SUMMARY/PURPOSE

1. This report sets out the Council’s accounts for 2005-06 which require approval on or before 30 June 2006, and which this Committee have delegated authority to approve.

BACKGROUND

2. The requirements with regard to approval of the Statement of Accounts by Members are set out in the Accounts and Audit Regulations 2003. One of the main requirements of the Regulations is that the accounts are approved by a non-executive committee or by the Council sitting as a whole, such approval to take place as soon as is reasonably practicable after the year end date, and in any event prior to the date specified in the Regulations. For the year ending 31 March 2006, and in all subsequent years, the date for approval is 30 June each year.

3. The Chief Financial Officer (CFO) retains ultimate responsibility for preparation of the Statement of Accounts, and is required to certify that the Statement presents fairly the financial position of the Council. The role of elected members in the process is to demonstrate ownership of the Statement of Accounts, and confidence in the CFO and the systems which are in place to maintain the accounting records and support the preparation of the Statement. The Accounts and Audit Regulations require that once the accounts have been approved, they should be signed and dated by the person presiding at the meeting at which approval was given in order to formally represent the completion of the Council’s approval process of the accounts.

4. To ensure that all local authority statements of account are presented on a consistent basis, and to reduce the likelihood of differences in accounting treatment, all local authorities compile their Statement of Accounts in accordance with the ‘CIPFA Code of Practice on Local Authority Accounting’ (ACOP). The Accounts and Audit Regulations require the Council to prepare its accounts each year in accordance with proper practices. For these purposes, proper practices includes the ACOP and other relevant Financial Reporting Standards and Codes of Practice which essentially means that compliance is mandatory.

5. The ACOP is a prescriptive document which specifies the format and content of the Statement of Accounts as well as accounting policies to be followed. In addition to the ACOP, local authorities are also required to comply with the Best Value Accounting Code of Practice (BVACOP). This Code of Practice prescribes the format and composition of services for reporting service expenditure on the Consolidated Revenue Account. The aim of this Code is to allow comparison of service expenditure and income between authorities and to aid production of financial information for inclusion in the Best Value Performance Plan.

6. Significant departures from the requirements of the ACOP or BVACOP are likely to result in a qualified audit opinion.

2005-06 STATEMENT OF ACCOUNTS - CONTENTS

7. The annual Statement of Accounts provides details of how the Council has performed in financial terms during the previous financial year. It also provides broad information on assets, liabilities and financial reserves at the year end date, notes on specific entries, details of potential significant future liabilities, and details with regard to the Council’s Pension Fund. As stated above, the Statement of Accounts is prepared in accordance with the requirements of the Code of Practice on Local Authority Accounting in the United Kingdom. Details of compliance with the ACOP are set out in the Statement on Accounting Policies. The full Statement of Accounts is attached at Appendix 4.

8. A review of the Council’s main financial activities during 2005-06 and its financial position as at 31^st March 2006 can be found in the explanatory foreword to the accounts.

9. The Consolidated Revenue Account (CRA) and Notes show the annual gross cost of operating all services of the Council, together with an analysis of grants and other income contributing to the costs of service provision. The format of the CRA is set out in accordance with the requirements of the ACOP and differs from the presentation used for internal reporting purposes. Net operating expenditure is not shown in the service/department format used in Appendix 1 but in a more functional service layout. Financing of net operating expenditure is also shown and displays a small General Fund deficit in the year.

10. For those authorities with responsibility for collecting Council Tax and Business Rates, a Collection Fund statement is required which shows income collected from Council Tax and Business Rates, and how that income was distributed for provision of services and payments to the National Business Rate Pool.

11. The Consolidated Balance Sheet and Notes outlines the assets and liabilities of the Council at the year end. The statement shows the fixed and current assets of the authority, current liabilities, longer term liabilities (principally long term borrowing and pension fund), and the reserves and balances at the Council’s disposal.

12. The Cash Flow Statement summarises the inflows and outflows of cash arising from transactions with third parties, and includes both revenue and capital transactions.

13. The Statement of Total Movements on Reserves draws together all of the gains, losses and movements in the year on the Council’s reserves, both revenue and capital.

14. The 2003 update of the ACOP required Group Accounts to be prepared where local authorities have interests in subsidiaries, associated companies and joint ventures which qualify for inclusion and that are material to the accounts in aggregate. Details of the Council’s interests in other entities are recorded in a note to the Consolidated Revenue Account. For this financial year there are no entities where the Council’s interest is such that it would require the preparation of Group Accounts.

15. Pension Fund Accounts must be prepared by those authorities responsible for administering pensions and investments. The Pension Fund Accounts summarise the income and expenditure transactions of the Fund in order to provide information about the financial position, performance and financial adaptability of the Fund.

16. The nature of the Statement of Accounts prescribed by the ACOP can make identification and understanding of the main issues difficult. In order to be of assistance, some of the main points of interest have been drawn together and summarised in Appendix 3.

2005-05 STATEMENT OF ACCOUNTS – ISSUES OF NOTE

17. Appendix 1 shows the summary outturn position for revenue at the year end, which is fairly close to that predicted at 31^st March. There is a net overspend on revenue account of £116,100, leaving a General Fund Balance of £1,938,500 at 31^st March 2006.

18. There have been a number of in-year pressures on the budget, including the following:

Ø Higher levels of homelessness than provided for in the budget, reflecting a national trend

Ø An overspend on Children’s Services mainland placements due in particular to one very expensive case

Ø A reduction in bereavement services income

Ø Increased medical fees within the Coroner’s budget

Ø Reduced Leisure Services income due to lack of an Easter holiday period in the financial year and adverse weather conditions

Ø Pressures on the highway maintenance budget

Ø Uncertainties over aspects of the car parking income budget have led to an under-recovery of income

Ø Use of planning consultants

19. These pressures have been managed in year as far as possible, and because of fortuitous savings on capital financing costs due to delays in capital projects and lower interest rates, the overall result is a small overspend of £116,100, even after allowing for a carryover of £355,900 to finance one-off items in the 2006-07 budget.

20. Appendix 1 also shows details of requested carry-overs to 2006-07. In some cases these cause service and/or directorate cash limits to be exceeded, and approval has only been given in the context of the overall budget position, and in particular linked to the corporate line taken on carry-over of deficits. The existing policy is that over-spending should fall to be met as a charge on the service budget in the following year, and without this requirement it would not be possible to provide year end flexibility to carry forward managed under-spends.

21. Given that policy, it is not suggested that those services with a structural shortfall predicted in the year, and provided for in the Medium Term Financial Plan, should be required to carry-over a deficit (Homelessness, Agency Placements, Bereavement Services). However, Directors have agreed to carry forward unplanned overspends as a charge against 2006-07 budgets, and that will have the effect of more than offsetting the reduction in the General Fund Balance in 2005-06.

22. Details of capital expenditure outturn are provided in Appendix 2. As expected, there was significant slippage on capital projects totalling some £6.9 millions, and commitments and resources have been carried forward to 2006-07 to allow projects to proceed as planned, wherever possible. One potential problem with the financing of capital expenditure is that commitments exceed available resources at present due to the relative absence of planned capital receipts from the disposal of assets surplus to requirements.

23. Capital expenditure relates to the creation of an asset with an expected useful life extending beyond one year. Expenditure on capital projects can be financed from a combination of loans, capital receipts, grants and contributions and revenue. Most capital investments tend to be funded from borrowing supported by the Government. At 31 March 2006 total net borrowing for capital investment amounted to £110.9 millions.

24. The ACOP and BVACOP state that we must reflect the cost of using assets in the provision of services to allow comparisons to be made. This is achieved by including capital charges (depreciation and a notional interest charge) within the net expenditure for each service area in the CRA. However, to the extent that these figures are to allow comparisons to be made, they don not impact on the Council Tax payer. The impact is neutralised by making adjustments in the Asset Management Revenue Account. This means that after adjustment the CRA is only charged with the true interest costs from external borrowing and the statutory minimum revenue provision for the repayment of debt. Note 8 to the CRA on page 15, relating to the Asset Management Revenue Account, shows figures relating to adjustments made to equalise the internal capital charge.

25. One of the most striking figures in the balance sheet is that for the Pensions Liability which amounts to some £151.3 millions. All entities which administer Pension Funds for their employees are required to prepare their accounts in accordance with Financial Reporting Standard (FRS) 17. This requires that the reporting entity (in this case the Council) recognises the assets and liabilities of the Fund based on an actuarial valuation. This has the result of producing a Pension Fund deficit because the actuarial liabilities extend beyond the scope of available assets. However, it is important to recognise that the actuarial liability does not need to be met within the next year, but over the working lifetime of scheme members. The Council is making increasing contributions to the Fund related to current employees, and has changed certain management practices in recent years to reduce the impact of early retirements on the Pension Fund. In addition, the operation of the Pension Fund is determined by Government legislation and the Department for Community and Local Government (formerly ODPM) is considering a range of measures which may impact on future membership of such schemes.

26. Members are aware of the requirement to include in the accounts a disclosure of ‘Related Party Transactions’. This requirement relates to the accounts of both public and private sector organisations, and the Council is obliged to disclose the nature of its relationship and transactions with ‘related parties’. In broad terms, the disclosure requirement is for the Council to identify where its members, officers, their families or members of the same household are in a position which may allow them to exercise influence over the financial or operational policies of the Council on behalf of a third party. Of the elected members of the Council, the large majority declared positions of interest with Parish or Town Councils, voluntary bodies or community forums. Four members returned relevant and material disclosures related to interests in other organisations.

CONSULTATION PROCESS

27. The Accounts and Audit Regulations 2003 require the Council’s accounts and accounting records to be available for inspection by members of the public for a period of 20 working days. This year the accounts and supporting records were open for inspection throughout the period from 5 June to 30 June.

28. In addition to the above, the Council now publishes an annual Summary of Accounts for Island residents which provides a much more concise picture of where the Council spent its money during the year, linking amounts spent to details of services provided. The first Summary of Accounts was published in early 2006 for the 2004-05 financial year; it is anticipated that the Summary of Accounts for 2005-06 will be available in October 2006, immediately after the audited accounts are available.

FINANCIAL IMPLICATIONS

29. The costs of producing the Council’s Statement of Accounts are mainly staff costs which are included within the approved budget.

LEGAL IMPLICATIONS

30. The Accounts and Audit Regulations 2003 require approval of the Statement of Accounts to be by the Council sitting as a whole, or by a committee with delegated powers to make such a decision. For the accounting period ending on 31 March 2006 the accounts must be approved on or before 30 June 2006.

31. The audit of the accounts is scheduled to commence during July 2006 and the Audit Commission expect to be able to issue their report before 30 September 2006, the statutory date for publication of the audited Statement of Accounts. As part of that process, the auditors are required to report relevant matters relating to the audit to those charged with governance under ISA 260 (International Standard on Auditing), which takes the place of the previous SAS 610 (Statement of Auditing Standards) report. The report of the Audit Commission will be presented to the Committee during September 2006, prior to issue of their report and certificate.

OPTIONS

1. The Committee is invited to note the contents of the report and to seek clarification of any issues arising there from. In particular the Committee is asked to approve the Statement of Accounts as signed off by the Chief Financial Officer, in accordance with the requirements of the Accounts and Audit Regulations 2003.

RECOMMENDATIONS

8. Option 1 – the recommendation ensures that the Council is able to meet the statutory deadline of having the Statement of Accounts approved by a non-executive committee of the Council on or before 30 June 2006.

BACKGROUND PAPERS

Account and Audit Regulations 2003

CIPFA Code of Practice on Local Authority Accounting

CIPFA Best Value Accounting Code of Practice

ADDITIONAL INFORMATION

None

APPENDICES ATTACHED

Appendix 1 – Summary Outturn Position for Revenue Account

Appendix 2 – Summary Outturn Position for Capital Account

Appendix 3 – Statement of Accounts – Points of Interest

Appendix 4 – Statement of Accounts 2005-06

Contact Point : Stuart Fraser, F 823657, email: [email protected]

PAUL WILKINSON

Assistant Chief Executive and Chief Financial Officer