MPA accounts for the year ended 31 March 2007

Report: 6
Date: 15 June 2007
By: Treasurer

Summary

This report presents the Authority’s draft set of accounts for 2006-07 (Appendix 1), which is subject to audit. The report identifies key features of the accounts and explains the structure of the statements. The accounts will be forwarded to the next full Authority with any comments from this committee.

A. Recommendation

That Members scrutinise the draft statement of accounts 2006-07 and agree any comments to be conveyed to the full Authority.

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. 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. The accounts will therefore be presented to the full meeting of the MPA on 28 June 2007, the last scheduled meeting before the statutory deadline. The role of this committee is to scrutinise the draft accounts and advise the Authority.

4. 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 may have to be amended.

Basis of the accounts

5. 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

6. The provisional revenue outturn for 2006-07 was reported to the Co-ordination and Policing Committee on 7 June. The provisional outturn represents an underspending against budget of £5.1 million, after taking account contributions to reserves. The transfers to reserves agreed at the Co-ordination and Policing Committee are:

• Motor Insurance £365,000
• Personal Insurance Indemnity £170,000
• IT related costs for Safer Neighbourhoods £2,500,000
• MetTime £3,600,000
• Metafor Project £630,000
• Airwave – Heathrow Terminal 5 £1,100,000
• MPA - £60,382
• Property – ESB Rent Free Period £1,000,000
• Property – Dilapidations £3,000,000
• Proceeds of Crime Act (POCA) carry forwards £8,876,737
• Purchase of vehicles £175,000
• MPA Projects £295,851
• Kickz £1,500,000
• Publicity carry forward £200,000

It was agreed that the residual underspend, £5.1 million, should be transferred to a budget resilience reserve.

Statement of accounts

7. 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

8. 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

9. 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.

10. 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. This Committee will be considering the contents of the Statement Internal Control as a separate agenda item at today’s meeting.

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.

15. Other changes to the revenue accounts are:

• Capital financing charges for the use of fixed assets are no longer made to service revenue accounts;
• government grants deferred are now credited to service revenue accounts, rather than being treated as a corporate item.

The effect of these changes is highlighted in the notes to the financial statements.

Balance sheet

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

17. The Authority’s debtors position increased by almost £17m to £153.9m, primarily the result of increases in the payments in advance (£33.2m), offset by a reduction in debts owed by government departments (£19.8m) and other local authority debts (£3.9m).

18. Creditors increased by £6.5m, due to increases in amounts owed by government departments (£2.1m), general creditors (£2.4m) and income received in advance (£2.0m).

19. Short term investments have reduced significantly during 2006-07, due to reserves being used to fund expenditure, and unfunded borrowing being used to finance capital expenditure. Long-term borrowing has reduced to £42.3m due to debt maturing this year.

20. ‘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 was only required to be raised to cover police pensions when they were 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.

21. Revenue Account pension arrangements have changed with effect from April 2006, with the risks associated with pensions and lump sum volatility now lying with the Home Office through the new police pension fund. Therefore, it is proposed the Authority’s balance sheet pension reserve is closed and the present balance of £5m transferred to the General Reserve. Any risks from unusual volatile discretionary pension payments are felt to be low risk and will be covered by the increased use of the General Reserve.

22. The Home Office is currently consulting on the draft Police Pension Fund Regulations 2007. It is hoped 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 alter these assumptions they will be reported to the full Authority.

23. Earmarked capital reserves have decreased from £87 million at 31 March 2006 to £4.9 million in 2007. The reduced balance reflects the fact that spending has increased on C3i/Airwave.

24. Earmarked revenue reserves are shown as £100.4 million at 31 March 2007 compared with £105.1 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 pension arrangements, with the balance transferred to the general reserve.
• Use of earmarked reserves during the year to fund specific expenditure.

25. The General Reserve of £33.8 million is supported by other uncommitted reserves – the emergencies contingency reserve of £20.1 million and the budget resilience reserve of £5.1 million – totalling £59 million, which is 2% of net budgeted expenditure.

Cash flow statement

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

Notes to the Financial Statements

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

28. For 2006-07 a new disclosure on gains and losses on the disposal of fixed assets is included within the notes to the accounts.

29. 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.

Police Pension Scheme Statements

30. The statements provide information on the accounting transactions of two pension schemes – the Police Pension Scheme, set up in 1987, and the New Police Pension Scheme, created by the Home Office under the Police Pension Regulations 2006.

C. Race and equality impact

None specific to this report.

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 2006 - A Statement of Recommended Practice

F. Contact details

Report author: Nick Kettle, Head of Safety and Health Risk Management, MPS.

For information contact:

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

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