Station 1 1 Windmills 1 * 6 Workshops 6 11 Youth Facilities 11 20 Other 24 *
* Includes Community Assets ** The 2005/06 comparator includes nine foundation schools which have been removed in 2006/07.
71 NOTES TO CORE FINANCIAL STATEMENTS
19) DEPRECIATION
Depreciation should be provided on all fixed assets with a finite useful life, which can be determined at the time of acquisition or revaluation.
The table below details the different classes of asset held by the Council, the useful lives of each class of asset and the total depreciation charged for the year.
Useful Life 2006/07 Depreciation Charge of Asset General Fund HRA Total Years £'000 £'000 £'000 Council Dwellings 45 0 8,409 8,409 Property - Operational 60 7,937 236 8,173 Vehicles and Plant 3 - 40* 56 0 56 Furniture and Equipment 3 - 40* 640 51 691 Leased Equipment 3 - 40* 157 0 157 Infrastructure - Highways 40 1,836 0 1,836 Infrastructure - Other 20
10,626 8,696 19,322
* Varies from 3 to 40 years depending on the estimated life of each asset.
20) CHANGE IN THE DEPRECIATION METHOD APPLIED
There has been no change in the depreciation method used in the 2006/2007 Statement of Accounts.
Depreciation is calculated by allocating costs (or re-valued amounts), less the estimated residual value of the relevant assets, on a straight-line basis over their useful economic lives. This is deemed to be the most appropriate method given the nature of the assets held by the Council.
22) CHANGE IN THE AMORTISATION METHOD APPLIED
There has been no change in the amortisation method used in the 2006/2007 Statement of Accounts.
All Intangible Fixed Assets are included at historic cost and amortised, on a straight line basis, over their economic lives. The economic lives are reviewed at the end of each reporting period and revised if necessary.
72 NOTES TO CORE FINANCIAL STATEMENTS
23) CAPITAL EXPENDITURE
£'000 £'000 Operational Assets Dwellings 11,577 Schools 7,839 Social Services Minor Works 69 Other 1,960 21,445 Vehicles, Plant and Equipment Assets Information Technology Schemes 285 Social Services Schemes 43 Environment Schemes 369 Other 80 777 Infrastructure Assets Highways, Bridges and Road Safety Schemes 4,485 Open Spaces and Play Areas 92 4,577 Non-Operational Assets Milton Keynes Theatre and Gallery 76 Other 15 Fixed Assets Under Construction: Schools 16,200 Social Services 646 Leisure Centres 2,698 HRA IT Projects 5 Environment Schemes 1,895 21,535
Intangible Fixed Assets 762
Deferred Charges 16,544 Total 65,640
This expenditure was financed as follows: Supported Borrowing 33,886 Unsupported Borrowing 5,202 Capital Receipts 1,728 Government Grants 12,370 Third Party Contributions 1,570 Revenue Contributions 3,334 Major Repairs Allowance 7,550 Total 65,640
73 NOTES TO CORE FINANCIAL STATEMENTS
24) CAPITAL COMMITMENTS
2005/06 2006/07 £000 £000 Contracted for but not provided in the financial statements:
201 Information Technology Schemes 134 4,330 Transport, Infrastructure & Environmental Schemes 2,086 17,120 Education, Leisure and Culture Schemes 10,661 169 Housing & Social Services Schemes 382 449 Housing Revenue Account Schemes 299
22,269 13,562
25) MOVEMENTS IN DEFERRED CHARGES
Deferred charges are written off to revenue in the year in which they are incurred as follows:
Payments to Other Renovation Parties for Grants Capital Projects Total £'000 £'000 £'000
Expenditure in year 1,145 15,399 16,544
Amounts written back (1,145) (15,399) (16,544) to revenue accounts
Balance carried forward 0 0 0 at 31 March 2007
74 NOTES TO CORE FINANCIAL STATEMENTS
26) STOCKS AND WORK IN PROGRESS
Stocks and Work in Progress comprise:
31 Mar 2006 31 Mar 2007 £'000 £'000 Work in Progress 135 Insurance Rechargeables 0 74 Other Rechargeables 50
209 50 Stocks 131 Main Council Stores (Net of Write-off Provisions) 96 39 Catering 36 13 Integrated Community Equipment Service Pool 24 12 Other Stocks 48
195 204
404 Total 254
27) DEBTORS
a. The analysis of Debtors is as follows:
31 Mar 2006 31 Mar 2007 £'000 £'000 18,422 Government Departments 16,183 6,916 Council Tax Arrears 7,663 2,825 NNDR Arrears 3,753 2,048 Other Local Authorities 1,081 3,270 Housing Rents 3,074 162 Council Staff Debtors 23 15,877 Sundry Debtors 13,538 1,374 Landfill Allowances Asset Account 2,570 50,894 47,885
41,941 Payments in Advance 41,306
92,835 Total 89,191
75 NOTES TO CORE FINANCIAL STATEMENTS
b. Provision for Bad Debts comprises:
31 Mar 2006 31 Mar 2007 £'000 £'000 (1,544) Housing Rents (876) (2,467) Council Tax Arrears (2,890) (1,188) NNDR Arrears (1,549) Sundry Debtors: (3,665) General Provision (4,229) (319) Housing Revenue Provision (210) (33) Mortgages (32)
(9,216) Total (9,786)
28) CREDITORS
The analysis of Creditors is as follows:
31 Mar 2006 31 Mar 2007 £'000 £'000 (11,862) Government Departments (16,107) (3,396) Other Local Authorities (2,042) (831) Housing Rent Prepayments (752) (4,759) Council Tax and NNDR Prepayments (5,624) (30,449) Sundry Creditors (26,894) (1,166) Liability for Actual BMW Landfill Usage (2,196) (52,463) (53,615)
(14,080) Income in Advance (22,313)
(66,543) Total (75,928)
29) LONG TERM BORROWING
a. Analysis of Loans by type:
31 Mar 2006 Range of Interest 31 Mar 2007 £'000 Rates - 31 March 2006 £'000 Source of Loan (251,204) Public Works Loan Board 3.700% - 10.875% (266,204) (15,000) Bonds 3.750% - 6.620% (15,000)
(266,204) Total (281,204)
76 NOTES TO CORE FINANCIAL STATEMENTS
b. Analysis of Loans by maturity:
31 Mar 2006 31 Mar 2007 £'000 £'000
0 Maturing in 1 to 2 years (3,000) (13,000) Maturing in 2 to 5 years (10,000) (17,500) Maturing in 5 to 10 years (17,500) (235,704) Maturing in more than 10 years (250,704)
(266,204) Total (281,204)
30) LONG TERM CONTRACTS
The paragraphs below set out the long term contracts currently in place within the Council, with a value in excess of £6,000,000.
Council Housing Stock In October 2005, the Council entered into a five year contract with Apollo London Ltd to be a strategic partner in major works to council housing stock between 2005 and 2009. The contract is valued at £11,000,000 and is scheduled to end in July 2010.
Reactive Gas Maintenance Services In January 2007, the Council entered into a contract with Wheldon Contracts and Services Ltd for the maintenance of gas services to Council housing stock. The actual level of payments will depend on the Council’s need for maintenance works but the contract is capped at a value of £25,000,000 and an end date has not yet been confirmed.
Responsive Repairs and Voids In January 207, the Council entered into a contract with Mitie Property Services UK Ltd for responsive repairs to Council housing stock. The actual level of payments will depend on the Council’s take up of repairs work but the contract is capped at a value of £25,000,000 and is due to expire in March 2011.
Waste In October 2000, the Council entered into a contract with Corey Environmental Ltd for the collection and disposal of waste within the borough. The Council pays Corey an annual sum of £12,000,000. This contract is due to end in February 2009.
77 NOTES TO CORE FINANCIAL STATEMENTS
Public Private Partnership On 1 January 2004 the Council entered into a 12-year contract with HBS at an approved cost of £207,120,000 excluding inflation, work volume changes or any additional work commissioned. The contract, which is a public private partnership arrangement, covers the provision of administration, facilities management, finance, human resources, ICT, revenues and benefits and management of several other services. As at 31st March 2007 there was an undischarged obligation under this contract, calculated pro rata on a 2004 price base, of £151,025,000.
31) PROVISIONS
Increases Amounts Balance at to/New Used/Paid/ Balance at 1 Apr 2006 Provisions Transferred 31 Mar 2007 £'000 £'000 £'000 £'000 Housing Revenue Account a) Heating and Utilities Provision (606) (40) 104 (542) b) Bonus Payment Provision (80) 0 0 (80) c) Pension Strain Provision (289) (265) 289 (265) (975) (305) 393 (887) General Fund d) Section 74 Provision (141) 0 0 (141) e) Adult Social Care Provisions (75) 0 0 (75) f) Section 117 Provision (102) 0 0 (102) g) Ordinary Residence Provision (52) 0 0 (52) h) Select Provision 0 (248) 0 (248) i) Overpaid Benefit Provision 0 (330) 0 (330) j) Other Provisions (204) (14) 6 (212) (574) (592) 6 (1,160) Total (1,549) (897) 399 (2,047)
a. Heating and Utilities Provision
This provision has been set-aside to cover the costs of potential refunds to sheltered area tenants and leaseholders in respect of over- recovered utility costs.
78 NOTES TO CORE FINANCIAL STATEMENTS b. Bonus Payment Provision
A provision has been set-aside to cover the costs of a bonus, which may have to be paid to a contractor, for a contract that closed on 31st March 2006. c. Pension Strain Provision
This provision has been set aside for the cost to the Local Government Pension Scheme for the early retirement of a senior officer. The pension strain will be paid during the 2007/08 financial year. d. Section 74 Provision
Section 74 of the New Roads and Street Works Act 1991 enables a penalty to be raised against utility companies when they are in default on administration connected with working on the highway. The provision was originally set up pending the outcome of a court case where income invoiced under this Act may have to be repaid. The outcome of the case was that some charges could not be levied and utility companies could request for previously paid invoices to be refunded. This provision is held to meet the costs of potential refunds. e. Adult Social Care Provisions
i. The Council is under Judicial Review relating to the Council’s ability to provide a service user with care involving moving and handling. It is expected that either an application for costs will be made against the Council and MK Primary Care Trust or the case will move to a full hearing. The Council estimates a sum of £50,000 may be awarded and therefore a provision has been created.
ii. During 2005/06, the Council was taken to employment tribunal in relation to the terms and conditions of Sheltered Housing Wardens. The action was settled out of court. A payment of £180,000 was made during 2005/06 to “buy out” the warden’s entitlements, and a further payment of £25,000 is expected to be made during early 2007/08. f. Section 117 Provision
The Court of Appeal has ruled that under Section 117 of the Mental Health Act 1983, local authorities cannot charge for the aftercare of people hospitalised for mental health reasons. The Council has identified potential claimants, including deceased clients, through advertising in local publications and other means. A provision has therefore been set-aside for these potential claimants, based on the cost of the placements calculated using retrospective rates.
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g. Ordinary Residence Provision
The Council received notification in 2006/07 that five physical disability clients placed in residential care in Milton Keynes by other Local Authorities were proposing to de-register themselves and move into an intensely supported living model of care. Section 24(5) of the National Assistance Act 1948 indicates that if a person is provided with residential accommodation, they will be deemed to be ordinarily resident in the area they were prior to the placement. Therefore Milton Keynes Council should not remain responsible for funding. However, as no formal agreement has been reached with the other Local Authorities, the Council assesses its potential liability in respect of these clients to be £200 per client per week, namely £52,000. h. Select Provision
The Council entered a contract with Select Appointments during 2005. Since the commencement of the contract there have been difficulties in invoicing and subsequent communication difficulties between the two parties. The contract ceased with effect from 31st March 2007, however, at this date, it was determined that there were significant amounts outstanding, and though system generated and manual accruals had been made, it was decided that a further provision be established in the interest of prudence. The provision is calculated on the basis of debt identified by Select, and a comparison at purchase order level, with the amount that had been accrued either manually or automatically. The debt will be cleared during the 2007/08 financial year. i. Overpaid Benefit Provision
The Council has created a provision to meet the cost of any overpaid Housing Benefit currently recovered through a reduction in on-going benefit payments, which becomes unrecoverable due to a change in tenant circumstance. j. Other Provisions
Following an Employment Tribunal in February 2004, Milton Keynes Council was awarded £10,000, which had not been received at 31st March 2007. A provision has been set-aside for out of date cheques. A provision has been created for the potential refund to tenants in respect of a concierge service not provided. There is also a provision in respect of leased IT and Transport equipment, set up to cover the cost of any damage to or loss of such equipment leased by the Council.
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32) INSURANCE RESERVE
The Council’s insurance arrangements involve both internal and external cover. Internal cover is provided by way of an Earmarked Reserve for all claims notified to the Council by 31st March each year (the amount provided for those claims being based on advice from the Council’s Insurers). Some risks are not fully funded, with losses up to a specified amount being met from revenue as they arise. To obtain insurance cover in the most cost effective manner, the Council has chosen to carry excesses in respect of claims made under liability and material damage insurances. A reserve has been set up from the Council’s internal funds to cover uninsured risks. This reserve is based on the total potential liability that could accrue up to 31 March 2007.
At 31st March 2006, the reserve stood at £2,952,000. During the year, the balance was reduced by £520,000 to £2,432,000 following a review of outstanding insurance risk.
Details of the internal insurance arrangements are provided in the Accounting Policy note 13 on page 22.
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33) RESERVES
The Council keeps a number of reserves in the Balance Sheet. Some are required to be held for statutory reasons, some are needed to comply with proper accounting practice, and others have been set up voluntarily to earmark resource for future spending plans.
The reserves are summarised in the table below, with further detail on each one provided as a note following the table:
Balance Transfers Movement Balance Between 01-Apr-06 Reserves In Year 31-Mar-07 Note £'000 £'000 £'000 £'000 Capital Financing Account (136,679) 0 (21,575) (158,254) a Capital Reserves (395) 0 (1,333) (1,728) b Fixed Asset Restatement Reserve (818,164) 0 2,474 (815,690) c Usable Capital Receipts Reserve (5,243) 0 (1,879) (7,122) d Pensions Reserve 124,392 0 (11,133) 113,259 e Earmarked Reserves Benefit Subsidy Reserve (1,807) 0 1,690 (117) f Budget Rollovers (2,009) (57) (709) (2,775) g CCTV Reserve (75) 0 0 (75) h Debt Financing Reserve (1,461) 0 572 (889) i ICES Pooled Budget Reserve 0 0 (17) (17) j Insurance Reserve (2,952) 0 520 (2,432) k Landfill Allowances Reserve (169) 0 (165) (334) l Lease Rental Equalisation Reserve (845) 0 2 (843) m Planning Gains (591) 0 (868) (1,459) n Repairs & Renewals (279) (36) 0 (315) o Revenue Financing Reserve (224) 0 (20) (244) p Saxon Court Refurbishment Reserve (2,288) 0 2,217 (71) q Schools System Review Reserve (433) 0 324 (109) r Children's Placements Support 0 0 (662) (662) s Bletchley Access Improvements 0 0 (661) (661) s Giles Brook Reserve 0 0 (750) (750) t Other Reserves (445) 0 (155) (600) u Collection Fund 738 0 (729) 9 General Fund (14,001) 0 (2,399) (16,400) Housing Revenue Account (5,375) 0 164 (5,211) LMS (11,809) 0 87 (11,722) v
(880,114) (93) (35,005) (915,212)
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The purpose of these reserves is as follows:
a. Capital Financing Account
The Capital Financing Account contains the amounts which are required by statute to be set aside from capital receipts, for the repayment of external loans, and the amount of any capital expenditure financed from revenue and capital receipts. It also contains the difference between amounts provided for depreciation and those required to be charges to revenue to repay the principle element of external loans.
£'000 £'000 Balance at 1 April 2006 (136,679) 2006/07 Capital Financing - Capital Receipts (1,729) - Revenue Contributions (3,335) - Capital Grants (31,909) - Major Repairs Reserve (7,550) (44,523) 2006/07 MRP (less Depreciation Provision) 6,530 2005/06 Finance Leases - capital element charged in year (129)
Less: Housing Act Advances repaid 0 Write down of Deferred Charges (Note 15) 16,544 Write down of Intangible Fixed Assets (Note 25) 3 Balance at 31 March 2007 (158,254)
b. Capital Reserve
The General Fund and Housing Revenue Account capital reserves hold contributions for the financing of capital expenditure from third parties, and from the Income and Expenditure Account and Housing Revenue Account.
The balances at year end represent those amounts unapplied during 2006/07. These will be carried forward to fund capital expenditure in 2007/08 and future years. The balances can be analysed as follows:
General Housing Total Fund Revenue Account £'000 £'000 £'000
Third Party Contributions (689) (39) (728)
Revenue Contributions (1,000) 0 (1,000)
Total (1,689) (39) (1,728)
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c. Fixed Asset Restatement Account
The system of capital accounting introduced for local authorities in 1994/95 required the establishment of the Fixed Asset Restatement Account. This account is written down by the net book value of assets as they are disposed of and debited or credited with the deficits or surpluses arising on revaluations and restatements.
£'000 Balance at 1 April 2006 (818,164)
Adjustment to Opening Balance re Prior Years Expenditure (2,694)
Other Revaluations and Restatements of Fixed Assets (48,736)
Reclassifications and Other Movements 38,722
Net Book Value of Fixed Assets Disposals 15,182
Balance at 31 March 2007 (815,690)
d. Useable Capital Receipts
The Useable Capital Receipts Reserve represents the capital receipts available to finance capital expenditure, after setting aside the statutory amounts and any voluntary amounts for the repayment of external loans.
£'000 Balance at 1 April 2006 5,243 Capital Receipts in year from Sale of Assets 6,885 Capital Receipts in year from Repayments of Advances 58
12,186 Less: Capital Receipts applied to finance capital expenditure (1,730) Statutory Pooling (3,334)
(5,064)
Balance at 31 March 2007 7,122
84 NOTES TO CORE FINANCIAL STATEMENTS e. Pensions Reserve
The table below details the movements during 2006/07. Full details of the Pensions Reserve and the actuarial data that supports the movement in year are provided at note 38 to the Core Financial Statements on page 92.
2005/06 2006/07 £'000 £'000
(309,780) Estimated Liabilities in the Scheme (327,272) (8,279) Estimated Unfunded Liabilities (8,028) 193,667 Estimated Assets in the Scheme 222,041
(124,392) Net Liabilities (113,259)
f. Benefit Subsidy Reserve
This reserve was set up to cover potential liabilities resulting from possible over-claimed benefit subsidies identified in the audit of such claims. The reserve is based on a tolerance of at least 1% of the annual subsidy claim of approximately £50 million. Contributions to this reserve are funded from surpluses arising in the Benefits revenue accounts. g. Budget Rollovers
These funds will be used to fund specific projects in future years. h. CCTV Reserve
The reserve is built up from previously unspent revenue and grants for the purpose of new installation works and various system improvements as agreed by the Community Safety Partnership CCTV Strategic Group. i. Debt Financing Equalisation Reserve
This reserve was established during 2004/05 to fund debt financing budget shortfalls that may arise due to factors beyond the control of the Council. j. ICES Pooled Budget Surplus Reserve
Milton Keynes Council and Milton Keynes Primary Care Trust have pooled budgets to create the Integrated Community Equipment Service. Any surplus resulting from Milton Keynes Council’s share of the pool is held in this reserve.
85 NOTES TO CORE FINANCIAL STATEMENTS k. Insurance Reserve
These are funds set aside to meet uninsured excesses on insurance (Note 32 to the notes to the Core Financial Statements, Page 81). l. Landfill Allowance Reserve
This reserve was established during 2005/06 to comply with statutory requirements. The reserve can be used when the amount of biodegradable municipal waste (BMW) land-filled exceeds that permitted in any year. m. Lease Rental Equalisation Reserve
This reserve was established during 2004/05 to manage the budget implications of the change in accounting treatment of lease rentals from cash to an accruals basis. n. Planning Gains
The purpose of the planning obligation is to address the impacts of proposed development and to require the landowner to undertake measures to make the planning application acceptable to the local planning authority. The Council can negotiate planning gains from developers where a need is identified for infrastructure and facilities, which arises from the new development. Therefore, there is a direct relationship between the impacts on the local infrastructure created by the new development and what the Council should be seeking.
The planning gains identified are, in almost every case, linked to a specific parish or area within the Council where a main development has taken place. The purposes stated for the use of such gains range from general use (e.g. improvements to physical or social infrastructure) to somewhat more specific requirements such as provision of public artwork. In a few instances, the use can cover a wide area for example public access or transport initiatives. o. Repairs and Renewals Funds (Landscape)
The reserve is held to ensure, firstly, that the Council’s obligations in respect of Bradwell Abbey are appropriately funded and, secondly, that a contingency fund is built to fund anticipated periodic major expenditure on the fabric of this historic building. The reserve is accessed by the budget holder in response to approved requests from the City Discovery Centre CEO for payment of necessary repairs/improvements.
86 NOTES TO CORE FINANCIAL STATEMENTS p. Revenue Financing Reserve
This reserve includes monies for Arts and Sports endowments to cover the cost of facilities planned for construction, traffic calming and the cost of maintaining and repairing works of art within the borough. q. Saxon Court Refurbishment Reserve
This reserve was established during 2004/05 to recognise the Council’s contractual commitment to make improvements to the Saxon Court premises. r. School System Review Reserve
This reserve was established during 2005/06 to meet the cost of staffing protection arrangements in schools arising from the School System Review. s. Children’s Placement Support and Bletchley Access Improvements
LABGI monies of £1.323m were received late in 2006/07. Members have agreed that this sum should be split and used to fund Children’s Placement Support (£662,000) and Bletchley Access Improvements (£661,000). t. Giles Brook Reserve
Structural failures at Giles Brook School in 2006/07 were estimated at year-end to require an additional £750k of expenditure on remedial actions. Whilst it is likely that these costs can be recovered from the contractor, reserves of £750k have been set aside to cover these costs, until it can be confirmed that these costs are in fact recoverable. u. Other Reserves
These comprise monies provided by the Commission for New Towns to meet the running costs of assets transferred to the Council, commuted parking payments from developers to be used to fund parking/traffic schemes in Bletchley and Stony Stratford, the Building Control Reserve, the Broadband Trading service for schools, monies provided by individuals for specific purposes, and maintenance budget underspends to be utilised in future years.
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v. Local Management of Schools (LMS) Reserve
The sums in the table below represent the reserves built up by schools from their delegated budgets. These are earmarked for future use by these schools and are not therefore available to the Council for general use.
31 Mar 2006 31 March 2007 Net Surplus Deficit Net £'000 £'000 £'000 £'000 (75) Nursery (65) 0 (65) (5,783) Primary (5,159) 61 (5,098) (505) Secondary (6) 246 240 (306) Special (604) 49 (555) (6,669) (5,834) 356 (5,478) (2,554) Foundation (3,239) 1,282 (1,957) (9,223) Total (9,073) 1,638 (7,435)
Under the Government’s Standards Fund Grant arrangements, it is now possible for authorities to carry forward unspent Standards Fund Grant to be spent in the following financial year. There is a restriction to the carry forward arrangements for these schools in that the grant must be spent by August 2007. The exception to this is Devolved Capital to schools, which can be carried forward for up to three years. The table below details the amount carried forward into 2007/08 under these arrangements:
2005/06 2006/07 £'000 £'000 (2,586) School Capital Standard Fund Reserves (4,287) (2,586) Total (4,287)
The School Standards and Framework Act 1998 changed the status of Grant Maintained Schools to Foundation Schools maintained by the Local Education Authority. The change for funding purposes took effect from 1 April 1999. This change has resulted in the inclusion of opening and closing balances for current assets and liabilities controlled by Foundation schools in the Balance Sheet. Please see note 17 to the Core Financial Statements for further details.
34) USE OF FINANCIAL INSTRUMENTS
Financial reporting Standard 13 (Derivatives and Other Financial Instruments: Disclosures) requires that all local authorities provide information about the impact of financial instruments on the their risk profile, how the risks arising from financial instruments might affect their
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performance and financial condition, and how these risks are being managed.
No financial instruments were used by the Council during 2006/2007.
35) CONTINGENT LIABILITIES AND GAINS
a. The Council is currently under threat of judicial review regarding aspects of its land charge search processes, including the charge made for searches undertaken by Council officers. There is no certainty of whether a judicial review will take place, what its finding would be and whether there would be a necessity to refund “excessive” charges made over the previous nine years i.e. from the commencement of the unitary authority. The Head of Legal Services is of the opinion that there is only a remote chance of refunds needing to be made.
b. The Court of Appeal has ruled that under Section 117 of the Mental Health Act 1983, local authorities cannot charge for aftercare of people hospitalised for mental health reasons. A financial provision is maintained to meet the estimated costs of the remaining identified claimants. There is uncertainty over the potential number of claimants yet to come forward and it is therefore not possible to estimate the ultimate cost that may result.
c. In the past, part time workers were not permitted to join the Local Government Pension Scheme. Under the Part Time Workers (Prevention of Less Favourable Treatment) Regulations 2000, it is now possible for these workers to claim for backdated pension contributions. The Council is currently in receipt of 5 claims, with a further 5 received but not yet checked for validity. The potential cost of these claims will be any employer’s contribution to the Pension Fund, dependent on what period the Employment Tribunal decides that the claimants should have been allowed to join the Pension Scheme. Because of the uncertain number of final claimants and the as yet unknown period of the claim, it is not possible to estimate the cost of this action to the Council.
d. A contingent liability exists in respect of the costs of rectifying the effects of subsidence at a Community Centre where there is a potential liability for £60,000 of uninsured works and policy excess if the outcome of negotiations is unfavourable.
e. The Council is subject to an employment tribunal which is expected to take place during 2007/08. The tribunal relates to a claim of disability discrimination and it is not clear at this stage what the financial impact to the authority will be, although if the Council lose, the potential liability would be the Council’s own legal costs plus those of the claimant, along with any sum awarded by the court to the claimant.
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f. The Council is subject to an employment tribunal which is expected to take place during 2007/08. The tribunal relates to a claim of race discrimination and unfair dismissal and it is not certain at this stage what the financial impact to the authority will be, although if the Council lose, the potential liability would be the Councils own legal costs plus those of the claimant, along with any sum awarded by the court to the claimant. This could be as much as £300,000. g. The Materials Recycling Facility (MRF) at Wolverton suffered significant damage in a fire in 2005. There is an accrual to the value of £2.4m in respect of the remaining amount due from the insurance company to fund the re-building costs. Receipt of this amount is dependant on negotiations with the insurance company and their final assessment of the work undertaken. h. It is currently thought that there will be limited payments under the Equal Pay review. Whilst the Council cannot be complacent, and will need to respond to any issues that are identified, the view at this point in time is that there will not be a widespread problem. This view is based on having had single status terms and conditions since 1998 (and therefore no bonus payments have been made), and also work that was done some time ago to update Job Evaluation (JE) factors which took account of potential areas of vulnerability, e.g. care workers. The Council needs to continue with the analysis of the recent equal pay review data to be certain.
Currently the Council uses a local JE scheme, which has some acknowledged weaknesses, hence the work in train to move to a nationally recognised scheme. This work is being progressed in partnership with the Trade Unions, with their commitment to work with the Employer, positively and constructively, to resolve any equal pay issues that may arise i. There is currently an ongoing investigation into Olney School build. Whilst the investigations are not complete this is also the subject of an adjudication claim from the contractor involved. It is not certain at this stage what the financial impact to the authority will be, although if the Council lose, the potential liability would be the Councils own legal costs plus those of the claimant, along with any sum awarded by the court to the claimant. This could exceed £3m. j. There are no Contingent Gains to be disclosed in respect of 2006/07.
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36) OBJECTIONS TO THE 2004/05 ACCOUNTS
The two objections to the 2004/05 Statement of Accounts have now been resolved, unless there are any appeals. The Audit Commission reported on the S136 objection in January 2007 and this matter has now been closed. The Audit Commission provided their statement of reasons on the Special Parking Account in May 2007 and at the time of writing no appeal has been received.
In summary, for the S136 objection, the Audit Commission reported: (i). There is no unlawful item of account. Once the S136 arrangement ended by notice, MKC was entitled to proceed to provide the services itself and to adjust the council tax accordingly.
(ii). Aspects of the decision making process could have been improved, which will be reported back to Council, however it is not considered that these are of such significance as to justify a report in the public interest. On balance, it is not considered that any weaknesses identified resulted in a failure of the decision making process.
The Audit Commission did update the 2004/05 Special Parking Account (SPA) by a non material amount, the surplus reduced by £65k as a result of additional expenditure being allocated to the account. The additional items of expenditure have been included within the 2005/06 and 2006/07 accounts. The items that the surplus funded were also updated, excluding staff costs relating to sustainable transport schemes, costs from LTP policies and an element of the staff costs on traffic management and road safety.
In summary, for the SPA objection the Audit Commission reported: (i). The Council acknowledged that it has not acted in accordance with the requirements of section 55 of the RTRA 1984. There is an argument as to whether this means that there is an item of account contrary to law, but only a court can determine this with certainty. (ii). In the circumstances, even if the expenditure was contrary to law, the Audit Commission would not make an application to court. The reasons for this are because of the:
• Technical nature of the breach; • Acknowledgement of this by the Council; and • Council’s assurances and the processes they have put in place to ensure that section 55 of the RTRA 1984 is complied with in the future.
Revised arrangements for the parking account for 2006/07 and 2007/08 will be in compliance with the requirements of the legislation as set out and approved by Cabinet on the 20th February and Council on 27th February 2007. Full details of both objections are contained within the Audit Commission’s Statement of Reasons on the objections. Please contact
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the Council’s Strategic Finance Section should you require a copy of these reports.
37) TRUST FUNDS
The Council acts as trustee for the following Trust Funds:
a. The ‘MK Emergencies Trust Fund’. The Trust was established to make payments to people who have suffered extreme hardship as a result of flooding within the Borough. The value of the fund at 31st March was £10,641. No expenditure was incurred in 2006/07. b. The Filgrave Clock Tower Charitable Trust. The tower is held at nil value in the Council’s Asset Register and is a charity without endowment. In 2006/07, expenditure on the Tower totalled £304.
c. The Simpson and Fenny Stratford/Bletchley War Memorial Trusts. The trusts were passed to the Council to ensure that the memorials were maintained and repaired. There are no funds attached to the trusts and Milton Keynes Council meets all expenditure. However, in 2006/07 there were no costs incurred.
d. The Council acts as administrator for The Norman Hawes Memorial Trust Fund. This was passed to the Council in 2004. The trust was founded in memory of the late Norman Hawes for the purpose of assisting young people to travel overseas for educational purposes. The value of the fund at 31st March was £96,769. In 2006/07 interest received generated an income of £2,844 and expenditure totalling £1,220 was paid out in grants.
38) LOCAL GOVERNMENT PENSION SCHEME
The BCCPF is a defined benefit scheme, which means that employees, on retirement, are entitled to a pension and other benefits calculated by means of a formula, based on their length of service and final salary, rather than a relationship to their contributions and the performance of the Fund.
The BCCPF is built up from contributions paid by employees and by the constituent councils as employers, together with interest and dividends received from the Fund’s investments. The scheme pays defined benefits to employees determined by Pensions Regulations and calculated according to pay and length of service.
The Council is required to include in its revenue accounts the Current Service Costs (CSC) of pensions for those staff currently in service. The CSC reflects the estimated cost of the ongoing pension liability of those staff and the Fund’s actuaries calculate this figure annually. As the age and length of service of staff increases the CSC will also increase and this
92 NOTES TO CORE FINANCIAL STATEMENTS will be assessed annually as part of the actuary’s information to the Council.
Payments to BCCPF in 2006/2007 are based on contribution rates agreed in the 2004 actuarial valuation. They totalled £12.993m, equivalent to 19.5% of total pensionable pay for officers and 16.25% of total pensionable pay for manual workers. The following transactions have been made in the Income and Expenditure Account:
2005/06 2006/07 £'000 £'000 Net Cost of Services 11,593 Current Service Cost 14,484 (5,713) Past Service Cost 164 50 Gains and Losses on Settlements or Curtailments 187 5,930 14,835 Net Operating Expenditure 14,499 Interest Cost 15,909 (9,722) Expected Return on Assets (12,863) 4,777 3,046
807 Movement on Pensions Reserve (4,888) 11,514 Actual Contributions Paid to Fund 12,993
In 2006/2007 the Council also paid additional sums in respect of employees permitted to retire early in past years and entitled to unfunded benefits, amounting to £533,000. There were no early retirements in the interest of efficiency of the service during 2006/2007.
An independent actuary assesses constituent councils’ contribution rates every three years. The last valuation of the BCCPF by Punter, Southall & Co – Consulting Actuaries – took place as at 31st March 2004. The valuation takes account of the age profile of both pensioners and active members of each employer member of the Fund. As the age profile rises, it impacts on the costs of current service provision through the review of employer contributions by the actuary.
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Expected Expected Fair Value Return Return at 31/3/2007 at 31/3/2007 at 31/3/2006 £m % % Equities 817.00 7.2 7.0 Gilts 179.34 4.4 4.2 Other Bonds 76.34 5.4 4.9 Property 99.35 6.7 6.5 Cash 23.80 5.0 4.0 Total/Weighted Average 1,195.86
The underlying assets in the County Council Pension Fund attributable to this Council have been valued at fair value, principally market value, and consist of the following asset categories together with their expected rate of return:
The liabilities show the underlying commitments that the Council has in the long run to pay retirement benefits. The total liability of £113.259m has a substantial impact on the net worth of the Council as recorded in the Consolidated Balance Sheet. However the statutory arrangements for funding the deficit mean that the financial position of the authority remains healthy. The deficit will be made good by increased contributions over the remaining working life of employees as assessed by the scheme actuaries, Barnett Waddingham LLP.
The main assumptions used in their calculations are as follows:
31 March 2006 31 March 2007 % % Inflation 3.0 3.3 Pay Increases4.8 5.1 Pensions and Deferred Pension Increases3.0 3.3 Proportion of Employees opting to take a N/a N/a Commuted Lump Sum Discount Rate for Liabilities4.9 5.4
Liabilities have been assessed on an actuarial basis using the projected unit method, an estimate of the pensions that will be payable in future years dependent on assumptions about mortality rates, salary levels, etc.
The actuarial gains identified as movements on the Pensions Reserve in 2006/07 can be analysed into the following categories, measured as absolute amounts of assets or liabilities at 31 March.
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2003/04 2004/05 2005/06 2006/07 £m £m £m £m Deficit in the Fund at Beginning of Period (116.00) (108.60) (124.07) (124.39) LAAP 51 Adjustment - 2003/2004 (9.16) 9.16 0.00 0.00 Effect of Change in Discount Rate 0.00 (25.72) 0.00 0.00 Contributions Paid 9.61 11.02 11.51 12.99 Current Service Cost (6.92) (10.18) (11.59) (14.48) Unfunded Pension Payments 0.00 0.00 0.50 0.53 Past Service Cost 0.00 (0.04) 5.71 (0.16) Settlement Gain 1.20 0.00 0.00 0.00 Curtailment Cost 0.00 (0.03) (0.05) (0.19) Other Finance Income/(Charge) (5.37) (4.11) (4.78) (3.05) Actuarial Gain/(Loss) 18.04 4.43 (1.63) 15.49 Deficit in the Fund at end of period (108.60) (124.07) (124.39) (113.26)
The difference between the expected and actual return on assets, expressed as an amount and a percentage of the scheme assets at 31st March 2007 are shown in the table below:
31 Mar 2004 31 Mar 2005 31 Mar 2006 31 Mar 2007 £'000 £'000 £'000 £'000 Difference Between the Expected and Actual Return on Assets 20,585 2,385 33,578 3,116 Value of Assets 134,825 139,048 193,667 222,042 Percentage of Assets 15% 2% 17.3% 1.4%
The experience gains and losses arising on the scheme liabilities, expressed as an amount and a percentage of the scheme liabilities at 31st March 2007 are detailed in the table below:
31 Mar 2004 31 Mar 2005 31 Mar 2006 31 Mar 2007 £'000 £'000 £'000 £'000 Experience Gains/(Losses) on Liabilities (964) 19,771 0 0 Present Value of Liabilities 234,253 263,116 318,059 335,301 Percentage of the Present Value of Liabilities 07%0 0 Actuarial Gains/Losses Recognised 16,840 4,429 (1,629) 15,489 Present Value of Liabilities 234,253 263,116 318,059 335,301 Percentage of the Present Value of Liabilities 7.0% 1.7% -0.5% 4.6%
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The effects of changes in the demographic and financial assumptions underlying the present value of the scheme liabilities, expressed as an amount and a percentage of the scheme liabilities at 31st March 2007, are shown below
31 Mar 2004 31 Mar 2005 31 Mar 2006 31 Mar 2007 £'000 £'000 £'000 £'000 Effect of the Change in Accounting Methodology N/a (25,717) N/a N/a Present Value of Liabilities N/a 263,116 N/a N/a Percentage of Present Value of Liabilities N/a 9.8% N/a N/a
Changes to the Local Government Pension Scheme
On 4th April 2007, the Department for Communities and Local Government issued regulations for the Local Government Pension Scheme to come into effect from 1st April 2008. Under the regulations, benefits earned after 31st March 2008 will remain final salary benefits but will be payable from 65. Pensions will accrue at 60th with no separate lump sum accrual although scheme members will be able to exchange pension for lump sum benefits.
A number of other benefit changes will also come into force as will variable levels of employee contributions. However, as the new regulations only affect benefits accruing and contributions payable from 1st April 2008, there will be no impact on the FRS17 disclosures for 2006/2007.
39) TEACHERS PENSIONS
The Teachers Pension Scheme is a defined benefit scheme administered by the Teachers Pension Agency. Although the scheme is unfunded, the Agency uses a notional fund as the basis for calculating the employers’ contribution rate paid by local education authorities. However, it is not possible for the authority to identify a share of the underlying liabilities in the scheme attributable to its own employees. The authority is responsible for the costs of any additional benefits awarded upon early retirement outside of the terms of the teachers’ scheme. These benefits have been recognised in the Pensions Liability calculation.
Payments to the TPF are based on percentages of pay detailed in the Teachers Pensions Regulations. In 2006/2007 the Council paid £9,507,000 in contributions, equivalent to 13.5% of total pensionable pay. The Council also paid additional sums in respect of added years awarded to former employees amounting to £365,000.
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40) LANDFILL ALLOWANCES TRADING SCHEME
The Waste and Emissions Trading Act 2003 places a duty on waste disposal authorities to reduce the amount of biodegradable municipal waste (BMW) disposed to landfill. From 1st April 2005 it introduced a trading scheme, which allocates tradeable landfill allowances.
The figures below are shown as current assets and current liabilities in the Balance Sheet. Each year the figures are based on estimated usage for the final quarter of the year. The opening balance has been adjusted to reflect the final position for the previous year.
2005/06 2006/07 Tonnes £'000 Tonnes £'000
0 0 Opening Balance at 1st April 2006 (10,327) (208) Adjustment to opening balance to reflect 00audited final tonnages and value for 2005-06 (619) (2) 0 0 Adjusted opening balance (10,946) (210) (66,028) (1,334) Allowances Received (62,482) (1,196) (2,000) (40) Purchases 0 0 00Sales 00 57,701 1,166 Allowances Used 53,820 1,030 (10,327) (208) Balance at 31st March 2007 (19,608) (376)
The Council has used the average value of all 2006/07 trades nationally to estimate the values of its allowances £19.14 per tonne. DEFRA has recommended that the value should be £17.98 per tonne (based on the average traded value in the 2006/07 financial year). If this latter value had been used then the value at 31 March 2007 would have been £353,000 (rather than £376,000 shown).
41) NET ASSETS EMPLOYED
The analysis of net assets employed over the various funds of the Council is as follows:
31 Mar 2006 31 Mar 2007 £'000 £'000 (256,832) General Fund (260,520) 738 Collection Fund 9 (624,197) Housing Revenue Account (654,837)
(880,291) Total (915,348)
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42) INVESTMENTS IN COMPANIES
This note discloses details of companies to which the Council has appointed directors and who therefore exercise voting rights. The note has been compiled using 2005/2006 audited information, (with the exception of Countec and Woughton Leisure Trust, who have yet to file 2005/2006 information):
a. COUNTEC Ltd
During 2004/05, Milton Keynes Council had a 17% representation (two members appointed by the Council) on the Board of Directors of COUNTEC Ltd, which is a company limited by guarantee and not having share capital. At 31 March 2005 the company’s net assets were £90,906 (£125,795 at 31 March 2004), and the net deficit for 2004/2005 was £34,889, (deficit of £23,914 reported for 2003/2004).
The company is principally engaged in the strategic development of education and the promotion of economic development in Milton Keynes and North Buckinghamshire through the organisation of link activities between education and business establishments.
b. Milton Keynes Theatre and Gallery Ltd
Milton Keynes Council has 10% representation (one member appointed by the Council) on the Board of Directors of Milton Keynes Theatre and Gallery Ltd, which is a company limited by guarantee and not having share capital. At 31 March 2006 the company’s net assets were £938,017 (£666,263 at 31 March 2005), and the surplus for 2005/2006 was £109,045 (£111,285 reported for 2004/2005).
The company was set up to take on the leasehold, management and operation of Milton Keynes Theatre and Gallery. The Theatre and Gallery were built by Milton Keynes Council with the assistance of funding from the National Lottery through the Arts Council of England and the Commission for New Towns.
c. Artworks MK Ltd
Milton Keynes Council has no longer has any representation on the Board of Directors of Artworks MK Ltd, which is a company limited by guarantee and not having share capital. At 31 March 2006 the company’s net assets were £62,456 (£52,488 at 31 March 2005), and the surplus for 2005/2006 was £10,008 (deficit of £64,391 reported for 2004/2005).
The company works in partnership with the Council to deliver citywide strategies, such as the Arts Strategy. The Arts Workshop Trust
98 NOTES TO CORE FINANCIAL STATEMENTS
promotes community-based projects and classes in visual arts and crafts at three local arts centres. d. Milton Keynes Parks Trust Ltd
Milton Keynes Council has 16% representation (three members appointed by the Council) on the Board of Directors of Milton Keynes Parks Trust Ltd, which is a company limited by guarantee and not having share capital. At 31 March 2005 the company’s net assets were £72,891,642 (£63,802,150 at 31 March 2005), and the surplus for 2005/2006 was £213,650 (£81,577 reported for 2004/2005).
The company is responsible for the management and maintenance of the major woodlands and parkways of the city of Milton Keynes for the benefit of the inhabitants and visitors to the area. e. MOBEBLO Ltd
Milton Keynes Council has 8% representation (one member appointed by the Council) on the Board of Directors of MOBEBLO Ltd, which is a company limited by guarantee and not having share capital. At 31 March 2006 the company’s net assets were £4,795 (nil at 31 March 2005), and the surplus for 2005/2006 was £4,795 (nil reported for 2005/2006).
MOBEBLO is the Milton Keynes, Oxfordshire and Buckinghamshire Education Business Links Organisation, and it acts as the interface between the Learning and Skills Council and the Education Business Link Organisations through a collaborative consortium framework to enable education business activities to be sustained and developed throughout the above area. The three local authorities jointly own the company. f. Milton Keynes Energy Agency Ltd
Milton Keynes Council has 22% representation (one member and one officer appointed by the Council) on the Board of Directors of Milton Keynes Energy Agency Ltd, which is a company limited by guarantee and not having share capital. At 31 March 2006 the company’s net assets were £201,908 (£150,648 at 31 March 2005), and the surplus for 2005/2006 was £51,260 (deficit of £12,888 reported for 2005/2006).
The principal objective of the company is to educate the public at home and in the workplace towards more efficient and effective use of energy by providing advice and administering practical projects that will lead to a reduction in energy use, reduction of pollution and protection of the environment.
99 NOTES TO CORE FINANCIAL STATEMENTS g. Connexions Partnership Milton Keynes, Oxfordshire and Buckinghamshire Ltd
Milton Keynes Council has 14% representation (one officer and one Member appointed by the Council) on the Board of Directors of Connexions Partnership Milton Keynes, Oxfordshire and Buckinghamshire Ltd, which is a company limited by guarantee and not having share capital. Milton Keynes Council is one of five members of the company holding one vote out of six. At 31 March 2006 the company’s net assets were nil (nil at 31 March 2005) and the surplus for 2005/2006 was nil (surplus of nil reported for 2004/2005).
The Connexions Partnership provides a co-ordinated support service for all young people (aged 13-19 years) within the Milton Keynes, Oxfordshire and Buckinghamshire areas that assists them to maximise their potential. At 31 March 2006 Careers Management Ltd, CFBT Advice and Guidance Ltd and the three councils jointly owned the company. h. MK Business Venture Ltd
Milton Keynes Council has 50% representation (one officer appointed by the Council) on the Board of Directors of MK Business Venture Ltd which is a company limited by guarantee and not having share capital. At 31 March 2006 the company’s net assets were £54,319 (£50,636 at 31 March 2005) and the surplus for 2005/2006 was £3,683 (surplus of nil reported for 2004/2005).
The company is wholly owned by the Milton Keynes and North Buckinghamshire Chamber of Commerce. It is a dormant company whose sole activity is to own its subsidiary MKBV Trading Ltd (see paragraph (i) below). i. MKBV Trading Ltd
Milton Keynes Council has 50% representation (one officer appointed by the Council) on the Board of Directors of MKBV Trading Ltd which is a company limited by guarantee and not having share capital. At 31 March 2006 the company’s net liabilities were £80,822 (£45,249 at 31 March 2005) and the deficit for 2005/2006 was £35,573 (deficit of £24,798 reported for 2004/2005).
The company is wholly owned by MK Business Venture Ltd which itself is wholly owned by the Milton Keynes and North Buckinghamshire Chamber of Commerce. The company’s primary purpose is to run managed premises at Kiln Farm for micro businesses.
100 NOTES TO CORE FINANCIAL STATEMENTS j. MK Web Ltd
Milton Keynes Council has 33% representation (one Member appointed by the Council) on the Board of Directors of MK Web Ltd. The company has share capital of £100 and is jointly owned by the Council (20%) and Apollo Digital Media Ltd (80%). At 31 March 2006 the company’s net assets were £23,137 (£8,872 at 31 March 2005).
The company operates a community web site in Milton Keynes to assist local organisations, including the Council, to promote their services and Milton Keynes as a business and lifestyle destination. Income to the company from the Council comprises less than half of its turnover. k. Inter-Action Ltd
Milton Keynes Council has no representation on the Board of Directors of Inter-Action Ltd which is a company limited by guarantee and not having share capital. At 31 March 2006 the company’s net assets were £115,445 (£109,254 at 31 March 2005) and the surplus for 2005/2006 was £6,191 (£29,108 deficit reported for 2004/2005).
The company provides a city farm facility, a community cultural garden and facilities for other voluntary sector organisations. l. Milton Keynes and North Buckinghamshire Company Ltd
Milton Keynes Council has 13% representation (one member appointed by the Council) on the Board of Directors of Milton Keynes and North Buckinghamshire Company Ltd which is a company limited by guarantee and not having share capital. At 31 March 2006 the company’s net assets were £38,045 (£34,145 as at 31st March 2005) and the surplus for 2005/2006 was reported at £3,900 (deficit of £15,221 in 2004/2005).
The company is responsible for the financial and legal administration of the Milton Keynes Economy and Learning Partnership. Its major focus is the long-term growth of Milton Keynes. m. Shenley Leisure Centre Trust Ltd
Milton Keynes Council has 17% representation (two members appointed by the Council) on the Board of Directors of Shenley Leisure Centre Trust Ltd which is a company limited by guarantee and not having share capital. At 31 March 2006 the company’s net assets were reported to be £851,159 (£773,972 for 2004/2005) and the surplus for 2005/2006 was reported at £77,187 (£127,980 for 2004/2005).
The principal activity of the company is the provision of leisure, sports and recreation activities at the Shenley Leisure Centre.
101 NOTES TO CORE FINANCIAL STATEMENTS
n. Wolverton and Watling Way Pools Leisure Trust Ltd
Milton Keynes Council has no representation on the Board of Directors of Wolverton and Watling Way Pools Leisure Trust Ltd which is a company limited by guarantee and not having share capital. At 31 March 2006 the company’s net assets were £13,852 (£7,846 for 2004/2005) and the surplus for 2005/2006 was £6,006 (£19,759 deficit in 2004/2005).
The company is a charity and exists to provide leisure and recreational services in Milton Keynes and the surrounding area, to which end it operates two swimming pools. o. Woughton Leisure Trust (MK) Ltd
During 2004/05, Milton Keynes Council had an 18% representation (two members appointed by the Council) on the Board of Directors of Woughton Leisure Trust (MK) Ltd which is a company limited by guarantee and not having share capital. At 31 March 2005 the company’s net assets were £229,020 (£185,414 for 2003/2004) and the surplus for 2004/2005 was reported at £29,914 (deficit of £8,849 in 2003/2004).
The company is a charity which aims to provide or assist in the provision in Milton Keynes and surrounding areas of facilities for recreation and other leisure time occupation to the public at large in the interests of social welfare, special facilities being provided to the young, the aged, the infirm and the disabled at the Directors’ discretion. p. Central Milton Keynes Company Ltd
Milton Keynes Council has 20% representation (one Member appointed by the Council) on the Board of Directors of the Central Milton Keynes Company Ltd, which is a company limited by guarantee and not having share capital. The company’s net assets as at 31st March 2006 were £102,165 (£58,353 for 2003/2004).
The purpose of the company is to work for the development and regeneration of the town centre and surrounding areas as a safe and welcoming environment for all. q. National Hockey Foundation
Milton Keynes Council has 11% representation (one Member appointed by the Council) on the Board of Directors of the National Hockey Foundation, which is a charitable company, limited by guarantee. The company’s net assets as at 31st March 2006 were £8,316,750 (£8,345,048 for 2004/2005) and the deficit reported for 2005/2006 was £11,602 (deficit of £45,267 for 2004/2005).
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The purpose of the company is the provision of facilities which will enable young people in the UK to play hockey or other games and sports. r. Milton Keynes Play Association
Milton Keynes Council has a 25% representation on the Board of Directors of the Milton Keynes Play Association, which is a company limited by guarantee and a registered charity. The company’s net assets as at 31st March 2006 were £78,228 (£69,135 in 2004/2005) and the surplus reported for 2005/2006 was £10,093 (£25,231 in 2004/2005).
The aim of the association is to educate children and young people, resident within Milton Keynes and surrounding areas, through the provision of facilities for recreation and other leisure time occupation. s. Board Representation
The table below summarises the Board representation of Milton Keynes Council for each of the companies listed above:
Representation on Company Board of Directors % Countec Ltd 17 MK Theatre & Gallery Company 10 Artworks MK Ltd 0 MK Parks Trust Ltd 16 MOBEBLO Ltd 8 MK Energy Agency 22 Connexions Partnership Ltd 14 MK Business Venture Ltd 50 MKBV Trading 50 MK Web Ltd 33 InterAction Ltd 0 MK & North Bucks Partnership 13 Shenley Leisure 17 Wolverton and Watling Way Pools 0 Woughton 18 Central Milton Keynes Company 20 National Hockey Foundation 11 MK Play Association 25
103 NOTES TO CORE FINANCIAL STATEMENTS
Copies of the published accounts for each of the above organisations can be made available on request. Please contact the Strategic Finance Department, Milton Keynes Council and a copy will be made available as soon as the respective accounts are published.
t. Other Companies
The Council has identified a further 24 organisations to which Councillors, 19 in total, have been appointed where the actual form of the entity concerned takes the form of a company and where the Councillors concerned may be involved in decision-making by the controlling body, ie the Board of Directors. The actual nature of the Councillors’ appointment has not yet been fully established and no accounts have been received from these companies. In all cases these companies are recorded at Companies House as companies limited by guarantee and not having share capital. Essentially these appointments are made in response to requests from the organisations concerned because of some common purpose or activity in relation to the Council’s own diverse activities, not to oversee any Council financial investment. Related party transactions with these companies have been considered by the Council and are in no instance considered to be material.
Financial transactions between the Council and all of the above companies scheduled in paragraphs a) to u) inclusive have been included in the figures for Related Parties’ Transactions in note 11 to the Core Financial Statements.
43) POST BALANCE SHEET EVENT
There is currently an ongoing investigation into the design and construction of Giles Brook Primary School on Tattenhoe Park. Whilst the investigations are not yet complete, it is clear that as a minimum, significant remedial works are required to make the school inhabitable again.
In late September, an updated estimate of potential costs was calculated by the Council. Together with the costs of temporary arrangements to enable the school to continue operating, it is anticipated that the final costs could total as much as £3m, part of which will be a charge on the revenue accounts while the remainder will be funded from capital. Within the accounts as presented, a revenue reserve of £750,000 has been set aside (see note 33t to the Core Financial Statements on page 87). Recovery of the total additional costs to make the school fit for purpose will be pursued within the framework of contracts that exist for the project, however it could take several years before the issue is resolved.
104 NOTES TO CORE FINANCIAL STATEMENTS
44) RECONCILIATION OF REVENUE NET SURPLUS TO NET REVENUE CASHFLOW
2005/06 2006/07 £'000 £'000 (Surplus)/Deficit for year: (4,967) General Fund (2,399) (193) Collection Fund (855) 973 Housing Revenue Account 164 (4,187) (3,090) Non-Cash items: (3,663) Minimum Revenue Provision (4,942) (221) Amortised Premiums/(Discounts) (211) (778) Provisions set aside in year (498) 5,956 Net Contributions from Reserves 1,312 1,294 (4,339) Items on an Accruals basis: (94) Increase/(Decrease) in Stocks and Work in Progress (150) 3,871 Increase/(Decrease) in Debtors (6,162) (16,036) (Increase)/Decrease in Creditors (8,388) (12,259) (14,700)
(7,452) Net Interest Payments shown in Servicing of Finance (8,754)
(22,604) Net Cash inflow from Revenue activities (30,883)
45) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2005/06 2006/07 £'000 £'000
3,106 Increase/(Decrease) in Cash in the Year (1,614) (85,000) Less - Cash inflow from new debt (15,000) 197 Add Cash outflow from redemption of debt 130 (81,697) Changes in net debt (16,484) (192,665) Net debt at start of the year (274,362) (274,362) Net debt at the end of the year (290,846)
105 NOTES TO CORE FINANCIAL STATEMENTS
46) MOVEMENTS IN FINANCING AND MANAGEMENT OF LIQUID RESOURCES
Liquid resources are current asset investments held as readily disposable stores of value, i.e. disposable without curtailing or disrupting an authority’s activities, and either readily convertible into known amounts of cash at close to its carrying amount, or traded in an active market.
The Council holds the following liquid resources:
Balance Balance Movement 31 Mar 2006 31 Mar 2007 In Year £'000 £'000 £'000
Long Term Borrowing: Public Works Loan Board 251,204 266,204 15,000 Bonds 15,000 15,000 0 Total Long Term Borrowing 266,204 281,204 15,000
Deferred Liabilities (169) (39) 130 Short Term Borrowing 0 0 0 Movement in Financing 266,035 281,165 15,130
Short Term Investments 98,450 99,205 755 Movement in Management of Liquid Resources 98,450 99,205 755
47) ANALYSIS OF NET DEBT
Balance Balance Movement 31 Mar 2006 31 Mar 2007 In Year £'000 £'000 £'000
Bank Overdraft (9,468) (10,510) (1,042) Long Term Borrowing (266,204) (281,204) (15,000) Deferred Liabilities (169) (39) 130 Short Term Borrowing 0 0 0 Cash in Hand 1,479 907 (572) (274,362) (290,846) (16,484)
106 NOTES TO CORE FINANCIAL STATEMENTS
48) ADJUSTMENT TO THE CASH FLOW STATEMENT PRESENTATION
A new line has been added to the Cash Flow Statement to enable specific disclosure of net receipts in respect of the adjustment of prior year contributions to the National Pool. The 2005/06 comparative now disclosed against this line was previously included within Other Operating Cash Receipts.
107 NOTES TO CORE FINANCIAL STATEMENTS
49) ANALYSIS OF OTHER GOVERNMENT GRANTS
£'000 £'000 Access & Systems Capacity (1,732) Neighbourhood Wardens/Street Crime (37) Aids Support Grant (78) Offenders Learning & Skills Service (5) Bletchley Single Regeneration Budget (82) Outreach Worker Grant (15) Broadband Grants (30) Personal Community Development Learning (1,483) capacity Building Grant (193) Planning Delivery Grant (466) Carers Grant (663) Positive Activities for Young People (479) Change Fund (13) Post-16 Student Support (12) Childcare Grant (2,742) Preserved Rights (355) Children's Fund (506) Preventative Technologies Grant (94) Children's Services Grant - Encom (670) Rural Bus Challenge Grant (37) Commissioning - Mental Health Capacity Grant (23) Rural Bus Subsidy Grant (120) Contaminated Land Schemes (1) Safer & Stronger Communities Fund (427) CSCI Reimbursement Grant (3) SC Training (570) Dedicated Schools Grant (128,460) School Development Grant (4) Delayed Discharges (311) School Workforce Developments (124) DFT Grant A428 Detrunking (56) Schools Standards Grant (5,953) Discretionary Housing Payment (48) SDG - Study Support National (106) Drug Action Team Development Grant (60) Smoke free Implementation (20) Ethnic Minorities Innovation Fund (22) Social Enterprise (30) Heritage Economic Regeneration Scheme (29) Standards Fund, Formula Capital & Other Schools Grants (23,722) Higher Level Teaching Assistant Grant (51) Supporting People (5,385) Homelessness Grant (200) Sure start Grant (563) Information Sharing IS11 (72) Targetted Weeks of Action Grant (20) Learning & Skills Council Grant (13,160) Teenage Pregnancy (140) Library Peer Review (36) Throughcare/Aftercare Grant (186) LPSA2 Grant (625) Townscape Heritage Initiative (62) LSA Young Apprenticeship Scheme (92) Transitional Grant (164) Mental Health Grant (459) Unaccompanied Asylum Seeking Children (325) Mental Health Grant (CAMHS) - Children (358) Waste Performance and Efficiency Grant (236) Milk Subsidy (9) Young Peoples Substance Misuse Grant (283) Millennium Volunteers (116) Youth Opportunities Fund (209) Grand Total (192,532)
108 SUPPLEMENTARY FINANCIAL STATEMENTS
The Housing Revenue Account deals with the provision and maintenance of council houses and flats. There is a statutory requirement to keep this account separate from those of other Council activities.
Revenue Account and supporting notes 1. HOUSING REVENUE ACCOUNT INCOME AND EXPENDITURE ACCOUNT
2005/06 2006/07 £'000 £'000 Income (42,519) Dwelling Rents (42,489) (1,404) Non Dwelling Rents (1,373) (765) Charges for Services and Facilities - Tenants (801) (547) - Leaseholders (571) 0 Housing Revenue Account subsidy receivable 0 (141) Contributions Towards Expenditure (123) (45,376) Total Income (45,357)
Expenditure 8,437 Repairs and Maintenance 10,921 8,353 Supervision and Management 7,730 2,166 Special Services 2,512 261 Rents, Rates, Taxes and Other Charges 326 5,657 Negative housing revenue account subsidy payable 7,249 10 4,693 Rent Rebate Subsidy Limitation transferred to General Fund 3,151 12 8,311 Depreciation - Dwellings 8,409 9 249 - All Other HRA Assets 286 9 (44) Government Grants Deferred Amortisation (17) 168 Amortisation of Deferred Charges/Intangible Assets (17) 13 61 Debt Management Expenses 38 271 Increased Provision for Bad and Doubtful Debts 365 38,583 Total Expenditure 40,953
(6,793) Net Cost of HRA Services per Income and Expenditure Account (4,404)
0 HRA services share of Corporate and Democratic Core 0 HRA share of other amounts included in the whole authority Net Costs 0 of services but not allocated to specific services 0 (6,793) Net Costs of HRA Services (4,404)
7,605 (Gain) or loss on sale of HRA Fixed Assets 6,243 4,297 Interest payable and Similar charges 4,129 8 138 Amortised Premiums and Discounts 126 (564) Interest and Investment Income (674) 182 Pensions interest costs and expected return on pension assets (FRS17) 109
4,865 Deficit for the Year 5,529
109 SUPPLEMENTARY FINANCIAL STATEMENTS
2. STATEMENT OF MOVEMENT ON THE HOUSING REVENUE ACCOUNT BALANCE
The Statement of Movement on the Housing Revenue Account Balance shows how the Housing Revenue Account Income and Expenditure Account surplus for the year reconciles to the movement on the Housing Revenue Account Balance for the year.
(Surplus) or deficit for the year on the HRA Income and Expenditure 4,865 Account 5,529
Net additional amount required by statue to be debited or (credited) to the (3,892) HRA Balance for the year (5,365)
973 (Increase) or decrease in the Housing Revenue Account Balance 164
(6,348) Housing Revenue Account surplus brought forward (5,375) (5,375) Housing Revenue Account surplus carried forward (5,211)
3. NOTE TO THE STATEMENT OF MOVEMENT ON THE HOUSING REVENUE ACCOUNT BALANCE
Items included in the HRA income and Expenditure account but excluded from the movement on HRA Balance for the year
Difference between amounts charged to income and expenditure for amortisation of premiums and discounts and the charge for the year 0 determined in accordance with statute. 0 44 Government Grants Deferred Amortisation 17 (168) Amortisation of Deferred Charges/Intangible Assets 17 13 (7,605) Gain or loss on sale of HRA fixed assets (6,243) (409) Net Charges made for retirement benefits in accordance with FRS17 (637) (8,138) (6,846) Items not included in the HRA income and Expenditure account but included in the movement on HRA Balance for the year (862) Transfer to/ (from) Major Repairs Reserve (1,145) 5 0 Transfers to/(from) Housing Repairs Account 0 Employer's contributions payable to the Pension Fund and Retirement 440 benefits payable direct to pensioners 463 0 Voluntary set aside for debt repayment 0 4,668 Capital Expenditure funded by the HRA 2,163 4,246 1,481
(3,892) Net Movement on the HRA Balance (5,365)
110 SUPPLEMENTARY FINANCIAL STATEMENTS
4. HOUSING STOCK
At 31st March 2007, the Council was responsible for managing a housing stock of 12,735 dwellings of which 1,029 is the Council’s portion of shared ownership dwellings and 43 are dwellings in multiple-occupation. During the year 134 properties were sold to tenants. This includes part-sales of shared ownership dwellings. During the year there was a transfer of two main stock units to dwellings in multiple occupation. The analysis of the remaining stock is as follows:
Houses Flats Total Houses No. of Built Houses 1 Bedroom 1,476 2,452 3,928 Pre - 1919 55 2 Bedrooms 1,830 869 2,699 1919 - 1944 355 3 or more Bedrooms 4,845 191 5,036 1945 - 1964 1,518 Post - 1964 6,223 Total 8,151 3,512 11,663 8,151
5. ASSET VALUES
The Balance Sheet values of the assets held within the Housing Revenue Account are as follows:
31 March 2006 1 April 2006 31 March 2007 £'000 £'000 £'000 Operational Assets Dwellings 680,322 652,802 700,444 Other Land and Buildings 8,606 8,606 8,370 Non-operational Assets 6,545 6,545 6,545 695,473 667,953 715,359
The difference between Operational Asset valuations at 31st March and 1st April 2006 is due to the re-valuation of assets on 1st April each year.
The increase of £47,406,000 between 1st April 2006 and 31st March 2007 is due to increases in house prices, partially offset by sales during 2006/2007.
As at 1st April 2006, the vacant possession value of the Council’s dwellings is estimated at £1,470,000,000, compared with the Balance Sheet value of £652,802,000 shown above. This variance reflects the economic cost to the Government of providing council housing at less than market value.
No assets have fallen in value as a result of impairment.
111 SUPPLEMENTARY FINANCIAL STATEMENTS
6. MAJOR REPAIRS RESERVE
Authorities are required by regulation to establish and maintain a Major Repairs Reserve. The main credit to the account comprises the total depreciation charge for all Housing Revenue Account assets. Capital spending on Housing Revenue Account assets is then funded from the reserve without being charged to the Housing Revenue Account.
£'000 Opening Balance at 1 April 2006 0 Depreciation - Dwellings (8,409) Depreciation - Non-Dwellings (286) Capital Expenditure 7,550 Reversal of Depreciation in excess of Major Repairs Allowance 1,145 Balance Carried Forward at 31 March 2007 0
The Council reverses out of the account any depreciation charged in excess of the Government’s Major Repairs Allowance (MRA) in accordance with DCLG requirements.
The Depreciation charged to the account (Dwellings and Non-Dwellings) less the MRA of £7,550,000 equals the Reversal of Depreciation figure of £1,145,000 shown in the account.
7. CAPITAL SPENDING
Total capital spending within the Housing Revenue Account and its funding in 2006/2007 is shown in the table below.
£'000 Capital Spending - Dwellings 11,577 - Other HRA Assets 133 11,710
Funded By - Usable Capital Receipts 776 - Supported Borrowing 1,204 - Major Repairs Allowance 7,550 - Third Party Contributions 17 - Revenue Contributions 2,163 11,710
112 SUPPLEMENTARY FINANCIAL STATEMENTS
8. CAPITAL RECEIPTS
The following capital receipts were received during 2006/2007:
£'000 Sales of Dwellings*: Council Houses 3,876 Shared Ownership 127 Recovered Discount 171 Mortgage Receipts 45 Release of Covenants 12 Disposal of other Interests in Housing Land 4 HRA Receipts in Year 4,235 Less: Statutory Pooling (3,334) Total HRA Useable Receipts in year 901
∗Sales of dwellings are shown net of administrative costs and clawback.
9. COST OF CAPITAL CHARGE
The Department for Communities and Local Government determines the basis for capital charges between the General Fund and the Housing Revenue Account, through a statutory determination issued annually. The charges are known as the Item 8 Debit (Charges from the General Fund to the Housing Revenue Account) and the Item 8 Credit (Charges from the General Fund to the Housing Revenue Account).
One component of the Item 8 debit is the capital asset charges accounting adjustment. This is calculated as the Housing Revenue Account contribution to interest costs on debt, less the aggregate cost of impairment charges in respect of land, houses or other property within the Housing Revenue Account and any deferred charges attributable to the Housing Revenue Account.
In 2006/2007, the Housing Revenue Account contribution to interest on debt was £4.103m, impairment charges were nil, deferred charges were £0.013m, and the capital asset charges accounting adjustment was therefore £4.090m.
113 SUPPLEMENTARY FINANCIAL STATEMENTS
10. DEPRECIATION
The total charge for depreciation within the Housing Revenue Account for 2006/2007 is made up as follows:
£'000 Operational Assets Dwellings 8,409 Other Land & Buildings 286 Gross Balance Sheet Value 8,695
The charge for depreciation on dwellings has been calculated using a remaining life of 45 years from 1st April 2006. This is the average number of years based on the estimated life of each asset from completion date.
Other operational buildings are depreciated over their useful life, based on 60 years from completion date.
11. GOVERNMENT SUBSIDY
Housing Revenue Account negative subsidy payable to the Government for the financial year, in accordance with the elements set out in the Government’s Determination of Housing Revenue Account Subsidy for the year, was as follows:
£'000 Management and Maintenance (17,593) Charges for Capital (4,727) Rental Constraint Allowance (27) Interest on Receipts 10 Guideline Rent Income 37,136 HRA Negative Subsidy Entitlement for year 14,799 Major Repairs Allowance (7,550) Total HRA Negative Subsidy Payable in Year 7,249
The total negative subsidy charged within the HRA of £14,799,000 is partially offset by the Government’s Major Repairs Allowance of £7,550,000, used in the funding of capital expenditure.
114 SUPPLEMENTARY FINANCIAL STATEMENTS
12. RENT ARREARS
The total rent income for the year, after allowance is made for voids, is known as Gross Rent Income. The loss of income as a result of voids was £1,340,000 (£1,225,000 2005/2006). At 31st March 2007, 1.33% of properties available to let were vacant (1.18% at 31st March 2006).
Rents are expressed in terms of a 50-week year and were increased from 1st April 2006 by 1.4%. The average weekly rent at the end of 2006/2007 was £67.42, (£66.60 2005/2006).
The Housing Revenue Account shows rent income and other miscellaneous charges (for example service charges). Arrears of all charges at 31st March 2007 amounted to £3,146,000 (£3,395,000 at 31st March 2006). During the year ending 31st March 2007 arrears of £725,000 were written off as irrecoverable, which includes rent debt written off amounting to £581,000.
The Council has made a total provision against all housing-related debts of £1,504,000. This figure includes a provision against rent arrears, using the formula suggested by the Department for Communities and Local Government, in the sum of £1,292,000.
13. SUBSIDY LIMITATION TRANSFER TO GENERAL FUND
Rent rebates are available under the Housing Benefit scheme for those on low incomes. 60.47% of the Council’s tenants receive some help with the cost of their rent.
From 1st April 2004, the responsibility for carrying the cost of Housing Benefit passed to the General Fund in accordance with legislative changes. The Housing Revenue Account now only bears the cost of rent rebate subsidy limitation, which is the cost of rent rebates payable on rents above the Government’s guideline rent level. In 2006/2007 this cost was £3,151,000.
115 SUPPLEMENTARY FINANCIAL STATEMENTS
14. DEFERRED CHARGES AND INTANGIBLE FIXED ASSETS
Deferred charges are created when expenditure has been incurred on items that are not capitalised as fixed assets, but have been financed from capital resources. Deferred charges are amortised in full in the year in which the expenditure has been incurred. In 2006/2007, deferred charges of £13,000 were written down to the Housing Revenue Account in respect of grants to the Housing Forum.
Intangible Fixed Assets comprise of purchased software licences and custom built software prepared for use for a period of a least one year and amortised over their useful economic lives. The credit balance of £30,000 has arisen due to an adjustment required to the 2005/06 amortisation of intangible assets.
15. TRANSFER TO PENSIONS RESERVE
The transfer to the Pensions Reserve in respect of the Housing Revenue Account is £174,000. Details of the background to, and reasons for this adjustment, may be found in Note 18 to the Statement of Accounting Policies, and Note 38 to the Core Financial Statements.
Collection Fund and supporting notes
116 SUPPLEMENTARY FINANCIAL STATEMENTS
16. COLLECTION FUND
This account reflects the statutory requirement of the Council, as a billing authority, to maintain a separate Collection Fund showing the transactions in respect of Council Tax and Non-Domestic Rate collection.
2005/06 2006/07 £'000 £'000
Expenditure Precepts: 9,384 Thames Valley Police Authority 10,150 3,546 Bucks & Milton Keynes Fire Authority 3,845 74,162 Milton Keynes Council 78,831 87,092 92,826 Contributions: 0 TVPA Share of Surplus 0 0 Fire Authority Share of Surplus 0 0 MKC Share of Surplus 0 0 0 Business Rates: 108,757 NNDR Payment to National Pool 123,467 371 Cost of Collecting Business Rates 374 336 Interest on NNDR Payments 130 109,464 123,971
613 Council Tax Bad Debt Provision 869
197,169 217,666
Income Council Tax due in year: (77,242) Net Income (82,550) (10,198) Benefits (11,302) 2 Transitional Relief 2 (50) TVPA Share Estimated Deficit (75) (19) Fire Authority Share of Estimated Deficit (29) (391) MKC Share of Estimated Deficit (596) (87,898) (94,550)
(109,464) Income from Business Ratepayers (123,971)
0 Community Charge Adjustments 0
(197,362) (218,521)
(193) Net (Surplus)/Deficit for the year (855)
117 SUPPLEMENTARY FINANCIAL STATEMENTS
17. COLLECTION FUND BALANCE
2005/06 2006/07 Note £'000 £'000
1,059 Balance brought forward at 1 April 2006 866
(193) (Surplus)/Deficit for the year (855)
866 Balance carried forward at 31 March 2007 11 20
18. RATEABLE VALUE
The total rateable value of business property at 31st March 2007 was £327,983,284 (£326,054,854 2005/06) and the rate multiplier applied in 2005/2006 was £0.433 (£0.422 2005/06) with a new reduced multiplier of £0.426 for those businesses receiving Small Business Relief (£0.415 in 2005/06).
19. TAX BASE
The Council Tax base for 2006/2007, i.e. the number of chargeable dwellings in each band (adjusted for dwellings where discounts apply) converted to an equivalent number of Band D dwellings, was calculated as follows:
Estimated No. of Ratio to Band D Taxable Properties Band D Equivalent after discounts/exemptions 23.75 A- 5/9 13.20 11978 A 6/9 7,985.30 21691.25 B 7/9 16,871.10 22576.5 C 8/9 20,068.00 10204 D 9/9 10,204.00 8491.25 E 11/9 10,378.00 4362 F 13/9 6,300.70 2419.75 G 15/9 4,032.90 94.5 H 18/9 189.00 76,042.20
Anticipated changes during the year 1,250.00 Provision for non-collection (1.3%) (1,008.35) Reductions for Discounts 273.48
Council Tax Base 76,557.33
118 SUPPLEMENTARY FINANCIAL STATEMENTS
20. COLLECTION FUND BALANCE APPORTIONMENT
The Collection Fund is a statutory Fund in which the Council records transactions for Council Tax, Business Rates and residual Community Charges. The balance on the Fund is available for financing the expenditure of the Council and the Police and Fire Authorities. In 2006/07 however the Fund is in deficit. This will be recoverable from:
2006/07 2006/07 £'000 £'000 738 Milton Keynes Council 9 93 Thames Valley Police Authority 1 35 Buckinghamshire and Milton Keynes Fire Authority 1
866 11
A Collection Fund deficit of £100,000 for 2006/07 had been estimated when the 2007/2008 Council Tax was set. The final outturn as above, was £11,000, leaving the balance of £89,000 to be a contribution to the Collection Fund in 2007/08.
21. WRITE OFFS
Council Tax debt of £544,000 was written off in 2006/07 (£574,000 2005/06).
119 GLOSSARY
Glossary Accruals Capital Financing Account
Sums included in the final accounts of The Capital Financing Account contains the Council to cover income or the amounts which are required by expenditure attributable to the statute to be set aside from capital accounting period for which payment receipts and revenue for the repayment has not been received/made in the of external loans, as well as amounts of financial year. revenue, usable capital receipts and contributions which have been used to Local authorities accrue for both fund capital expenditure together with revenue and capital expenditure. certain other capital transactions.
Asset Management Revenue Account Capital Receipts
Until 31st March 2006, the Council was The proceeds from the sale of fixed required to maintain an account under assets such as land and buildings. capital accounting arrangements. It contained the credit for capital charges Capital receipts can be used to repay and government grants deferred any outstanding debt on fixed assets or, contributions, offset by charges for to finance new capital expenditure, depreciation and external interest within rules set down by government. payments. Capital receipts cannot, however, be Capital Charges used to finance revenue expenditure.
A charge for the use of fixed assets in Chartered Institute of Public Finance the provision of services. The charge and Accountancy (CIPFA) comprises depreciation plus notional interest. The professional accountancy body concerned with local authorities and the Capital Expenditure public sector.
Spending that produces or enhances an Collection Fund asset, like land, buildings, vehicles, plant and machinery. The Collection Fund is a statutory fund set up under the provisions of the Local Definitions are set out in Section 40 of Government Finance Act 1988. It the Local Government and Housing Act includes the transactions of the charging 1989. Any expenditure that does not fall Authority in relation to Non-Domestic within the definition must be charged to Rates and Council Tax and illustrates a revenue account. the way in which the fund balance is distributed to preceptors and the General Fund.
120 GLOSSARY
Contingent Liabilities/Gains Financial Reporting Standard (FRS)
Potential losses/gains for which a future A statement of accounting practice event will establish whether a issued by the Accounting Standards liability/gain exists and for which it is Board. inappropriate to set up a provision in the accounts. Fixed Assets
Deferred Credits Tangible asset that yields benefits to the Council and the services it provides for This is the term applied to deferred a period of more than one year. capital receipts. Fixed Asset Restatement Account These transactions arise when fixed assets are sold and the amounts owed A reserve created as a result of the by the purchasers are repaid over a current capital accounting regulations number of years, such as mortgages. that enables assets to be shown in the The balance is reduced by the principal account at current values. amount repayable in any financial year. Housing Revenue Account Deferred Grants The account of revenue expenditure Amounts received or receivable that and income relating to the Council’s have been used to finance capital own housing stock. expenditure. Under the capital accounting arrangements these Infrastructure Assets amounts will be released to offset depreciation in respect of the fixed Expenditure on works of construction or assets to which they relate. improvement but which have no tangible value, such as construction of, or Depreciation improvement to highways.
The measure of the wearing out, Intangible Assets consumption or other reduction in the useful life of a fixed asset. Expenditure of a capital nature where no tangible asset is created such as housing Earmarked Reserves renovation grants or computer software.
These are reserves set aside for a Investments specific purpose or a particular service, or type of expenditure. Deposits for less than one year with approved institutions. Finance Leases Long Term Debtors Arrangement whereby the lessee is treated as owner of the leased asset Amounts due to the Council more than and is required to include such assets one year after the balance sheet date. within fixed assets on the balance sheet.
121 GLOSSARY
Major Repairs Allowance Operational Leases
The estimated average annual cost of An arrangement whereby the risks and maintaining the condition of the rewards of ownership of the leased Council’s housing stock over a 30 year asset remain with the leasing company. period based on each authority’s mix of dwelling types Pension Fund
Minimum Revenue Provision An employees’ pension fund maintained by an authority, or a group of The minimum amount that may be set authorities, in order primarily to make aside for the repayment of debt. The pension payments on retirement of statutory figure is usually shown in a participants. It is financed from council’s accounts by means of an contributions from the employing adjustment to depreciation. authority, the employee and investment income. National Non-Domestic Rate (NNDR) Precepting Authorities Under the revised arrangements for uniform business rates, that came into Those authorities that are not billing effect on 1 April 1990, the Council authorities (i.e. do not collect Council collects Non-Domestic Rates for its area Tax) precept upon the billing authority, based on local rateable values, who then collect on their behalf - multiplied by a national uniform rate. Thames Valley Police Authority, Buckinghamshire & Milton Keynes Fire The total amount, less certain reliefs and Authority and the Parishes that precept deductions, is paid to a central pool upon Milton Keynes Council. managed by the Government, that in turn, pays back to Authorities their share Provisions of the pool based on a standard amount per head of the local adult population. Sums set aside to meet future expenditure where a specific liability is Non-Operational Assets known to exist but that cannot be measured accurately. Fixed assets held by the Council but not directly used or consumed in the Revenue Support Grant delivery of its services. This would include surplus properties awaiting This funding is the Government Grant disposal. provided by the Office for the Deputy Prime Minister (ODPM) that is based on Operational Assets the Government assessment as to what should be spent on local services. The Fixed assets held by the Council and amount provided by the ODPM is fixed used or consumed in the delivery of its at the beginning of each financial year. services.
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Address: Strategic Finance Milton Keynes Council Saxon Court 502 Avebury Boulevard Milton Keynes MK9 3HS
Telephone: 01908 691691
Fax: 01908 254427