MPA accounts for the year ended 31 March 2002

Report: 14
Date: 26 September 2002
By: Treasurer

Summary

This report presents the Authority’s draft set of accounts for 2001/02 which are subject to audit. The report identifies key features of the accounts and explains the structure of the statements. The accounts have been scrutinised by the Audit Panel at its meeting on 16 September 2002 and are forwarded to the full Authority for approval. The accounts now presented reflect the Panel’s comments.

A. Recommendation

The Authority is recommended to approve the draft statement of accounts 2001/02 for onward submission to the Authority’s external auditors.

B. Supporting information

Introduction

1. This report presents and comments on the Authority’s draft accounts for the year ended 31 March 2002. This is the second set of accounts produced by the MPA. The accounts published for 2000/01 covered the first nine months only of the Authority’s existence. The accounts for 2001/02 are therefore the first set relating to a full twelve month period.

Approval process

2. The Accounts and Audit Regulations 1996 require the Authority to approve the final accounts for the year ending 31 March by the following 30 September, prior to the external auditor providing his opinion. The draft accounts have been presented to the Audit Panel on 16 September for scrutiny and their comments are reflected in the draft accounts now before the Authority for approval, with the exception of further work required on the analysis of employees’ taxable remuneration (note 1 to the consolidated Revenue Account, page 12 of the accounts). A revised analysis will be despatched separately to members prior to the meeting.

3. The external auditor will then complete his audit and publish his annual audit letter and opinion on the accounts. His intention is to report this to the next meeting of the Audit Panel on 9 December.

Basis of the accounts

4. The accounts are compiled and presented in accordance with the Statement of Recommended Practice (SORP) – The Code of Practice on Local Authority Accounting published by the Chartered Institute of Public Finance and Accountancy (CIPFA), which has statutory force as representing proper accounting practice.

Outturn

5. The final revenue outturn for 2001/02 was reported to the Finance Committee on 11 July 2002. The outturn represents an underspending against budget of £8.8 million after making a number of accounting provisions and transfers to earmarked reserves as reported to the Finance Committee during the close-down process. The Committee agreed that the surplus should be added to the general reserve in order to restore it to its minimum policy level.

6. Since the outturn position was reported to the Finance Committee the Home Office has identified that it has overpaid grant to the Authority in 2001/02 in respect of its contribution towards the cost of the London pay lead. The overpayment amounts to £1.4 million and the accounts have been adjusted to reduce grant income by this amount. A corresponding reduction has been made in the provision for third party liabilities in order to maintain the bottom line surplus and therefore the approved transfer to the general reserve.

7. One issue has been raised by the external auditor which may have an impact on the reported outturn. This is being investigated and an oral update will be provided to the Panel.

Statement of accounts

8. The Statement of Accounts follows a format prescribed by the SORP. The following paragraphs provide a brief commentary on each of the sections of the statement.

Foreword

9. The foreword provides contextual information to assist the understanding of the accounts. In particular it refers to the budgetary setting within which the financial position reported in the accounts has been managed.

Audit opinion

10. This remains blank in the draft accounts awaiting the conclusion of the audit. Members will be aware that the auditor’s opinion on last year’s accounts was qualified because of the inadequacy of provisions for police pension liabilities and third party liabilities. Although the current set of accounts reflects significant improvement in both these areas it seems certain that the external auditor will qualify his opinion again.

Statement of responsibilities

11. This sets out the respective responsibilities of the Authority and the Treasurer in the production and approval of the final accounts.

Accounting policies

12. The accounting policies are largely determined by the SORP. Last year there were three areas where the policies were not compliant with the SORP. This year all the policies do accord with the Code’s requirements although their application may still not come up fully to expectations.

13. The policies in relation to provisions have been clarified. There is also a new policy to express the Authority’s compliance with FRS17 relating to disclosure of pension liabilities.

Consolidated revenue account
Notes to the revenue account

14. The revenue account summarises the Authority’s income and expenditure for the year 2001/02. The notes to the revenue account provide explanations of specific lines as well as additional information in accordance with the requirements of the Code. The revenue account should now be shown with the objective analysis in accordance with the Best Value Accounting Code of Practice as set out on page 11. However a corresponding analysis is not available for 2000/01 and therefore the previous presentation is also included at page 10. Particular caution should be exercised in looking at year-on-year comparisons because of the different periods covered, ie nine months in the 2000/01 accounts compared with twelve months in 2001/02.

15. The methodology for generating the Best Value accounting analysis will continue to be developed to ensure that the allocation of costs is sufficiently robust to provide the only published presentation of Metropolitan Police costs in the future. The implementation of activity based costing should provide an important underpinning for this analysis.

Balance sheet
Notes to the balance sheet

16. The balance sheet shows the financial position of the Authority as at 31 March 2002. Again the notes provide additional information as well as clarification of specific figures in the balance sheet.

17. The strength of the balance sheet, and therefore the financial resilience of the Authority, can be gauged from the extent of provisions and reserves. As at 31 March 2002 the total of provisions and usable reserves is £144.7 million compared with a total of £96.9 million a year previously. This improvement reflects particularly the strengthening of provisions and the restoration of the general reserve.

18. The note on police pension liabilities fulfills the requirements for the 2001/02 accounts to comply with FRS17. Hymans Robertson carried out the actuarial valuation which identifies a total accrued police pension liability at the balance sheet date of £8,750 million. From 2003/04 there will be full adoption of FRS17 and this liability will actually be shown on the face of the balance sheet with an offsetting reserve.

Statement of total movements in reserves

19. This statement provides detailed information on the Authority’s reserves. The accounting reserves reflect the requirements of the capital accounting arrangements and do not represent real resources. The usable capital reserves support the funding of the Authority’s five year capital programme. The earmarked revenue reserves relate to purposes which have been approved by the Finance Committee (or its predecessor).

Cash flow statement
Notes to the cash flow statement 

20. This statement summarises the inflows and outflows of cash arising from transactions with third parties.

C. Equality and diversity implications

None specific to this report identifying relevant issues.

D. Financial implications

None other than comments included in the report above.

E. Background papers

• Code of Practice on Local Authority Accounting in the United Kingdom 2000 - A Statement of Recommended Practice

F. Contact details

Report author: Peter Martin, Treasurer.

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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