MPA accounts for the year ended 31 March 2007

Report: 7
Date: 28 June 2007
By: Treasurer

Summary

This report presents the Authority’s draft set of accounts for 2006-07 (Appendix 1), which are subject to audit. The report identifies key features of the accounts and explains the structure of the statements. These accounts have been scrutinised by the Corporate Governance Committee at its meeting on 15 June and are forwarded to the full Authority for approval. The accounts now presented reflect the Corporate Governance Committee’s comments. To reduce printing costs the draft accounts are attached for members and relevant officers only. They can be viewed on the MPA’s website and are available on request from the contact shown at the end of the agenda. Copies will also be available at the meeting.

A. Recommendation

That members

1. Approve the draft statement of accounts 2006-07, subject to the new pension Fund Accounting Regulations being approved by Parliament, following review by the Corporate Governance Committee, for onward submission to the Authority’s external auditors, and
2. Agree the Treasurer be given delegated authority to make any minor amendments necessary to the draft accounts prior to finalisation of the audit.

B. Supporting information

Introduction

1. This report presents and comments on the Authority’s draft accounts for the year ended 31 March 2007. This is the seventh set of annual accounts produced by the MPA.

Approval process

2. The Accounts and Audit Regulations 2003 require the Authority to approve the final accounts for the year ending 31 March 2007 by the following 30 June, prior to the external auditor providing his opinion.

3. The draft accounts were presented to the Corporate Governance Committee on 15 June for scrutiny and their comments are reflected in the draft accounts now before the Authority for approval. In addition to commenting on the draft accounts the Corporate Governance Committee:

• wished the attention of the full Authority to be drawn to the Statement of Internal Control included within the draft Statement of Accounts (paragraph 12 below)
• endorsed the level of reserves held by the Authority, and
• wished the change in pension transactions for the new police pension fund to be reported to the Authority (paragraph 18 below).

4. A requirement under the regulations is for the accounts to be signed and dated by the chair of the committee at which that approval is given. This is the last scheduled meeting of the Authority before the statutory deadline.

5. The external auditor will then complete his audit, provide his audit opinion on the accounts and publish his annual audit letter. His audit letter will then need to be considered by this Committee by 31 December. Members will appreciate that, until the audit is completed, there remains the possibility that the accounts will have to be amended.

Basis of the accounts

6. 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

7. The provisional revenue outturn for 2006-07 was reported to the Co-ordination and Policing Committee on 7 June. A detailed report on the outturn will be considered at the July Finance Committee. The provisional outturn represents an underspending against budget of £5.1 million, after taking account of contributions to earmarked reserves (£23.473M). It was agreed that the residual underspend of £5.1 million, should be transferred to the General Reserve.

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 issued an unqualified opinion on last year’s accounts. In addition, there is a separate requirement for the Auditor to give a value for money conclusion, indicating whether the Authority has put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources.

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. It also contains my signed statement that the accounts present fairly the financial position of the MPA at 31 March 2007 and its income and expenditure for the reported accounting period.

Statement on the system of internal control

12. The Statement of Internal Control includes details of the system of internal control and risk management, the key controls and how effectively they are being deployed highlighting any significant internal control issues and the relevant actions being taken to address them. A MPS statement of internal control signed by the Commissioner backs the statement.

Accounting policies

13. The accounting policies accord with the requirements of the SORP.

Revenue Accounts

14. For 2006-07 there is a new format to the presentation of the Authority’s income and expenditure for the year. The consolidated revenue account, as presented in previous years, has been disaggregated into three separate accounts:

• the income and expenditure account summarises operating expenditure and funding. The statutory presentation, as required by the Best Value Accounting Code of Practice is an objective analysis of net expenditure by broad policing activity. The methodology for generating the Best Value accounting analysis is based on activity based costing methodology used to produce the Home Office return. Note 1 to the income and expenditure account shows a supplementary subjective analysis of net expenditure by input costs.
• the statement of the movement on the general fund balance summarises the accounting adjustments and movements in reserves
• the statement of total recognised gains and losses links the movement in net worth in the Balance Sheet with the Income and Expenditure Account surplus/deficit.

Balance sheet

15. The balance sheet shows the financial position of the Authority as at 31 March 2007.

16. ‘Police Officer Pension Liability’ and ‘Police Officer Pension Reserve’ reflect the full implementation of Financial Reporting Standard FRS17. The pension liability shows the underlying commitments that the Authority has in the long run to pay retirement benefits. Recognition of the total liability of £14.5 billion has a substantial impact on the net worth of the Authority as recorded in the balance sheet. However statutory arrangements for funding the deficit mean that the financial position of the Authority remains healthy because finance is only required to be raised to cover police pensions when they are actually paid. If the pension liability is excluded the Authority’s net worth would show a modest increase from £1.75 billion in 2005-06 to £1.76 billion in 2006-07.

17. Revenue Account pension arrangements have changed with effect from April 2006, with the risks associated with pensions in payment and lump sum volatility now lying with the Home Office through the new police pension fund.

18. The Home Office is currently consulting on the draft Police Pension Fund Regulations 2007. It is anticipated that these will be effective from July 2007 and will have a retrospective effect from 1 April 2006. The draft regulations, amongst other matters, specify the statutory transfers between the police fund and the new police pension fund. The essence of the regulation is that any year-end deficit or surplus on the police pension fund is transferred back to the police fund revenue account. There was a deficit of £25.3m that has been so transferred back. The Secretary of State is responsible for reimbursing year-end deficits and a Home Office debtor of £25.3m has been set up to recover this sum. The effect is therefore budget neutral. As the regulations are still draft, if there are any amendments which materially alter these assumptions they will be reported to the full Authority, but it will be appropriate at this stage to approve the accounts subject to the new pension Fund accounting Regulations being approved by Parliament.

19. Earmarked capital reserves have decreased from £8.7 million at 31 March 2006 to £4.9 million in 2007. The reduced balance reflects the release of C3i/Airwave capital reserve to support capital expenditure during the year.

20. Earmarked revenue reserves (excluding the Emergencies/Contingency Fund) total £75.2 million at 31 March 2007 compared with £85.0 million twelve months earlier. The decrease in reserve is mainly due to the following reasons: -

• The closing of the pensions reserve following the introduction of the new police pension financing arrangements, with the balance transferred to the General Reserve.
• Use of earmarked reserves during the year to fund specific expenditure

21. The General Reserve of £38.9 million is supported by another uncommitted reserve – the emergencies contingency reserve of £20.1 million– totalling £59 million at 31 March 2007, which is approaching 2% of net budgeted expenditure and within the stated reserves policy level.

Cash flow statement

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

Notes to the Financial Statements

23. Notes accompany these accounts to provide explanations of specific lines as well as additional information in accordance with the requirements of the Code.

24. A note on the Association of Chief Police Officers’ Terrorism and Allied Matters (ACPO TAM) funds, administered by the MPS on behalf of ACPO, is included. The income and expenditure related to this is not reflected in the accounts. This treatment is in line with the SORP requirements in relation to agency agreements.

General

25. It is necessary sometimes to make minor amendments to the draft accounts as part of the finalisation of the audit. It will assist the efficient handling of the audit if the Treasurer were given delegated authority to make any necessary minor amendments. Proposed significant changes, if any, would be reported to members.

C. Race and equality impact

None specific to this report.

D. Financial implications

None other than comments included in the report above.

D. Background papers

Code of Practice on Local Authority Accounting in the United Kingdom 2006 - A Statement of Recommended Practice

E. Contact details

Report author: Ken Hunt, Treasurer

For information contact:

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

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